In Q1 2008, with some trepidation, I started to write a blog on on-line advertising. What started as an occasional post is slowly morphing into a weekly post, and a few people even seem to read it regularly! And I am having a lot of fun in the process.
So, with even more trepidation, I am now taking a stab at making a few predictions for 2009.
- On-Line advertising will continue to grow in 2009, both in absolute $ terms and in terms of share (of media spend). In the last quarter, as sentiment about the economy and therefore advertising spend has turned negative, downward revisions about on-line advertising spend are wide-spread, with an occasional doomsday (i.e. 30% drop in on-line ad spend, similar to 2001) prediction. What these predictions fail to take into account is the fundamental shift that has already happened in media consumption – more than 20% of all time spent (on media) is now on-line (vs. 5 % of ad spend). For higher income and younger audiences, those numbers are even higher. This secular trend continues unabated and could even accelerate as consumer seek “cheap thrills”. As Jeremy Liew cogently articulates in this post (http://lsvp.wordpress.com/2008/12/11/consumer-internet-predictions-for-2009/), social media/networks and on-line gaming are likely to benefit from the recession (in terms of usage). Also, the traffic growth in international markets (especially Asia) will continue in 2009. As a result, I expect global on-line ad spend to grow by at 15 % + and to gain at least 1 percentage point in total share of media spend,in 2009. For more detailed spend forecasts, take a look at recent eMarketer forecasts for the US – http://seekingalpha.com/article/112156-some-predictions-for-online-advertising-in-2009
- Performance oriented advertising will see the most growth. Overall, advertisers will continue to shift spend to media where there is the most accountability and a clear ROI. In particular, I expect significant spend to shift on-line from newspapers and off-line direct marketing vehicles. As a result, both search and performance oriented display will benefit. At the same time, I do expect media prices to decline. In the case of search, the recession could drive reduced conversions which in turn could drive a reduction in the marginal pricing that advertisers are willing to pay for each click. In the case of display, there is an inventory surplus which could drive down prices. Also, there is a fundamental shift in value away from media owners to data owners that is underway (see below) and will impact pricing.
- Data driven display advertising (Display 3.0) will come of age in 2009. Historically, search advertising has been akin to a sniper approach (with advertisers buying users with a specific purchase intent) while display advertising (including performance oriented display) has been a shot gun approach where advertisers buy context or at best broad brush segments. This paradigm is beginning to change. In 2009, data driven display advertising (what I refer to as Display 3.0 in earlier posts – Display 3.0: What is it ? will be widely adopted by leading edge performance marketers (the early adopters). Specifically, dynamic ad serving (take a look at companies like Teracent and Tumri) will be widely used. In addition, leading edge advertisers will begin to buy media from exchanges (like Right Media and AdECN) on a fine grained basis (paying based on a profile or a specific behavior). As part of this shift, advertisers like Target and American Express will begin to combine internal (including off-line) data and segmentation models with 3P on-line data to deliver personalized ads; imagine Target combing your in-store purchase history with your Amecian Express card data and your search history to serve you personalized ads on-line. As a result, user data will begin to be bought and sold (akin to media), with large retailers, credit card companies and other data aggregators being big beneficiaries of this trend. Data exchanges like Blue Kai and start-ups who are able to capture user data and convert it into advertising related insights (see Data Liquidity for more thoughts on this front) will also see increased traction, and capture value at the expense of media owners.
- Portals (Yahoo, AOL, MSN) will see declines in CPMs, and possibly in absolute revenues. Mainstream advertisers will begin to question the price premium they pay for portals, especially as top tier ad networks offer compelling alternatives and data driven advertising takes off (see above). This coupled with the shift in consumer time spent to UGC content will be painful for portals. Expect to see major re-structuring at all three portals as they begin to respond to the downward spiral.
- On-line video advertising will continue to grow, while other emerging media will take a hit. Overall, on-line video will continue to grow (despite being brand focused) as advertisers look for alternatives to TV. However, pricing is likely to come under significant pressure. On the other hand, I think that the recession will negatively impact in-game advertising, mobile advertising, and advertising in applications like RockYou and Slide. This is in part due to both the pressure on experimental budgets and their focus on brand $. The possible exception to this could be mobile advertising in Europe, India and China where mobile phones are the “new PC”.
- Ad networks: survival of the fittest. The top 10 ad networks will benefit from the recession and grow at the expense of both other ad networks and the portals. In fact, I expect at least 1 ad network to declare its intent to go public in 2010, with others lining up to follow. Times will be tough for the rest. 100s of ad networks will die in 2009. For more details, read Ad Networks: Alive or Dead? and Follow up to Ad Networks: Dead or Alive ?
- Google emerges as a force in display. In 2009, Google’s investments in display will finally begin to bear fruit. The re-launch of the DoubleClick ad exchange, the scale up of Ad Manager (a free publisher ad server/revenue optimization tool), the launch of behavioral targeting and other display advertising related offerings will all come together in 2009. In addition, Google will benefit from the lack of competition – Microsoft’s on-line business, Yahoo and AOL will probably continue to be rudderless in 2009.
These trends will benefit some companies while disadvantaging others. I hope that you find ways to navigate through (and even benefit from) the turbulence. Let me know if you agree or disagree with these predictions (my e-mail is agarg(at)foundationcapital.com), or if there are other trends that you think I’ve missed.
Have a great 2009!