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Summary:

The housing boom hasn’t turned into a bust quite yet, but it is losing steam fast. In the meantime, the impact of the credit crunch is being felt in other areas of the U.S. economy, including advertising. A new report released today by TNS Media Intelligence […]

The housing boom hasn’t turned into a bust quite yet, but it is losing steam fast. In the meantime, the impact of the credit crunch is being felt in other areas of the U.S. economy, including advertising. A new report released today by TNS Media Intelligence shows that overall spending on advertising declined for the second quarter in a row.

“For the first time since 2001, media advertising expenditures have declined for two consecutive quarters,” said Steven Fredericks, president and CEO of TNS Media Intelligence. “Given the uncertainties about near-term economic growth and consumer spending, we expect core ad spending will continue to face challenges during the second half of the year.”

But the effect is far from uniform. The slowdown is having its biggest impact on traditional media — especially print — while Internet advertising is rising. Online advertising (not including search and online video ads) was up 17.7 percent during the first half of 2007.

Still, take the good news with a pinch of salt.

The two sectors that are being impacted the most by the overall economic uncertainty are automobiles and housing, both big spenders online. According to Nielsen/NetRatings, the top advertisers in the month of July were all related to the housing-mortgage business: Low Rate Source, NexTag, Experian (EXPGY), Countrywide Financial (CFC) and IAC (IACI), parent company of big-spending Lending Tree. Anne Zelenka and Silicon Alley Insider have written about the impact of this sector’s changing fortunes.

It is only a matter of time before the slowdown starts to impact some of the larger web players that depend on online advertising. As housing sales stall, that sector’s companies (including financial services firms) will slash their budgets to get in sync with market demand, which means fewer dollars for not just print and broadcast but Internet advertising as well. And those dollars will be have to be shared across many different properties — a risky scenario for some of the larger web companies.

Unlike in the late 1990s, when the online advertising options were limited to Yahoo (YHOO), AOL (TWX) and a handful of others, the market today is surfeit with Internet destinations. Social networks and social media sites are creating inventory at a rapid clip, and are one of the main reasons why the CPMs (cost per 1000 impressions) have stalled. (That is the real reason why AOL’s revenue numbers blew up recently.)

Dave Morgan, chairman of online advertising firm Tacoda, brought up this issue in back in August.

…many advertisers and agencies are now shifting their display ad buys from higher-priced contextual pages on branded destination sites to much lower-priced inventory aggregated by networks and targeted to users on social networks, small, “long tail” sites, and on non-contextual pages of larger web sites.

AOL is buying Tacoda to get more targeted and boost its CPMs, but the problem of too many destinations for too few dollars remains. Listen for what the big boys of online display advertising — Yahoo, Microsoft (MSN) and AOL — have to say about it when they announce their third-quarter results.

  1. Om,

    As you’ve suggested, this is rather tricky. On the one hand, online advertising is getting more popular with adveritsers because of the potential reach, targeted/contextual ads, and increasing number of potential customers online.

    On the other hand, the major online advertisers (finance/autos) are most hurting right now. In fact, I recently read that regulators are looking into potentially misleading online ads by mortgage companies which may hurt them further.

    The big boys are now looking at generating revenue with exclusive partnerships with major social networking sites (Google with MySpace, Microsoft with Facebook etc). Let’s see how these strategies play out!

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  2. I personally hope all ads slow down to the point of non-existent.

    I am one of many growing consumers who simply refuse to buy anything from the company that has its ads inconveniently placed all throughout the web.

    I hope the money waisted on such ads bring the companies more into the red and force them all out of business. Perhaps then ads will begin to vanish. Ideally, however doubtfully. As it’s not gonna work perfectly and there will still be the gullibles out there willing to give into the advertisements. and for that reason the pig will keep getting fatter and fatter, as consumers are plagued more and more by the pig’s ads.

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  3. Alfred Gubfenstuppen Wednesday, September 12, 2007

    Uh, Om? You kind of lost credibility when the first line of your post said:

    “The housing boom hasn’t turned into a bust quite yet, but it is losing steam fast.”

    Gee, I’d hate to see what a real “bust” looks like……..

    Alfred

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  4. A world without advertising….get real. If you’ve managed to build and sustain a business without advertising then kudos to you.

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  5. Alfred,

    If you think about how this situation has played out so far, it is a slow motion decline. The bust part comes where there are foreclosures on people’s properties and that sort of stuff.

    Sure speculators have taken a hit, but the housing prices haven’t nosedived. Similarly, the worst in terms of industry lay-offs etc is still ahead of us.

    So no, its not a classic bust situation. Bust was 2001 and 2002 in the Valley.

    Of course we can choose to disagree about “bust” semantics.

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  6. Ah how the worm turns. All those venture capital backed web 2.0′ers whose revenue model was a single word – advertising – may be in for a “model modification” exercise…

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  7. small businesses can be built by good customer service, quality products, good prices, and good word of mouth.

    there’s plenty of small businesses that do just that. are they a walmart, no, but the hell with walmart. I rather spend an extra few dollars to support the independently owned then the corporations of the world.

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  8. Advertising has historically morphed into new forms as consumer behavior has changed and as mediums for advertising have evolved. It’s no surprise that the Internet ad spend is growing as the outlets for that advertising both expand beyond the major sites and become more targeted. I think what will be most interesting is how ‘traditional’ online advertising continues to more and flirt with becoming the content.

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  9. “AOL is buying Tacoda to get more targeted and boost its CPMs, but the problem of too many destinations for too few dollars remains.”

    Om – I politely suggest that it seems you do not believe there’s power in the “long tail.”

    If so, what if you could introduce greater efficiency and transparency by aggregating these “too many destinations” and bundle it for advertisers? How about considering looking at exchanges? … it benefits advertisers and publishers. Yeah, yeah, I’m shilling to a degree (ContextWeb has the ADSDAQ premium inventory exchange). But, as you know, there has been a lot of interest and notable acquisitions in the exchange space recently: Yahoo and RightMedia; Google and Doubleclick’s Adx exchange; and Microsoft and AdECN.

    There are and will be plenty of ad dollars out there for the right strategy. Exchanges will have their say I believe.

    John

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  10. John

    Thanks for your comments. Well you got it right – long tail is something that works if you happen to be the distributor with lots of tails.

    Regardless, your exchange example is a good extension to what I was saying: more efficiency in the market, and dollars spent wisely and more efficiently. When that happens, the “fat belly” web efforts start to make a lot of sense and get better value.

    By the way, it be great to get an extended version of your thesis.

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