Now Mainstream, Up From the Muck
Just the other day I read yet another prediction that online ad spending is expected to rise in 2003. This one, from CMR intelligence, forecasts a 7.4 percent increase this year, even though overall ad spending only is predicted to rise just 3.3 percent.
I’m not sure where that 7.4 percent comes from, but the whole notion of ad spending forecasts is suspect.
Here is why.
Most analysts and pundits, by necessity, compare internet advertising to the prior year or years. But if you go back only a couple of years, you are dealing with vapor internet economics.
Dave Morgan, CEO of Tacoda, summarizes it best.
“If our industry were regulated like public companies, the industry would probably be required to restate its numbers for 1999 and 2000, just as the SEC requires of public companies when they discover that numbers reported earlier were wrong.”
“We would probably find that the online advertising numbers as reported for 1999 and 2000 were overstated by several billion dollars each year.”
As examples Morgan points out, we ought to deduct the “round-trip” deals by companies like CMGI, ICG, all of the portals, and others. Ditto for the phony e-commerce deals by AOL, Homestore and others, and the “guarantees” by ad networks and companies like AllAdvantage for ad deals that never happened but had to be paid to sites regardless.
They were certainly booked as revenue by the sites, but no advertising ran or was even sold. Look at the checks that were being cut every month by DoubleClick, Engage, 24/7, Phase2Media and Real Media.
Ditto to for the up-front cost-per-acquisition deals where revenue was booked in advance for money that would not or could not be received for many years. Check out the issues with L90 and the Securities and Exchange Commission.
The economic turndown not withstanding, using this inflated revenue bubble as a baseline puts our industry in a constant hole that seems impossible to crawl out of, sort of like the frog who can only jump halfway out of the well with each try. It gives the impression that we have not made substantial progress.
Yes, scores of ad-related internet firms have gone out of business. Some disappeared because they engaged in vaporware accounting, others because their VC money was spent on idiotic things like parties at baseball stadiums.
Others went out because they were simply in the wrong place at the wrong time or had a technology that couldn’t deliver on its promise.
But throughout the internet bust and the frighteningly weak economy, the internet advertising industry has innovated, changed, in some cases consolidated to emerge as a formidable medium capable now of delivering targeted audiences that far exceed the dreams of primetime TV, cable or magazines or newspapers.
While some sites and portals are successfully converting freeloaders into paying customers by charging for content, they still count on advertising to keep their businesses viable. And so they have done the things necessary to make certain that advertisers are successful on the internet.
Never before have ad units been more effective, and they are getting better all the time. Video commercials are being shot specifically for the internet and can load and play without downloads. Site publishers are now able to identify their audiences and segment them into groups of critical mass so that advertisers can target them more precisely than ever before.
The bottom line is just that, the bottom line, and it is getting better all the time. Just look at GM’s announcement that it will step up spending in “relationship” areas such as the internet. When the nation’s largest advertiser makes such a decision, others will surely listen and follow.
Just as there have been periods of failures and consolidation in every ad medium you can name, when it ended, the companies left standing grew to greatness.
We are no longer an alternative ad medium.
We are the best ad medium.
