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News of the Week: Online Down, Search Up

By - January 21, 2009

I’m in NYC in back to back to back meetings, but thought I’d note some news of the day.

My in box greeted me with this from Cowen Jim Friedland analyst this morning:

We are updating our U.S. online advertising industry projections to account for the weakening macro outlook. We expect the online ad market to shrink by 1% in 2009, compared to our prior projection of 3% growth; we are projecting paid search growth of 5% and an 8% decline in display advertising. Our estimates are based on the assumption of a 10% decline in the total U.S. ad market in 2009. We continue to believe that search will eventually account for 10-15% of total ad budgets (up from 5% in 2008) and that Google will continue to gain share. Although upward number revisions are unlikely in the near term, we believe that Google is attractively valued based on our downside scenario of 0% revenue growth in 2009.

We expect online advertising to account for 9.6% of total ad budgets in 2009, up from 8.7% in 2008. The one consistent message we are hearing from our industry checks is that advertisers are shifting spending to search at the expense of traditional media (we have also heard that display ad budgets are being shifted to search in the weak macro environment). We expect this trend to continue, regardless of how much the overall advertising pie shrinks in 2009, given the higher returns generated by search compared to other media.

We continue to believe that search will eventually account for 10-15% global ad budgets, up from 4-5% today. We expect online advertising to eventually account for 25% of the total U.S. ad market, which is the level achieved by the television ad market at maturity. Paid search accounts for 60% of online ad spending, and we expect the ratio to hold, or increase, given that search offers higher returns than display ads; 25% x 60% = 15% target share.

In other words, it’s all going to hell, but folks will push money to search, because search performs. I think this misses the way media markets work, which is to say, one can only harvest so much demand, before one needs to create it, and to create it, you need to build brands. And to do that, you need to figure out how to engage with potential customers online. More on that when I’m not traveling.


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5 thoughts on “News of the Week: Online Down, Search Up

  1. Kamal Jain says:

    John, in theory you both could be right. You are saying that the article misses the mark but the author does not realize that harvesting demand requires creating it first.

    But what the author is saying is completely orthogonal. Performance is one thing which decides buying decision. But the price you pay is usually decided by the competition. Search is controlled by a very small set of companies (you could count the number of popular search engines on your hand), but the display is controlled by millions of companies (even your body hairs won’t suffice to count the number of wbesites show display advertising). So display would be cheap to buy.

    So whatever display advertising advertisers need to create demand could be cheaply bought. Whereas whatever search advertising advertisers need to harvest that demand would be expensive.

    So in some sense you and the author of the article are not really contradicting, but talking about two orthogonal things. One is talking about the revenue, and the other is talking about the utility, both are only weakly related.

  2. Bob Lewis says:

    1. I in no way mean to disparage an analyst, but I always wonder what the customers of the analyst are thinking, after they have committed x amount of dollars to a marketing campaign based on the analysts earlier advise, when they publish what they politely call an update.
    2. As to the word eventually which is often used by analyst; eventually we all die!
    3. Advertising is in trouble! This is not 1958. I am not sitting in front of a TV watching Howdy Doodie, playing with my cap gun, and hanging on the words of every advertisement they throw at me. Every advertisement I see now is almost like a personal affront to my right to privacy!
    4. PCWorld Magazine is going to be Interesting to watch. Their Magazine sales are down almost 50% and they have to convert to the Internet. hmmm, won’t this be Interesting. Their whole business model is based on print and monthly or weekly editions, display ads, and a sales force, etc. Almost sounds primitive doesn’t it.
    5. If I was an Analyst, and I would tell my loyal followers to, spend money on SEO, Blog often, and at the end of the day, Organic listings are what matter. We ask homeowners every month where they search for contractors and how, and they overwhelming tell us if they click on the paid searches, they feel like it will cost automatically cost them money! Go figure.
    6. I look at Remarkable presentations! They give me more confidence in the company and the product. When people ask me, a question they engage me right away. I love talking and thinking about me. It’s always been my favorite subject, especially if you have benefits for me! I don’t look for anything until I need it! But when I do you had better be right in front of me, or you lose every time. Being Memorable in this crazy world is getting very hard to do. Being available, findable, believable, accountable, and recognizable, are still do-able, if you’re Truly Remarkable!
    7. As always your Post make me Think about You! Aren’t You the Smart One!

  3. Guy Hill says:

    >> but I always wonder what the customers of the analyst are thinking, after they have committed x amount of dollars to a marketing campaign based on the analysts earlier advise, when they publish what they politely call an update.

    Who uses analyst data to make their ad decisions? I assume someone must, and I roll my eyes at that idea.

    The reason search gains ground despite a troubled economy is that you can “fine tune” to performance, where you cannot in display. It’s performance. And thinking about analyst comments… if you campaigns are tanking, but the analyst said it was a good year, would you keep spending anyway? And conversely, if the analyst said things were terrible, but your campaigns continue to improve, would you let that report influence your spending???

    >> the display is controlled by millions of companies (even your body hairs won’t suffice to count the number of websites show display advertising). So display would be cheap to buy.

    That is an interesting take, but if I follow the logic, if it’s not terribly effective, but inexpensive, you have to buy more. If you just buy more, you just beat on the consumer more, and they become more blind as you further saturate their attention… so cost savings will make more things work, but create a lot more waste along with it.

    >> one can only harvest so much demand, before one needs to create it, and to create it, you need to build brands.

    Or… you can go after additional customer segments in the same way you’re going after who you target now. This is how a lot of “brand-less” companies use search to drive more and more sales over time.

  4. nmw says:

    Live is a cool brand. Fresh, up to date — and since it’s a keyword people search for, it works according to the Wisdom of the Language: http://gaggle.info/miscellaneous/articles/wisdom-of-the-language

    :) nmw

  5. Kamal Jain says:

    Guy Hill, you just completed the problem cycle display business is going through. I have done a lot more analysis of the situation but not yet ready for sharing with the public.