Web advertising says goodbye to glory days

Growth in online advertising largely ground to a halt in the final months of last year in major markets like the US and Britain, according to several reports published last week.

Now even the Internet is heading into recession. Growth in online advertising largely ground to a halt in the final months of last year in major markets like the US and Britain, according to several reports published last week. And forecasters say it may have gone into reverse since then, as the economic downturn has deepened and marketers have continued to pare their budgets.

In the US, online ad spending eked out only a tiny gain in the fourth quarter, rising to $6.1 billion from $6 billion a year earlier, according to the Interactive Advertising Bureau.

In Britain, which is seen as a bellwether because nearly one-fifth of ad spending there occurs online, Internet advertising actually fell slightly in the second half of the year, according to the British Internet Advertising Bureau.

Aside from a slow quarter here and there, Internet advertising previously had not declined outright since the dot-com bust, when the business was in its infancy.

Ok, the current slowdown hardly constitutes a bust, at least not yet. And the outlook for the Web still isn’t as dire as it is for traditional media.

GroupM, the media buying division of the advertising company WPP Group, said last week that it expected ad spending on the Internet to rise by 6.7% globally this year. That compares with an expected 4.4% plunge in overall ad spending.

But a lot of the growth on the Internet is expected to occur in relatively underdeveloped markets, which are playing catch-up with more digitally advanced countries such as Britain. There, said Adam Smith, the London-based futures director at GroupM, online ad spending is likely to be flat, at best, this year.

And he sees no return to the spending increases of 30% or more that were the norm a few years back.

This wasn’t how things were supposed to play out. When the recession began, many experts said the economic crisis would accelerate a shift to the Internet, as cost-conscious marketing managers looked for measurable results. On the Internet, after all, it is easy to track which ads generate clicks and which don’t. Some advertising executives say that shift is indeed under way.

“What you see in every recession is some kind of discontinuity in marketing behaviour, and this time will be no different,” said Jerry Buhlmann, chief executive of the media-buying arm of Aegis Group, a marketing company based in London. As more and more ad campaigns include search advertising, social networking and other online components, spending will accelerate, he said.
But Smith said the very effectiveness of Internet advertising was keeping spending in check. In a slack market, advertisers have more places to turn, and that puts downward pressure on prices.

“We’re finding better and better ways of doing it for less and less money,” Smith said. “If Google gets too expensive, then we do something different.”

Of course, Google Inc. is still doing fine, and search advertising continues to gain. In the second half of 2008, nearly 60% of online ad spending in Britain went to search engines, and spending on search continued to rise slightly, according to the Internet Advertising Bureau’s report. In the US, search also gained market share, according to the US trade group.

But in the tail end of last year, display advertisements, classifieds and other kinds of Internet advertising—the kind sold by mere mortal companies, rather than Google—declined at rates comparable to those for traditional advertising, according to the British report

The Internet, in other words, is looking more like a mature advertising medium—kind of like television, magazines or newspapers. Welcome to the club.

Eric Pfanner