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May 13, 2008

Report: Slowing Economy Finally Catches Up to Online Ads

Report: Slowing Economy Finally Catches Up to Online Ads

"The Internet is recession proof," is a sentiment we've heard trumpeted over and over and over again the past year. However, guest author Llew Claasen argued on this blog in February that paid search ads specifically are actually not recession proof, and a new report out today appears to confirm that a broad economic slowdown in the United States is starting to negatively effect the online ad industry.

The argument that online ads will generally fair well in a recession usually goes something like this: online advertising cheaper than traditional print and television advertising and offers far more accurate ROI measurement, so when budgets are squeezed, Internet advertising will look more attractive. "The thing we could well see is, a recession could expedite the shift from traditional spending to digital spending," said Jeremy Wright, global director of mobile brand strategy at Nokia Interactive, at Ad:Tech last month.

But a new report from PubMatic appears to indicate otherwise. Their May AdPrice Index, which was prepared by independent statisticians Dr. Albert Madansky and Dr. Michele Madansky, indicates that ad prices are starting to drop.

The report found that ad prices (based on effective CPMs) in April across all sites fell an average of 23%. This was most acutely felt by large sites (over 100 million page views per month), led by social networking sites, which saw eCPMs plummet 47% from March to April. Medium-sized web site monetization was essentially flat, while small sites (less than 1 million page views per month) saw modest gains month-over-month.

Social networking eCPMs sit at 19 cents, according to the AdPrice Index report, below January lows of 22 cents. The technology sector was basically flat from month-to-month, but still well off beginning of the year highs.

This all could indicate that a general US economic downturn is starting to be felt on the web. While the study didn't look specifically at search ads -- which analysts have said would be the last to feel the pain of a recession -- and it didn't differentiate between display and text ads, or between eCPMs from ad network to ad network, it is a general indicator of a slow down in the online ad market. Granted, this is only a couple of months of data, so it would be hard to create concrete trend predictions from it.

PubMatic's AdPrice Index is made up of over 3,000 web sites, about 85% of which are based in the US.

Ed: Small sample. Need to wait for data from larger companies.

Why Online Ads Are Getting Ever Cheaper

Prices in the online advertising's world bargain bin are cratering. PubMatic, a consultancy which helps Web-site owners shop for the highest-paying ads, says that average rates for its largest publishers have dropped from $0.38 per thousand page views to $0.18. Some fret that this is the sign of an economic slowdown. I doubt it. More likely, it's a reflection of the glut of inventory available, and the failure of an ad-selling business model.

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