Advertising is the first expense to be cut in an economic downturn. This spells trouble for businesses with an advertising revenue model. But, does everyone lose? No. There will be some winners. Every business needs to focus on increasing revenue and that means they need to advertise...effectively.
TechMeme headlines lots of gloom and doom stories on the decline in advertising. Despite all the negative talk, Online display advertising revenues should actually be up slightly for the year. Search CPC advertising continues to grow, and should be up in 2009. PaidContent cites a JP Morgan analyst who predicts; display ads will be up 6% in 2009, while search advertising will grow 17% in the U.S. and 34% globally.
So, we need to look deeper to the various forms of advertising to see who will win and lose.
Search Advertising is cost effective for e-commerce or transaction oriented businesses. CPC means the advertiser only pays if someone clicks on their ad, making it a very cost effective way to acquire customers or get to a sales transaction. More ad dollars are moving towards this model. A recession actually makes CPC more appealing.
TV advertising for brand awareness is still the most effective and far reaching medium. The biggest advertisers in the world are CPG (Consumer Packaged Goods) companies like Proctor & Gamble and consumer brand companies. They don't sell directly over the web, and they don't sell direct to consumers. They sell through retailers. So, they advertise for brand awareness. They want enormous reach and repetition. TV advertising does a better job of building emotional ties to a brand and conveying brand identity. TV also provides the huge audience advertisers crave. There are well established measurement systems for TV advertising, even though they seem crude compared to direct response CPC advertising.
Who wins? For transaction oriented e-commerce companies, Search is the clear winner. For brand awareness advertisers TV is still the best choice.
Who loses? Newspapers are once again getting killed. Only coupon supplements have a direct impact on purchases. Online display ads are losing out to search advertising. Newer forms of advertising like mobile and online video will struggle in this environment. Social networks/content sites already have the lowest CPM rates and will likely decline even further. Other forms of advertising and promotion like trade shows, conferences, and give-aways are likely to see big cuts.
This is a tough economic environment, and will be for another year or so. But, advertising mediums that deliver customers in a measurable way will do well.