I saw this post today from Steve Rubel called Five Reasons Why A Pay Per Click Recession Looms and it got me thinking about a post I've been meaning to write. Couple that with the announcement that AOL is laying off 2,000 people (see this analysis by Kara Swisher over at BoomTown) and I think you can see a post forming. Also Reuters has an article called Ad dollars flood web, but will they go far enough that talks about how web advertising may be over-hyped. So between those articles and the New York Times article that Steve referenced it got me thinking having we seen this movie before? Now, I won't get tit for tat with Steve because he brings up a lot of valid observations, but I don't think a PPC Recession is coming, definitely a slow down in growth rates. I also don't believe CPAs will push CPC aside and that's mainly because I've seen this movie before.
Steve's 5 reasons are Clutter, Declining Relevance of Traffic unless it results in an action, Rising Costs, Marketers Spread The Ball Around, and Search Ads Are Viewed As Untrustworthy and all of them can be extrapolated to advertising in general, not just search. Let's use Steve's reasons with my own historical perspective of why a recession isn't looming, but a revaluation of the expectations of online advertising is going to occur.
- CLUTTER: Way back in my early days of online advertising at AT&T circa 1998, we had a theory that said "if you bought all of the major portals (aka on ramps to the internet) you can reduce the amount of competitive ads that a user could see" and thus AT&T had deals with Yahoo, Excite, Lycos, and iVillage (AOL had a deal with MCI). AT&T paid through the nose for these deals and I had the honor of canceling them one by one as the deals didn't pan out. Basically, advertisers, who only now are discovering the internet, are shifting ad dollars away from more traditional vehicles to online; this means that inventory will tighten, costs will rise, and then advertisers will start to wonder, why did I shift those dollars in the first place.
- DECLINING OF RELEVANT TRAFFIC: Back in the old days people wanted to know about eyeballs - how many people saw my ad or how many people visited my website. Personally because I grew up in a direct response, results oriented world I always wanted to know about conversions and what my CPA was. In fact, it let me buy on a CPA basis even back in 1998. CPA dealsc peaked around 2002 when inventory supplies were easy. CPCs, CPMs, CPAs don't matter all that much because what really matters is whether you are hitting your goals (a poorly performing CPA deal means you get nothing and that includes impressions).
- RISING COSTS: See above and I don't just think it is a search problem, but search has probably the most to lose. When costs rise advertisers will start to turn back to Direct Mail (yes I wrote that) for a segment of customers and even TV ads. A very smart person (Norm Lehoullier formerly of Grey Interactive) once told me that every medium has its place and for direct mail it might be for an older audience.
- SEARCH ADS ARE VIEWED AS UNTRUSTWORTHY: What ad isn't? Search just seems to be more trusting probably due to relevancy factors as well as mixing up of organic search with paid search. That's always been an erroneous observation.
- MARKETERS SPREAD THE BALL AROUND: This is probably the most significant problem for any site owner and not just search. There are so many sites out there that try to have specific content to attract more ad dollars (proof see the multitudes of social networking sites) that it becomes harder and harder to figure out where to place your dollars. Blogs, social networks, Google, Yahoo, ad networkers the list goes on and on. Try figuring out which ad network to place your dollars with. All of them claim they have the best sites, the cheapest inventory, the best behavioral targeting, the best results, etc. This is a widespread problem for the industry and the way it will shake out will be marketers will stick with the bigger sites and the bigger networks only because they hopefully will control more of a user's time during a day and they have less attention to spend on the one highly relevant site that delivers little volume. Why do you think MSN, AOL, Yahoo, and Google are gobbling up other sites? The battle will be not for users but for average time spent on a site.
Really, this movie has been seen before. It will shake out like it always does which is a few big players controlling as much of the ad dollars as they can. That's why there is a consolidation occurring and when you can't get enough of your forecasted share of revenue, big layoffs can occur like they are at AOL. Google, Yahoo, and even MSN will survive because they will make the acquisitions that are needed to keep going. I'm not ready to forecast doom for Google or search, not when there are still more advertisers to jump into the mix (small business and local merchants).