30 thoughts on “Will The Ad Slowdown Reach The Web?”

  1. Om,

    As you’ve suggested, this is rather tricky. On the one hand, online advertising is getting more popular with adveritsers because of the potential reach, targeted/contextual ads, and increasing number of potential customers online.

    On the other hand, the major online advertisers (finance/autos) are most hurting right now. In fact, I recently read that regulators are looking into potentially misleading online ads by mortgage companies which may hurt them further.

    The big boys are now looking at generating revenue with exclusive partnerships with major social networking sites (Google with MySpace, Microsoft with Facebook etc). Let’s see how these strategies play out!

  2. I personally hope all ads slow down to the point of non-existent.

    I am one of many growing consumers who simply refuse to buy anything from the company that has its ads inconveniently placed all throughout the web.

    I hope the money waisted on such ads bring the companies more into the red and force them all out of business. Perhaps then ads will begin to vanish. Ideally, however doubtfully. As it’s not gonna work perfectly and there will still be the gullibles out there willing to give into the advertisements. and for that reason the pig will keep getting fatter and fatter, as consumers are plagued more and more by the pig’s ads.

  3. Uh, Om? You kind of lost credibility when the first line of your post said:

    “The housing boom hasn’t turned into a bust quite yet, but it is losing steam fast.”

    Gee, I’d hate to see what a real “bust” looks like……..


  4. A world without advertising….get real. If you’ve managed to build and sustain a business without advertising then kudos to you.

  5. Alfred,

    If you think about how this situation has played out so far, it is a slow motion decline. The bust part comes where there are foreclosures on people’s properties and that sort of stuff.

    Sure speculators have taken a hit, but the housing prices haven’t nosedived. Similarly, the worst in terms of industry lay-offs etc is still ahead of us.

    So no, its not a classic bust situation. Bust was 2001 and 2002 in the Valley.

    Of course we can choose to disagree about “bust” semantics.

  6. Ah how the worm turns. All those venture capital backed web 2.0’ers whose revenue model was a single word – advertising – may be in for a “model modification” exercise…

  7. small businesses can be built by good customer service, quality products, good prices, and good word of mouth.

    there’s plenty of small businesses that do just that. are they a walmart, no, but the hell with walmart. I rather spend an extra few dollars to support the independently owned then the corporations of the world.

  8. Advertising has historically morphed into new forms as consumer behavior has changed and as mediums for advertising have evolved. It’s no surprise that the Internet ad spend is growing as the outlets for that advertising both expand beyond the major sites and become more targeted. I think what will be most interesting is how ‘traditional’ online advertising continues to more and flirt with becoming the content.

  9. “AOL is buying Tacoda to get more targeted and boost its CPMs, but the problem of too many destinations for too few dollars remains.”

    Om – I politely suggest that it seems you do not believe there’s power in the “long tail.”

    If so, what if you could introduce greater efficiency and transparency by aggregating these “too many destinations” and bundle it for advertisers? How about considering looking at exchanges? … it benefits advertisers and publishers. Yeah, yeah, I’m shilling to a degree (ContextWeb has the ADSDAQ premium inventory exchange). But, as you know, there has been a lot of interest and notable acquisitions in the exchange space recently: Yahoo and RightMedia; Google and Doubleclick’s Adx exchange; and Microsoft and AdECN.

    There are and will be plenty of ad dollars out there for the right strategy. Exchanges will have their say I believe.


  10. John

    Thanks for your comments. Well you got it right – long tail is something that works if you happen to be the distributor with lots of tails.

    Regardless, your exchange example is a good extension to what I was saying: more efficiency in the market, and dollars spent wisely and more efficiently. When that happens, the “fat belly” web efforts start to make a lot of sense and get better value.

    By the way, it be great to get an extended version of your thesis.

  11. I have been wondering for some time now if the CPM model is slowly degrading to a point where it is not a useful metric anymore. Perhaps it is time to use different metrics (pull instead of push?) that will more accurately depict the effectiveness of advertisement. I think there is a lot of weariness out there when confronted wth unwanted advertisement. But a business without it won’t be sustainable I guess. Would be kinda fun though to involve the community and see what type of advertisement they would like, instead of enforcing it via all sorts of new technologies (pre/post video etc.)

  12. I think that parts of the decline in traditional, offline advertising is because of online advertising.
    Advertising dollars move from offline to online.

    It’s just natural that companies start to use more online advertising over for example print media advertising, as they can measure their success and target the ads much better than in print media.

    So, although the total advertising market is declining, I don’t think this will reach the internet anytime soon, but it will reach traditional media even harder.

  13. I launched my site StyleDiary.net at a time when nobody – and I mean nobody – was advertising online at all. We had just all come off the big bust in web 1.0 and nobody was spending money online (or anywhere for that matter), and it was nearly seven or eight months later that MySpace was bought and advertisers started coming around. What that meant for me as a CEO was to create a revenue model that wasn’t based entirely on ad sales. It was just a lucky break that the industry took a turn and advertisers started pumping money back into the internet market.

