Tuesday, March 18, 2008

Google Clicks & An Ad Recession?

There has been much discussion of late within the online community, as to whether Internet advertising is entering a recession. Much of this discussion was triggered by a ComScore Inc. report that showed a January 2008 7% decline in the number of consumer clicks on Google, as compared with December. While we're watching closely for more data to support these trends, we remain confident that Internet advertising revenue will either continue to grow this year, or decline by only a modest rate. There are several key points regarding Google and Internet advertising behind this conclusion:

1) During the same period, the number of clicks at Yahoo decreased only 1%, and increased 4% at Microsoft. We need to see more data to establish a clear pattern and trend.

2) Google's goal is to provide 'relevant advertising' to its users. In pursuit of that goal, Google periodically takes measures that eliminate poor performing ads and advertising techniques from their system. Google's measurement is increasingly focused on whether a consumer actually converts when they reach an advertiser's landing page, not simply whether they clicked on an ad. The short term result of eliminating poor performing ads is a reduction in the number of clicks in their system.

3) Macro trends all point to the continued growth of Internet advertising. The Internet currently captures 21% of all consumer media exposure, yet reflects only 7% of US advertising expenditures. While overall US advertising may decrease in a recession, we expect Internet advertising to weather the storm better than the advertising sector as a whole.

4) We're anticipating that a recession will shift the distribution of ad spending from brand advertising to performance marketing. As ad budgets are re-evaluated, we're anticipating a tight focus on linking ad spend to lead generation and sales. We believe that a higher priority will be on advertising campaigns that have direct, clear and measurable impact on quality leads and short-term sales. This environment favors Internet advertising in general, and search marketing in particular.

5) The reality is that search marketing is approaching maturity, and advertisers need to be creative in identifying new Internet advertising channels. New forms of online media generate high CTRs when they are launched, but their effectiveness decreases over time, as customers increasingly ignore the ads. This pattern held true for display advertising, email advertising, etc, and it is holding true for search engine marketing. Advertisers need to actively look for new advertising forms that put them at the top of a 'new curve'. Search marketing will always hold great value because search advertising is so tightly correlated to 'intent', but its growth has natural limits.

6) Search marketing has become increasingly expensive. As more advertising dollars are shifted to online, there is increasing pressure to put them to effective use. For many advertisers, search engine marketing is a primary tool in their Internet advertising campaigns. The problem is that there are only a finite number of valued keywords (e.g. 'short-tail keywords'). Keyword prices have increasing risen, as more ad dollars are chasing the same keywords.

7) Advertisers need to remain focused on CPAs. Savvy advertisers remain focused on the cost to acquire a qualified lead, independent of the Internet advertising source. Although many advertisers strictly view display ads as appropriate for "brand advertising", experienced advertisers are increasingly turning to display advertising for "performance marketing" campaigns. Although search typically generates quality leads at a higher rate because of the search focus on 'intent", display advertising is also be used to drive traffic and convert site traffic. Free market economics drives this choice. At the moment, keyword prices are up and CPM prices have dropped, for many advertisers resulting in cheaper Cost Per Action/Acquisition with display ads than search ads. This is true, even when you take into account that consumer click rates are far lower for display ads than text ads.

We're sure there will be a continuing discussion in the months ahead about the impact of the U.S. recession on Internet advertising. We're confident that in a recession, measurable, performance-based Internet marketing will remain a high-impact expense in tightening budgets. We welcome your comments and feedback. You can find more information about our Internet Marketing Strategy services at www.InterneXperts.com. Thanks!

No comments: