Problems and Possibilities in 2008

US media companies are starting 2008 facing a US advertising slow-down and a writer’s strike crippling television – a scary start to the year. In 2008, more people are spending more time online on many more sites than ever before. To reach those consumers and to help those consumers find more relevant content, vertical ad/content networks will proliferate. In fact, specialty vertical ad networks have the possibility of being the sort of compelling, creative, low risk value ad for media companies to offer their advertisers – a bright spot in a dismal landscape.


The highlights of 2007 included the rise and criticism of Facebook and the continued expansion of Web 2.0/conversational marketing. In addition, the collapse of the sub-prime mortgage market rippled across all industries resulting in this week’s acquisition of Countrywide (the nation’s 4th largest online advertiser) by Bank of America. As 2008 starts, we’re faced with the US screenwriter’s strike, the most expensive US presidential campaign in history, and the upcoming Beijing Olympics – three seminal events in US online advertising which still comprises the majority of online advertising spending.





Harris Interactive estimates that 79% of US adults use the Internet resulting in 178 million adult US Internet users. In Europe, there are 169 million adult internet users in Western Europe (Data is from the European Interactive Advertising Association (EIAA) "Mediascope Europe Study 2007," managed by SPA and conducted by Synovate).


This widespread use of the Internet creates new opportunities and challenges for advertisers and the folks who sell to them (agencies and media companies). Consumers increasingly spend more and more of their time outside the top 20 domains that are the easiest for advertisers to buy and media companies to sell.


Advertisers like the visibility, metrics and rapid improvement possible with online advertising and all signals are that online advertising will continue to grow in 2008 and take spend away from more traditional media. Piper Jaffray released an estimate last week of 20% growth in digital advertising in 2008 on top of a $16B 2007. eMarketer estimated that 2007 online advertising was $21B, equal to 7.4% of all media spending with expected growth to 9.3% of total media spending and $27.5B in 2008 (see Online Advertising on a Rocket Ride).





Although most advertisers are embracing online advertising, the Advertisers don’t like the lack of security around what content will be next to their advertising or the difficulties in finding their customers online. Advertisers have confidence that if they buy advertising directly on a site, they will know the quality of the content and control their placement on the site. However, there just isn’t enough traffic staying on the largest sites as Internet users visit more and more sites with content highly specialized to their interests.


This combination of trends – increased Internet use, more web sites visited, and increasing advertising budgets - raises the inevitable question – “where will that digital advertising budget be spent?”. It is widely agreed that 50% of advertisers’ online advertising budgets will be spent on search and contextual advertising, predominantly of text. That leaves $13.5B or (30% growth) in advertising to be spent with growing interest from brand versus direct response advertising.

Where will that extra 30% be spent? Here are several things to think about:

• Premium sites cannot raise prices 30% nor is their traffic growing at 30%, so alone, they cannot capture this new share.




• Performance ad networks – networks that monetize unsold/remnant ad space mostly on larger sites on a performance basis either from clicks or actions – often with the same users and same sites in their networks . Also, they do not offer the visibility or control required by brand advertisers. Regardless, those networks will continue to get a portion of the spend to increase reach and lower effective CPM.




• Behavioral networks offer advertisers more control over the audience who will see the message – increasing the accuracy of the reach – but often the ads are placed on large sites and ad networks. Advertisers will increase their use of behavioral networks to target their customer across many sites.

Historically, major media companies have offered advertisers quality content selection and premium advertising placement. Given the various trends that we’ve discussed, how will major media companies keep pace with the growth of online advertising spending and increase (or even maintain) their value to advertisers? We think that when major media companies need to increase their reach many of them will use premium vertical ad networks selected by their editors and aligned with their online properties.





These networks will enable media companies to offer advertisers high quality content and premium placement with significant reach and engagement. Savvy entrepreneurs who understand valuable content segments will grow their reach and offer advertisers high quality, topical collections of sites where their brand will be embraced and where they can engage the audience. Compelling advertising on these networks is extremely effective for branding.


As we look into our crystal ball for 2008, we definitely think that 1) there will be more premium vertical ad networks and 2) those vertical ad networks will be key for brand advertisers and their agencies looking to engage consumers online.

Posted on January 15, 2008 2:40 PM | Permalink | Comments (0)