    But even today, we compete with ad networks, there is a lot of confusion among advertisers on what works and where, and a lot of misunderstanding and misguidance on what constitutes a solid media property, so making money is still very hard. In reality, the internet media platforms and social networks really aren’t that much different than traditional media (niche magazines have smaller circulation, are more targeted, others are larger, etc.) but we are a LONG way away before anybody in any aspect of the business starts to realize it and apply the old rules from before. It’s unfortunate, but reality. Smart players will develop other means of revenue, period. We just launched our marketplace component (www.lookshoplist.com) for this reason. It has always, since 2004, been in our revenue model. We have only just started building it right now.

    I think we should expect internet ad revenue to slow because now the new thing is mobile. I suspect it’ll be a good few years before things die down on the development/evolution side of the web to where we can find concrete ways to make and spend money in the business element.

    Just my .2

  14. and to add… I also think there’s going to be a big, big and probably rude awakening when analytics improve. Right now, very few people realize traffic can be – and is – bought, pumping numbers but not really giving much substance. I also think we’re going to find that lots of social networking and social media sites aren’t as big as originally thought. The fact that marketers and advertisers (and some media and bloggers) still look to Alexa for numbers says it all.

  15. Take a look at today’s WSJ to see more about what I posted above. Front and center there is the story about MTV’s new series “The Gamekillers” being a venue that really pushes product marketing as part of the programming content. The down cycle in traditional advertising is being driven somewhat by the move to make traditional ads look more like programming. Just rent movie from before 1994 and try to find product placement; then rent one from 2006 or 2007 and try to avoid one. Coke is it and its also part of the story.

  16. Ads are good. “Unlikesociety” – if it wasn’t for ads, you couldn’t afford to consume any content at all. Ads make media affordable. The whole reason there is content is to place ads around and within it. You’d have to pay to read free blogs and pay to log onto MySpace without ads. Everything would be subscription like HBO. So, numbnuts, think about the value an ad gives you, even when you ignore. It’s call subsidized content consumption. If the ads go, so does content production.

  17. So we’re heading back to another bust, and again everyone will say all these sites didn’t have real business models, and the subscription-based services will be back in vogue among investors.

  18. There is a circular component to Internet advertising that will send ad revenues south in a hurry, just as it drove the 2.0 boom upward. Ad supported sites spend money on ads, and they buy IT goods and services from companies who buy advertising from them. “Real” dollars coming in from non-ad supported businesses get amplified by investment dollars. This snowball will go just as fast in the reverse direction.

  19. Om,

    I agree with your observations, but using TNS data about online advertising — see footnote 5 below in larger type — is like looking at TV advertising data excluding cable and satellite. Quick, name the largest and fastest growing online ad unit? Paid search (likely $13 billion in 2007 in the U.S.). Name the fastest growing unit? Video.

    Footnote from TNS Chart:
    5. Internet figures do not include paid search or broadband video advertising.

    Keep up the great work at GigOm — I enjoy reading your observations.


  20. Interesting post, and interesting comments.

    Since our company (Zillow.com) is right at the center of both of these issues — declining home prices and the online advertising environment — I felt compelled to comment.

    Our “Zindex” (the median Zestimate, or our estimate of a home’s value) for the nation was down about 3% last quarter versus the year before. So our data shows that housing prices aren’t cratering the way the mainstream media would have you believe, but they’re certainly declining. And of course some areas (e.g., FL, CA, AZ) are much worse than others.

    Regarding the alleged slowdown in online advertising for real estate and financial services companies… Obviously this is something that we think about a lot at Zillow, since it’s how we make our money. I can tell you that so far we haven’t found this to be the case at all. Of course some of the mortgage lead gen companies and many of the subprime lenders are facing tough times, most advertisers are doing fine. In fact many companies are using this opportunity to INCREASE their ad spend to steal share.

    I’ve read every piece of research on this topic that I can get my hands on, and the most thoughtful piece I’ve seen was written by Brian Pitz and Brian Fitzgerald, equity research analysts at Bank of America. Dated 9/11/07, their piece was titled “Is There an Online Financial Services Ad Slowdown?” They answered their own question with this:
    “We see few signs of online advertising weakness in Q3 to date.”

    They go on to say: “Our research suggests online financial services advertising is intact… An analysis of third-party data and channel checks reveals that online financial
    services advertising growth remains strong, despite recent subprime and housing
    concerns…We believe competition among
    mortgage companies is increasing as more lenders focus on retail mortgage and
    agency eligible loans. This, coupled with higher measurability and targeting
    capabilities (relative to offline media), could increase demand for CPM and CPC
    based online advertising, we believe.”

    [Unfortunately I can’t upload their report to this comment, but if anyone wants a copy, just email me at spencer AT zillow dot com.]

    In fact there’s a case to be made that online media properties like Zillow should welcome this type of shock to the system, since it will likely accelerate the online migration of advertising dollars.

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