It Is Darwinism in Online Advertising, Not Decline

There was an interesting discussion yesterday about the prospects of online advertising on All Things Digital by Peter Kafka. He was talking about analysts and industry players projecting the future of online advertising in the current economic crisis. There were a few forecasts mentioned that he used to jump to rather pessimistic conclusions.

First of all, it was J.P. Morgan internet analyst Imran Khan reducing his projections for online advertising growth in 2009 - from 19% in the September projection to 13% this time. The analyst mentions the ideas that everyone seems to agree with anyway - that the spending on search advertising will grow while the display ad spending will probably shrink instead (with both CPMs lowering and fill rates worsening for publishers).

The second is the report from The Rubicon Project, a company that optimizes advertising displayed by publishers to make sure that the best paying network is served at any given moment. At the AdTech conference in New York yesterday the company reported that in the last quarter the average price of an online ad dropped 11% compared to the second quarter. But the overall tone of the report was actually rather positive as the report also included the information on impressive growth for websites belonging to certain verticals - news and reference sites enjoyed an impressive growth of prices by 36%. What’s more, the report itself was actually aptly named “The Sky Is Not Falling on Online Ad Industry” and I think Mathew Ingram is right speaking about the overall flight to quality that we are witnessing where the best content (meaning the content that people are interested in consuming) will be generating revenues for publishers while those producing content in verticals that don’t have enough consumer demand will see decline in their earnings.

And finally, there is a gloomy prediction by Gawker Media owner Nick Denton (Gawker Media is probably the most successful blogs network when it comes to business - he runs blogs like Gizmodo and Valleywag) as he said that everyone should be prepared for online advertising to drop drastically by 40% next year.

I have told it before and I will continue to stick to my position: compared to traditional media advertising online advertising will do pretty well as marketers will be looking for better measurability in the ads they use to promote their brands. And that will obviously mean that advertising dollars will move from pricy TV ads, for example, to the internet. So maybe this recession will simply serve to make the entire online advertising market healthier by only keeping those publishers that are certain their content is worth advertising on and advertisers will also learn to spend reasonably calculating ROI and watching click through rates closer.

So my main question is why people constantly speak about some decrease, decline and dropping for online advertising when we are still talking about growth most of the time everywhere (well, not when it comes to Nick Denton but he is famous for his pessimistic approach to business). Yes, it is still growth - even if it is not as rapid as we hoped it to be.

As for Nick Denton, I can’t help but wonder if he thinks that all the blogs competing with those belonging to Gawker Media will go out of business after his doom and gloom prediction and he will have no one to compete with - leaving all the ad revenue that remains all to himself and his blogs. This could be a viable business model these days - make sure all your competitors are scared to death because of the economic turmoil and don’t expect anything good in the business, and you are all alone to grab all the money that still remains.

Of course it is quite understandable that the volumes of content and impressions multitude of publishers generate are growing much faster than the amounts advertisers are willing to pay to place their ads alongside this content and these impressions. So maybe the recession could do us all something good by getting some of the most scared publishers out of business to keep the number of impressions healthy and better comparable to the available advertising budgets. And we will only have the publishers knowing how to produce good content still in the business while everyone else quits.

So I think the situation in online ad-supported media websites is very similar to what we are seeing with startups: while some people are very worried about layoffs in this or that startup, many bloggers (and startup owners as well) prefer to think about these startups as finally learning to optimize their operations and to keep costs at a level that is actually needed than at what they think they can afford with millions in VC funding backing them. Am I the only one thinking we will be witnessing Darwin’s Theory of Evolution in action everywhere - be it strongest startups surviving or online advertising growing healthier?

Image by kevindooley used under Creative Commons