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.