Comments for Report: Slowing Economy Finally Catches Up to Online Ads

Report: Slowing Economy Finally Catches Up to Online Ads

2008-05-13T17:59:42Z

"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 fare 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.

Comment from Josh Catone on 2008-05-13

2008-05-13T23:55:01Z

@Jon: Thanks. Fixed the mistake.

Comment from Jon on 2008-05-13

2008-05-13T22:59:30Z

Interesting stuff that I really don't understand either.
Not to pick nits, but "generally fair well" should be "generally fare well"... English is tricky, huh...

Comment from Ben Nevile on 2008-05-13

2008-05-13T22:09:39Z

eCPM is a fundamentally flawed way to measure the health of web advertising. If pageviews-per-user go up, as they well might in a year when people have en masse migrated their web life to compelling social web utilities such as Facebook, eCPM should decrease by the same amount.

Comment from Evan Moore on 2008-05-13

2008-05-13T19:37:22Z

I think looking at the eCPM is an ineffective measure of the recession's effect on online marketing spends because it fails to take into account the volume of money being spent. In my experience the higher percentage of our inventory that we fill the lower the eCPM we fill it at.

When companies are experiencing growth, like most online media companies are, upper management becomes aggressive with sales goals and sales managers become more lenient with value adds and discounts to make said goals. The end result is a greater amount of revenue at a lower eCPM. So this price drop might actually be reinforcing the idea that a larger part of advertising budgets are flowing into digital.

Comment from kevindwhite on 2008-05-13

2008-05-13T18:27:48Z

If this is in fact evidence that a general economic slowdown is effecting online ads then an explanation of why small sites are moving in the opposite direction is very important.

Comment from Sebastien Page on 2008-05-13

2008-05-13T18:25:18Z

Interesting to see that ads on smaller websites are going up...