Online Advertising Still Strong So Let’s Stay Reasonable

We have rarely heard any actually optimistic news recently due to the economic turmoil we are now in so it is refreshing to see some positive piece of news for a change. The news is IAB (Interactive Advertising Bureau) and PricewaterhouseCoopers report on the state of online advertising in the US during the first half of 2008.

The results of the industry are very inspiring: internet advertising grew by 15.2% compared to the same period of 2007 and achieved $11.5 billion. Growth in the second quarter of the year slowed down a bit compared to the first quarter but still rather strong: it still increased by 12.8% versus the same period of 2007.

Search advertising accounted for the largest portion of revenue in the industry - it reached $5.1 billion which is 24 per cent higher than it was a year ago. Display advertising revenue also had a comparable growth level - 19% which brought the revenue to $3.2 billion. Video advertising category is still small compared to the first two huge categories ($345 million) but it jumped from only $100 million in the same time of 2007 which means that video advertising more than tripled already.

And of course no one can help but raise a question of what we should expect in the next 6 months given the constantly worsening economic conditions and the panic in all the industries. On Monday I raised a question of how afraid we should be that ad-supported internet businesses will all go bankrupt because of the pending collapse of internet advertising economy everyone is predicting these days. In that post I quoted a few examples from the Great Depression of the 1930s which seemed to be a solid proof of the fact that advertising is actually one of the most important measures companies rely on to keep their businesses afloat during unstable times.

We are yet to see who will predict the truth - optimists or pessimists - but of course everyone is asking questions now that the report is here and the main question is if we should expect to see growth slowed down or even replaced with decline. It is quite hard to predict anything just yet with everyone giving up to the general hysteria everywhere and market driven mainly by fear instead of common sense but I will still prefer to hope it will be better than the majority of pessimists prefer to predict for now.

At least there is a strong reason why internet advertising is very likely to draw advertisers from traditional media in the financial crisis environment. President and CEO of IAB Randall Rothenberg has formulated the biggest advantage of online advertising like this:

Compared to the trajectory in other media and in the general economy, interactive has outperformed because it delivers a level of accountability unmatched by any other advertising medium.

This accountability will probably play the key role in advertisers making their choice now that they need to make as risk-free buying decisions as possible. This will result in both advertisers shifting from older platforms like TV or radio online whenever it is suitable for their brands and it will also change the structure of online advertising industry itself.

For example, I believe that we will see further growth of the number of deals that are related to performance. In the first half of 2008 52% of all advertising deals were performance related which is 2% higher than it was at the same period of 2007 when half of all deals was linked to results. This is definitely the figure that we will see growing steadily (or maybe even rapidly) in the second half of 2008 when advertisers want to spend their money wisely and seeing exactly what they pay for - like clicks and sales versus eyeballs and brand loyalty.

The full report is available here (pdf) should you want more information.