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Economic Downturn Will Not Hit Online Ad Spending

9:59 pm on Nov 15, 2007 (gmt 0)

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A new report from Sanford C. Bernstein Research claims to provide more evidence of online advertisingís resilience in the face of an economic downturn, which the investment bank considers increasingly likely. Though Bernsteinís analysis, titled Advertising in a Time of Economic Downturn, doesnít foresee any major fall-out akin to what occurred when the dot com bubble burst after 2000, Yahoo and AOL are viewed as particularly vulnerable. Overall, the relative weakness that could afflict Yahoo and AOL are part of what Bernstein sees as a competitive pattern emerging among the major online players that will only become more pronounced if a full-blown recession comes to pass:

Economic Downturn Will Not Hit Online Ad Spending [nytimes.com]

10:50 pm on Nov 15, 2007 (gmt 0)

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I like how the dot.com URL in the article goes to a parking page!
10:55 pm on Nov 15, 2007 (gmt 0)

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Online ad spending growth may slow on anything that doesn't show a good ROI but an economic downturn will result in less money being spent on online advertising that if there was no economic downturn.
4:06 am on Nov 16, 2007 (gmt 0)

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Knowing consumers are spending less time in the malls and more time online, it's probably money well spent. ROI's for offline ad spending have been heading downward for years. Not only has some of the ad space become ridiculously expensive, people are walking into their spare bedroom, sitting down at the computer and ordering that book or gadget online vs. getting in the car and driving to the mall. Rising gas prices has helped to fuel this increasing consumer behavior.
1:20 pm on Nov 16, 2007 (gmt 0)

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None of us need reminding that the American (in particular) and Global economies are rather unstable at present. The man on the street knows it as well, and that's more of a problem than the actual economic difficulties.

Whilst we have upbeat predictions about online ad-spend remaining high, that didn't happen in the previous mini-burst. Advertising cuts killed Gen I at the end of the day to the extent that many big names died out or were unable to sustain their bloated infrastructures.

You have to look at the bigger picture; with tightening belts cable TV will go first, with the internet and online shopping, long before the car which enables offline shopping.

Offline advertising contracts are generally contracts and signed up for long periods and in advance with agencies and prebooked in media. They can't be cut quick, but online advertising spends can.

Once the online ads get cut as a quick cashflow fix, the company isn't then going to terminate offline ads and reintroduce online ads due to slightly better performance due to the risk associated and the money invested in offline campaigns.

A large chunk of e-commerce still caters for the non-necessity market. Far more is spent on MP3 players and the like online than is spent on bread, rice and potatoes. This too means that all belt-tightening has a disproportionate effect online.

Companies know that whatever happens, if they can keep their product on the highstreets then 99% of their customers can get there and buy. That's an assurance that the internet cannot give in a worst come to the worst situation.

2:03 pm on Nov 16, 2007 (gmt 0)

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Consider, though, that each year the web's share of the advertising pie continues to grow. If that trend continues, it works to mitigate the effect of the whole pie shrinking (total ad budgets being cut) in an economic downturn.

I wouldn't compare today's economic situation with that of the previous recession. That time, it was caused by our sector, that is, technology and dot com. This time, it's caused by financials. Does that matter? I think it does.


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