Is This The Beginning Of The End Of US Online Advertising?
Based on earnings data from MySpace owner News Corp. and eMarketer’s original research, eMarketer has decreased their estimate for revenue from advertising on US social networks to 5.5% of all U.S. Web ad spending in 2008. Yes, thats right, the revenue estimates have been decreased from the earlier figure of 5.7% to 5.5% with 2011 estimates re-estimated at 5.8% (or $2.4 billion) from 6.4% (or $2.7 billion). Moreover the figure is expected to further decrease to 5.1% (or $2.6 billion) by 2012.
This is also part of a larger problem - that of a dip in the online eCPM for publishers themselves. For instance, the PubMatic AdPrice Index for May 2008, revealed an average drop of 23% in monetization for Web sites from 49 cents in March to 38 cents in April. Large Web sites fared the worst while Small Web sites managed to maintain their monetization rates. eCPMs
for large Web sites (more than 100 million page views per month) dropped by 52% from 38 cents in March to 18 cents in April. Medium Web sites (1 million to 100 million page views per month) were nearly flat, with monetization dropping from 34 cents in March to 33 cents in April. Small Web sites managed to improve their monetization, increasing from $1.18 in March to $1.29 in April.
Among the verticals, Social Networking led the dip with monetization dropping 47%, from 37 cents in March to 19 cents in April, below January lows of 22 cents. Entertainment monetization dropped 17 percent from 40 cents in March to 33 cents in April. Gaming and Sports were down marginally (4 percent and 5 percent, respectively). Technology remained relatively flat at 83 cents in April vs. 82 cents in March, but is still off January highs of 92 cents.Possible takeaways from all of this:
- The US economy seems to be taking the US online advertising economy down with it.
- Large sites would need to start acting like smaller sites - here I believe that user segmentation is the key. Smaller niche sites will always be able to attract a more targeted audience.
- Expect the role of niche social networks to be even more crucial going forward.
- A paradigm shift in the online advertising model is needed - one which goes beyond banner inventory, to engagement and innovation.
In the end, online advertising is definitely here to stay - expect to see a change in the model though.
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