Economic Recession Hits Online Advertising

USA Today is report­ing that online adver­tis­ing in the Unit­ed States decreased by 5% in the first quar­ter of 2009. The decline marks the first neg­a­tive quar­ter in Web adver­tis­ing since 2002, caus­ing some eco­nom­ic ana­lysts to claim that the world­wide eco­nom­ic reces­sion has final­ly begun to have a marked impact on the Web.

A report released Fri­day con­veyed the bad news about online adver­tis­ing; but still, there is some good news: the online econ­o­my remains robust in many areas, and con­tin­ues to out­per­form old media com­pa­nies such as broad­cast­ing and news­pa­pers.

News­pa­per pub­lish­ing, in par­tic­u­lar, has been dev­as­tat­ed by the eco­nom­ic down­turn, and job loss­es and cor­po­rate cut­backs have become com­mon­place in the indus­try. By way of con­trast, online media con­tin­ues to thrive in most areas, and the cur­rent slump in adver­tis­ing rev­enue is con­sid­ered more of a tem­po­rary bump in the road, than a sign of things to come.

The rea­son for the decline in online adver­tis­ing rev­enue is obvi­ous: as more and more off-line com­pa­nies face tough times, they are forced to cut their mar­ket­ing and adver­tis­ing bud­gets. Dur­ing the first quar­ter of 2009 online adver­tis­ing in the Unit­ed States totaled approx­i­mate­ly $5.5 bil­lion. The same quar­ter in 2008 showed an adver­tis­ing spend of near­ly $5.8 bil­lion.

Con­tribut­ing to the decline in online adver­tis­ing is the trend among many major news­pa­pers toward invest­ing heav­i­ly in their web sites. As papers such as the New York Times or the Wash­ing­ton Post devel­op a large web pres­ence, they attract adver­tis­ers direct­ly to their sites, com­pet­ing with online search adver­tis­ing by the likes of Google, Yahoo and Microsoft.

Over­all, most econ­o­mists agree that the Inter­net has not suf­fered under the cur­rent reces­sion as severe­ly as many “brick and mor­tar” indus­tries. The abil­i­ty to specif­i­cal­ly pin­point demo­graph­ics and cus­tomers with online search adver­tis­ing makes online mar­ket­ing more effi­cient — and less cost­ly in the long run — than either off-line broad­cast or news­pa­per adver­tis­ing.

Com­pa­nies with a large web pres­ence are also able to attract cus­tomers with­out tra­di­tion­al adver­tis­ing, and some small to medi­um-size Web busi­ness­es actu­al­ly sur­vive and thrive with­out an adver­tis­ing bud­get at all. For these rea­sons, and the glob­al nature of doing busi­ness online, most experts pre­dict that online busi­ness­es will have a much eas­i­er time of it in the cur­rent eco­nom­ic cli­mate.

But as news­pa­pers and oth­er “old media” com­pa­nies move onto the Web with increas­ing speed, the online play­ing field is like­ly to change dras­ti­cal­ly. It has pro­duced some­thing akin to an online gold rush, which, of course, increas­es com­pe­ti­tion for view­ers.

One thing is for cer­tain: online busi­ness­es will like­ly sur­vive the reces­sion in bet­ter shape than their off-line coun­ter­parts, but the land­scape of the Web is quick­ly chang­ing, mak­ing it tougher for Web entre­pre­neurs to stay one step ahead of the game.