If that could be seen as a positive in a year of difficult sledding, the terrorist attacks earlier this month have thrown the industry into further uncertainty. That's an unfortunate by-product the industry seemed willing to absorb so it could play a key communications role as the tragedy unfolded.
The IAB numbers, which were tallied by PricewaterhouseCoopers, showed a 7.8% decline, from $4.08 billion to $3.76 billion, during the first six months of the year. Certainly, those numbers are a far cry from the double-digit growth that once typified the industry. However, as IAB President-CEO Robin Webster noted, the number is still in line with decreases in other media as reported earlier this month by Taylor Nelson Sofres' CMR. That data, which tallied a larger decline in online spending of 10%, reported larger declines in some media. While network TV declined by only 1.2%, national spot radio fell by 22.4%.
The drop between the first quarters of 2000 and 2001, as compared with the second quarters of those two years, was quite different, beginning to show how the April 2000 slump in the Nasdaq began to immediately affect online advertising. First-quarter ad spending declined 3.1% year on year; but second-quarter spending declined by 11.8% (see chart).
The first-half IAB data began to hint at shifts in how online ad dollars are being spent, and how advertisers are structuring their deals. Classified revenue increased to 15% of the total from 5% a year ago, growing from $204 million during the first six months of last year to $564 million this year. The share of advertising banners on the Web declined from 51% to 36%, while other forms, such as sponsorships, maintained a stable share of the overall market.
And, in a surprising note given the emphasis many marketers are currently placing on advertising return on investment, the study showed the cost-per-thousand users model was re-emerging as the dominant way which advertisers pay for ads. Ms. Webster attributed it to the industry's emphasis on pulling in branding dollars "that use more of a CPM model."
But the industry now faces more uncertainty in the wake of the attacks earlier this month. Ms. Webster admitted there could be a Net ad slowdown as advertisers adapt to a "new sensitivity." Most sites fell right in line with their broadcast TV brethren in eschewing some prominent advertising placements right after the attacks. For instance, Yahoo!, the third-most-visited site in August according to Jupiter Media Metrix, pulled advertising from its home page for an entire week, except for running a substantial number of pro bono ads from the American Red Cross and others that became key donation links for people who wanted to contribute to charity (see story on P. 24).
Microsoft Corp.'s MSN also pulled its home page ads and as of Sept. 19, more than a week after the attacks, was still devoting most of the page to links devoted to the ongoing situation. While such a move is necessary on the part of all major sites, it will affect different properties in different ways.
Microsoft, which donated $10 million in cash and in kind to the disaster relief and recovery efforts, can easily take a financial hit on online advertising. But other companies, such as Yahoo!, found themselves obligated to serve a crucial communications role at a time when they sorely need to pull in revenue. Yahoo!, which relies on advertising for most of its revenue, saw it decline to $182.2 million in the second quarter of 2001 from $272.9 million in the same period a year earlier.
The economic impact on the Web of the pullbacks is difficult to ascertain. As of Sept. 20, no prominent Net media companies had adjusted their third-quarter earnings estimates.
Viacom-backed CBS MarketWatch, operated by MarketWatch.com, joined competitors in pulling ads immediately from most of its site after the attacks. It reinstated most ads Sept. 16 but kept ads off of its heavily trafficked home page after the market closed Sept. 17 so that the site could handle the traffic expected during the market's first day of reopening. Based on the site's second-quarter ad revenue of $4.9 million, the site stood to lose more than $300,000 for the decision to pull ads. But, according to spokesman Dan Silmore, the company, as with many competitors, knew there was no other decision to make. Not only were there the issues of taste, but also sites wanted to make their content as easy to download as possible during a time of crisis. "[We hope] that our investors and the market will understand" any third-quarter revenue shortfalls, Mr. Silmore said last week. (The stock late last week traded below $2, down just slightly from before the attacks.)
Some analysts think the economic impact of the lost Net ad revenue in the days after the devastating attacks could be minimal. "Sites have so much available inventory it's not an issue," said Jim Nail, senior analyst at Forrester Research. Mr. Nail expressed more concern about how the attacks' effect on the economy as a whole would be a further setback to the industry's recovery. "I think it's going to be worse because marketers are still uncertain whether online advertising works or not," he said.