Dan Glavin's Official Blog

The IAB released today a report done in conjunction with PWC on the state of online advertising.  The analysis shows a 5.8% decline in money spent on digital advertising comaparing the first 5 months of 2009 to the same period in 2008.  Clearly this is not a big surprise seeing as how we are in the midst of one of the worst economic climates of all time.  However what the headlines do not show nor is the media speaking about is the details associated with the numbers.  So the data:

In the first 6 months of 08 digital ad revenues were 11.51B dollars.  In 2009 10.9 or a 5.3% decline.  However look at the details:

Here we seee across the board declines except in 2 areas: Search and Video.  Display got absolutely killed.  -40M overall which is clearly buoyed by the 132M lift in Video (which frankly should be its own category rahter than lumped into display). -24M in banners (should be more and will once advertsiers figure out how uselss those ads are), -102 in rich media (thank god, I am done looking at those damn lower my bills ads with the dancing girls),  So take out video and display took a beating to the tune of 126M dollars.  Sure not a huge number when you consider there is still 3.8B dollars in that market but clearly its sinking.  Don’t even get me started on the rest.  I mean classified?  Really?  Why is anyon even doing sponsorships anymore?  Lead Gen is most likely impacted from the drop out of car buyers since the lead gen biz is driven in a big way by OEMs and dealers.  With email I am surprised it is not more.  The only email marketing that works is targeted opt in email lists from blogs and sites like this one. 

That leaves search and video.   So while the ad market lost .6B dollars in revenue advertsiers still sunk more money into search (84M) and Video (132M)  With video my assumption here is that since this is more of an upcoming form of media that advertsiers are jumping all over it to see how it converts for them.  I can tell you from my experience though that video is still a wide open playing field where nothing is really known yet about how to properly monetize it.  Hell even Google is still tying to figure out how to make money off YouTube. So that leaves search.  84M more dollars to search (most of it to Google I am sure).  This is directly in line with my theory that within 3 years the ad market will be entirely performance based.   With a targeted form of advertsing like search why would anyone buy CPM based inventory with little to no insights into who is viewing the ad.  Sure there is behavioral targeting but really can we trust those targets?  Do they convert?  I say not really.

There is a reason Microsoft is pumping 3% of revenue into search.  This place is not exactly the cutting edge online but these folks aren’t stupid.  They see the potential for the search market and how much more it has to grow.  In the current climate to garner an 84M lift in what is considered a mature market is amazing. Still not convinced in the power of search? Take a look at this:

103M more dollars into performance based advertising and a 691M drop in CPM!  .7B dollars, yes billion.  In my working experience I can tell you that more and more advertisers still want branding via display type ads but they no longer want to pay for eyeballs.  They want click and conversions.  Hmmmm, what does that sound like?  SEARCH!  The additional 19M dollars life in performance here is likely due to this shift.  This is a serious movement of money into straight up targets and as imprortant, measurable advertsing.  Just like the American consumer who is being more careful with his dollar, so are advertisers being careful with how they allocate marketing dollars.  Data from TNS shows more money shifting from traditional forms of advertising (TV, radio etc) to digital and this data clearly shows that money is flowing into performance-based advertising.  So what does all this mean?  Well for one, Yahoo! would have been wise to hang on to seach a bit tigher than they did.  Basing a business off display advertising didn’t make sense 3 years ago and it really doens’t now.  AOL is done.  Yes thats it, done.  And that leaves Google and Microsoft in a steel cage death match for search. 

For us affiliate marketers this data has meaning as well.  That is that search is going to get more expensive and fast.  As more and more dollars are funneled into keyword markets you can expect minimum bid prices to continue to rise.  Esecially for us little guys.  The top 25 advertisers saw increases in their share of the ad market but the top 50 showed a decline.   So that means as you go down the list you will see massive declines in spend but that will not keep.  As this nightmare economy recovers, resets, whatever you want to call it, expect to see more small and medium advertsiers get back to competing for listings thus driving up the price for the valuable keywords affiliate marketers use.  Bottom line is that this game will be getting higher and higher barriers to entry.  Now is the calm which makes it an ideal time to grow spend in search before we are all priced out of the market.  The other point here, kill the banner.  It doesn’t work, never did, and is going extinct.  Full report here.