Web Ad Growth Falls Off -- and So Do the Salaries

Recession to Result in Less of a Talent Crunch and Leaner Paychecks

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NEW YORK (AdAge.com) -- The $23 billion online ad market is slowing down, and so is the once white-hot market for online-ad talent.

Five years of double-digit growth fueled a scramble for talent unseen since the last boom, as hundreds of ad networks and venture-funded start-ups competed with the portals, agencies and marketers to hire anyone who knew -- or agreed to learn -- how to sell or buy and online advertising.
Michael Lebowitz, founder of Big Spaceship
Michael Lebowitz, founder of Big Spaceship

But that market has cooled considerably in the past month. Start-ups such as AdBrite, Heavy.com, Imeem and Zillow kicked off what appears to be industrywide belt-tightening. Last week Yahoo announced it will cut its payroll 10%, or about 1,500 employees.

In August, the number of workers employed by internet-media companies and portals reached 82,000, its biggest tally since 2001. But given that the subprime-mortgage debacle sent the stock market off a cliff, the latest Interactive Advertising Bureau statistics show that online advertising stalled in the second quarter.

While few predict the overall online ad market will contract, executives are expecting some relief from the talent shortage that has plagued the industry in the past few years. That means less cutthroat competition for new hires, more job hopping among established pros and lower salaries. "I do expect it to be easier to recruit and hire people in this industry," said Lynda Clarizio, president of AOL's Platform-A.

With online advertising growing at a double-digit rate, the number of ad networks, publishers, social networks and other start-ups seeking slices of the advertising dollar expanded at a breathtaking rate. The sheer number of new outlets added complexity to a process that was already much more labor-intensive than TV, radio or newspapers.

Crowded field
Case in point: The market now includes more than 300 ad networks, giving rise to yet another layer of start-ups (PubMatic, Rubicon Project) to manage ad network relationships.

None of this has made the buying and selling of online ads any easier or less labor-intensive. Bant Breen, president-digital for Initiative, said he figures it takes 2.5 times as many people to execute a digital-marketing campaign as a traditional-media campaign. "The average buyer has between 150 and 175 people calling on them looking for a piece of their budget," said 24/7 Real Media Chairman David Moore.

To handle demand and added complexity, agencies instituted training programs to convert traditional-media buyers to digital. Salaries for account execs ballooned from the $150,000 range to $300,000 in some cases. The market looked so good it attracted refugees from mortgage banking and finance, who filled training programs, many on their own dime.

"They knew selling but didn't know online selling," said Leslie Laredo, president and founder of Laredo Group, which offers courses on online advertising. "They would be in our classes because the ad networks and portals needed feet on the street, and warm bodies are warm bodies."

Indeed, as fast as dollars have shifted online, they might have flowed even faster had there been more talent to sell it, according to Bank of America advertising analyst Brian Pitz. It's also a reason why spending online remains concentrated among the top sites and portals rather than following consumers to niche sites.

Mediocrity pains
The talent squeeze on the creative side meant some pretty dismal online ad campaigns in the past few years that helped drive down ad rates. "All this money was pouring into digital, and there weren't enough people to do it. That led to mediocrity, and mediocrity didn't help the market at large," said Michael Lebowitz, founder of digital creative agency Big Spaceship.

"A slowdown of cash and slowdown in the need for talent will give this industry a bit of space to breathe; too much too fast is bad for a company and bad for an industry," he said.

A downturn is likely to trigger movement among the top stars in online advertising, particularly when their employers start to struggle. Those with stock-based compensation won't see that as an incentive to hang around publicly traded web and media companies trading at a fraction of their values of a year ago. "It's obvious we prefer to hire during the downturn," said video-ad network BrightRoll CEO Tod Sacerdoti. "What's more interesting is the superstars tend to get dislodged during these times."

Aside from the burst of another asset bubble, there are few similarities between the internet bust of 2000 and the slowdown occurring today. First, most believe we're looking at a few years of single-digit growth, not negative growth, as occurred between 2000 and 2002. In 2000, online advertising was still experimental for most marketers; today it's part of the mainstream.

Indeed, unlike in 2000, agencies are unlikely to cut any online staff and likely will use the downturn to fill or upgrade positions. "The talent war on the agency side will be as intense as ever," said Interactive Advertising Bureau Chairman Wenda Harris Millard. "I don't think there is any agency who won't tell you that they are still starved for interactive talent."

Since there is growth left, companies will be looking to grow -- and to hire -- through the downturn. And for the first time in five years, there may be bargains. AOL's Platform-A is hiring salespeople, as is Initiative, which has doubled the size of its digital staff in the past year.
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