Online Ad Slowdown Looms (Businessweek)

Online Ad Slowdown Looms
The financial crisis on Wall Street will spill over into the world of online advertising as banks and brokerage firms cut spending
Internet September 23, 2008, 12:01AM EST

Online marketers are converging on New York for the ad industry's annual conference, where they'll hold discussions on everything from tracking online brand buzz to using humor to lure a Web-surfing audience. But perhaps the most pressing topic for attendees of the Advertising Week V conference in Manhattan is the financial crisis gripping Wall Street and what it means for their business, especially on the Web.
Companies dependent on Internet-based advertising are bracing for a slowdown as financial-service companies cut ad budgets. "The first six months of the next year will be slow," says Russell Fradin, president of Adify, a company that helps firms set up online advertising networks.
When budgets are tight, advertisers tend to look for proven methods, such as ads placed alongside a Google (GOOG) or Yahoo (YHOO) search, and place less empasis on experimental venues, such as social networks, experts say. "Mobile and social networks will be hit," Fradin says. It's harder to prove that ads placed on a social network or embedded in a video are effective in luring Web surfers to a site or enticing them to make a purchase. Matt Sanchez, CEO of online video advertising network Video Egg, says he expects growth to slow in the coming 12 months. He expects that some smaller, less well-funded video ad and ad targeting firms will have difficulty sustaining their businesses. "The next 12 months will be tough," he says.
"Real Measurement" of Ad Spending
Even before the financial market malaise took a turn for the worse with the bankruptcy of Lehman Brothers, Bank of America's (BAC) purchase of Merrill Lynch (MER), and the government bailout of AIG (AIG), researchers were cutting back online advertising forecasts. In August, research firm eMarketer cut projections for Internet ad spending this year to $24.9 billion, the second revision of estimates first released in October. The firm expects Internet advertising growth to slow to 17.4% this year fom 25.6% in 2007. Next year, growth will slow even more, to 14.5%. "Online advertising will not grow as fast because of the economic problems," eMarketer senior analyst David Hallerman says.
Even as some financial-services companies, including AIG, have cut back on or pulled television ads, some in the sector have stepped up campaigns in recent weeks to quell concerns they're burdened with bad debt or are otherwise at risk, Hallerman adds.
Some major brands are also likely to deal with the dour economic outlook by increasing spending in highly measurable online areas that are tied directly to sales, such as search ads. The expectation is that search advertising won't suffer as much as so-called display advertising, which includes banner ads emblazoned on a page. This form of advertising is often designed to increase brand awareness or change perceptions, rather than drive sales directly. "In difficult economic times, marketers and advertisers want to have real measurement of the dollars they are spending," says David Doty, senior vice-president of marketing at the Interactive Advertising Bureau.
Executives at Unilever (UN), one of the most active online marketing brands, say they will not cut back on online spending, even with such new ad formats as Web video and online games. "We are not pulling in the reins at all," says Keith Bobier, Unilever's senior director of marketing. "There is nothing experimental about this for us."
But the feeling among many Web advertising firms is that Unilever is the exception to the rule. Many other marketers still see portions of their online ad budgets as "experimental." "If a certain kind of spending hasn't been in your [advertising] budget for three straight years, you'll likely cut it when things get tougher," says Adify's Fradin. "Anyone who is new will have slow growth."
Holahan is a writer for BusinessWeek.com in New York. With Heather Green in New York
http://www.businessweek.com/technology/content/sep2008/tc20080922_251923.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis




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