5 Online Ad Spend Trends

Behind eMarketer’s updated US online ad spending estimates are a plethora of intertwined forces, both cyclical and structural.

The main cyclical force is the recession and its impact on both consumers and companies. However, the economic cycle has reached bottom — at least for the online ad industry. Recovery will be slow, though, which will suppress spending on key ad formats such as search, banners, and classified ads.

The main structural force is the move toward more non-advertising marketing. That is particularly true in the online space, where marketers are focusing more on social media and building up their Websites or brand microsites. For that reason, the spending numbers alone can be misleading because they fail to capture the full extent of online marketing’s growth.

The five prime trends that support eMarketer’s ad spending estimates are:

• Diverse Internet advertising. In eMarketer’s bottom-up model for Internet ad spending estimates, which develops the total from its constituent parts, the recession and ongoing structural changes are creating varying spending patterns for the individual elements. For example, while we project paid search spending to rise by 2.2% in 2009, classified ads will be down by 30.2%. And while classifieds are typically unsung, they represent the third-largest online ad format. Video is the only ad format that will get double-digit growth this year, at 40.2%, as brand advertisers look for effective ways to get out their message on the Web.
• Branding shortfalls. Based on Advertising Age’s annual “100 Leading National Advertisers” report, with data compiled by TNS Media Intelligence, only 25.7% of online display dollars in 2008 came from the country’s largest advertisers, down from 29.3% in 2007. That means the top 100 put 5.9% of their total measured media ad budgets into display ads in 2008, a tiny amount relative to the potential impact of these “rich” advertisers.
• Pricing trends. The largest share of online ad spending comes from direct marketing methods, specifically search and classifieds. That trend is reflected in the shift from CPM pricing — which is normally how brand advertising such as banners, rich media and video is sold — to performance pricing. Based on user actions, such as clicks, performance-priced ads usually cost less than CPM ads.
• Ad networks. Another factor to consider is the spread of ad networks, which nearly always reduce CPM pricing significantly compared with direct sales by Web publishers. A key reason behind ad network expansion is the corresponding rise of online advertising inventory — more Websites, more pages, more traffic.
• Publisher revenues. While Google’s US net revenues in the first three quarters of 2009 were up by 4.3% year over year, Yahoo’s plummeted by 13.2% and AOL dropped by 11.8% in the same period. When you consider that 71% of total Internet revenues in the first half of 2009 came from only 10 Websites, spending losses among even only a few major sites can significantly shape the big picture.