Reality Sinks in at Online-Advertising Confab

Recession Could Lead to Business Failures, Irrational Risks

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NEW YORK ( -- For five years online was advertising's growth business, but 2008 delivered a wake-up call: Online advertising isn't immune to the recession, and it's only just begun.

24/7 Real Media chairman David Moore is worried about irrational marketers.
24/7 Real Media chairman David Moore is worried about irrational marketers.
That reality has clearly sunk in at the annual meeting of the Interactive Advertising Bureau, which brings together the nation's biggest online publishers. The confab is known for its optimists, but the prevailing notion is that, like in 2001, online media is fighting for its very existence.

"There are companies that are going to go out of business this year," said David Moore, chairman of WPP's 24/7 Real Media. "As the fight for digital dollars intensifies, I worry that people will do irrational things to gain market share."

By irrational, Mr. Moore was referring to unethical ad-sales techniques as ad networks get desperate, and pushing the boundaries on privacy, which would invite government regulation. "If we don't regulate our industry," said Scott Howe, Microsoft VP of advertising solutions, "the government will regulate it for us."

Yet five years after the internet bubble forced the online-advertising business to assess what it would take to become mature as a marketing medium, many of the same issues are no closer to resolution. Issues from data ownership to privacy to metrics to differing standards for ad insertion agreements are as far from resolved in 2008 as they were in 2001.

"It's like nothing's changed because no one has faced the fundamental issues to make this a viable marketing medium," said Richy Glassberg, senior VP at TV Guide Network, who helped create the IAB nearly 12 years ago. "The last five years there's been a growth curve and all of a sudden they're realizing this is an across-the-board downturn in every sector."

And at least one speaker suggested publishers face extinction if they think advertising is going to save them. Bob Carrigan, CEO of tech publisher IDG Communications, said he no longer sees traditional advertising as a growth business. Rather, his company is relying on lead generation and an ad agency-like "media services" division that creates custom websites and custom content to pay the bills.

"We love standard media and sell ads all the time," Mr. Carrigan said. "But we've seen a lot of companies become extinct or on their way to extinction because they protected their legacy businesses too much."

The reality for publishers is they're facing a flat market at best in 2009. Including search marketing, online ad spending will grow 4.3% in 2009, but display advertising will essentially be flat, growing slightly to $8.27 billion from $8.1 billion in 2008, according to Citibank internet analyst Mark Mahaney.

The good news, if there is any, is that Mr. Mahaney is expecting a 20% rebound in 2010, largely due to share shifting from newspapers, yellow pages, direct mail and local TV and radio.

And online, like every other medium, is fighting for its share of a shrinking pie. Total ad spending -- online and offline -- is expected to fall 7% in 2009.

"The challenge is, 'How do I increase my share of a flat market?'" said Mr. Moore. "People say flat is the new up, but display could well be down."

Publishers bemoaned that brand advertisers still see the web as a direct-response medium and aren't placing display budgets commensurate with the amount of time consumers spend with media. "Advertising simply cannot support all the media that's out there," Martha Stewart Living co-CEO and IAB Chairwoman Wenda Harris Millard said in her keynote address.

From the agency side, Robert Bagot, chief creative officer of McCann Erickson, San Francisco, said budgets spent on banner ads were "misappropriated for the first 10 years" and that his agency is "moving to a model to use the web for more interactive experiences."

Ms. Millard also criticized two high-profile appointments at two of the internet's biggest advertising companies: Microsoft and Yahoo. Microsoft appointed former Yahoo search technologist Qi Lu to head its online services group; Silicon Valley tech exec Carol Bartz is the new CEO of Yahoo, the largest publisher on the web.

"We shouldn't let marketing decisions be made by a technologist who has never met a CMO," she said. (Still, it could be posited that the biggest innovation in online marketing has been paid search, invented by technologists.)

While strapped publishers blamed ad networks for driving down ad rates, networks said they're better positioned as marketers demand more immediate, measurable returns on their marketing dollars.

Said PubMatic CEO Rajeev Goel: "Six months ago, companies were out building their brands, but now there is a different need in the marketplace."

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