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The Real Problem With Display: A Glut Of Inventory

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imageDisplay ad revenues were down 25 percent for *AOL*, down two percent at *Yahoo*, and down so sharply at the *New York Times Co*. that it decided to focus on a cost-per-click model in Q4. But don’t blame it all on the economy: the WSJ has a story today arguing that the cratering display market has actually been buckling under the weight of too much inventory for some time now, and the economy has just further diminished demand.

Even if the economy rebounds in 2009, it doesn’t look like the situation will improve because premium and mid-tier publishers are just creating too much content. When you add in the continuous stream of lower-quality user-generated content and social media inventory, the Journal says: “The Web is likely heading for a shakeout on a scale unseen since the bust.” More after the jump.

Well, at least the ad industry can feel good about the local online market, right? Not really. That slice of the market, which had been going strong last year, is starting to feel more of the pain, Business Week reports. The post piggybacks on Borrell Associates’ report from November that said there would be “little or no growth” in local online ad spending in 2009, and here’s how it shakes out: independent classifieds like Craigslist (which monetizes just one percent of its traffic) and review sites like Yelp will find it harder to maintain operations, local businesses will pull back on spending with third-party services like OpenTable, and, of course, local newspapers will continue to sink deeper into a hole.

If there’s one bright spot, it’s the fact that marketers are steadily increasing their online ad budgets at the expense of more traditional means. That pool of cash could fuel demand for both display and local online ads over time.

3 Responses to “The Real Problem With Display: A Glut Of Inventory”

  1. digital bear

    There is no scarcity– Yahoo, Microsoft & AOL have an opportunity to do the equivalent of "upfronts" for the large share of display ads and maintain prices (using their leverage over the advertisers) which would be a rising tide for the smaller sites who can price a bit lower (effectively ankle biting.)

    The onus is on Yahoo & MSN to do what TV networks did historically and do online upfronts with their major properties– it would save them & the industry.

    Sadly, it is unclear that they have the strategic minds to look at both display & search in such a simple & "done before" method.

  2. It's clear in the social media and community marketplace that there is an even larger over-supply of inventory, with most ads now available for less than $.05 CPM, which makes it nearly impossible to create enough revenue, even at massive scale. This is particularly problematic since this is the fastest growing part of the consumer market, with users spending increasing amounts of time on these sites. Only by adding in a robust virtual commerce system will these sites be able to offset the decrease in CPMs enough to grow their businesses.

    Sean Ryan
    Loki Partners.