Internet

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.