Tuesday, November 4, 2008

Economic impact on digital spending

I was asked yesterday to make comment on a current issue on the Australian digital landscape. Here's what I wrote:
  • The major shift in the digital space in the past year or so has been towards a focus on ‘pay for performance’
    • This means Publishers sell on either a CPC (Cost per Click) model OR better still a CPA (cost per acquisition/action)
  • The key elements of impact are an increase in the Search Engine Marketing arena (which is entirely CPC) along with technology based solutions (eg behavioral targeting) and Affiliate Networks – often at the expense of the bigger Publishers
  • Publishers have struck back by developing their own performance models, however, they are still often not able to compete quite as cost effectively
  • Whilst the market continues to push for use of digital beyond Direct Response (eg to drive engagement and brand awareness), clients often resist
    • In the coming year, with a tough economic client, we don’t expect this to change, with Marketers more focussed on measurable results than ever
  • The good news for Digital? The channel is less likely to suffer from a recession and actually may benefit from further growth due the reassurance its accountability offers
Seems, my sentiments are being echoed elsewhere. I received an email yesterday which had a copy of some commentary recently made by the new CEO of the IAB - Paul Fisher. Here's what he has to say:

I'm loving Channel 9's new cop drama The Mentalist. Simon Baker plays a former TV psychic pretender, and using his powers of observation and faux psychic skills, finely honed in front of live TV audiences, he acts as a maverick consultant to the California Bureau of Investigation to find the clues, solve the crimes and catch the bad guys.

I don't know what he would make of the current and forecast impact of the global economic meltdown on the Australian interactive advertising industry, but if I apply his mentalist powers, which apparently we all possess, I can look at the signs around me, ask questions, listen to people's responses and come up with an informed view based on facts, observations, trends, and behavior.

Here are some of those views. Feel free to read them, challenge them, de-construct them, rubbish them if you want to but if you agree and/or see value in them, spread them around in all of your conversations, presentations, coffee meetings, team talks and 'water cooler' chats.

To use marketing terms let's divide these views into "quant" and qual". First, let's look at the numbers, the "quant".

The signs from the US and the UK are that total advertising spend will be cut for the rest of this FY and most likely into next FY. Marketing budgets seem to appear an easy and obvious first choice to save costs that go straight to the bottom line, on which most C-suit executives are judged and remunerated.

So the first view we must all wake up to is that all previous forecasts and projections for our market are no longer valid. The online advertising market will not achieve 25%-30% year on year growth this FY.

However, many of the signs suggest it will still achieve double digit growth, with some low end forecasts such as ABN Amro forecasting 14.2% overall industry growth - see AFR Monday 20th Oct 08 p57 "Online ads feel the pinch"- to Goldman Sachs JB Were's forecast of 20.5% overall growth - see AFR Monday 20th Oct 08 p55 "Wary TV chiefs stay mum on ad market".

Whilst the IAB PWC results for Q3, due out in the first week of November will give a further indication of actual growth, the impact of this expected downturn will grow in Q4 and into the first half of 2009 and most likely into the next FY as well. The truth is this situation has exploded globally so fast that all of the actual data available right now is out of date before it is launched. There really is little value in knowing that the first half of this year saw the US online market grow by 15.2% up to $US11.5b, the UK market expand 21% to GBP 1.68bn and our own market increase 28% to almost $800m.

In Australia I think we can take some comfort in the fact that our percentage rate of growth is still relatively high, so any downturn will still see a double digit growth over the rest of this financial year. However this is little comfort to those of you who have invested your cost bases on projected revenue growth of over 20%.

A recent (Aug 08) Epsilon survey of 175 US Chief Marketing Officers of major corporations, some with >$US10b turnover, found – 59% of those surveyed stated they intended to decrease their traditional media spends, with 29% remaining the same and only 23% increasing their budgets. Whilst 63% of those surveyed stated they intended to increase their interactive/digital marketing budgets, with 23% remaining the same and only 14% decreasing their spend.

Now, the "qual". Randall Rothenberg, President & CEO of the US IAB calls it "the flight to accountability".

An article posted on 16th October this year titled "Digital Ad Spend Up At The Expense of Traditional" from the Centre for Media Research surveyed 175 US Corporation CMOs in August and had this to say

"...Senior marketing executives anticipate further cuts, says the study, but are confident that they will be able to manage their budgets by focusing spending where it will have the greatest impact. As the overall marketing pool diminishes, the budget for interactive and digital marketing is dramatically increasing, while that for traditional marketing continues to shrink toward interactive, digital marketing..."

Mike Iaccarino, CEO of Epsilon, who carried out the survey said "... marketing executives are seeking accountability and measurable results. Data driven marketing is an increasingly important component of corporate marketing campaigns... "

You can read the article in full at -


"Shoppers get educated online" headlines Nina Lees' recent article published in AdNews on 17th Oct 08.

"Consumers are using the internet to arm themselves with information about potential purchases before hitting the shops..." she starts.

She was reporting on a recent survey published by The Leading Edge titled "Assessing Drifts in shopper purchase behaviours" and she goes on to write that "shoppers are informing themselves not only on big ticket items, but increasingly use the internet to learn more about consumables, such as where to find the cheapest and best groceries or electrical items."

Clay McDaniel wrote in Online Media Daily on 22nd October about the 5 key questions marketers should be asking of their agency in these times.

One of those questions is "How can I get more for less?" He goes on to write -

"Consumers and companies are pinching pennies in a down economy, so you need to attract new customers more cost-effectively and retain existing ones with more urgency than ever. If you haven't asked your agency lately what they're doing to get more site traffic, boost your brand awareness, and encourage your customers to be brand advocates, now is the time to ask. If your agency partners aren't suggesting innovative new ideas to get more leverage out of less marketing spend -- especially online, often the most cost-effective channel for customer acquisition and retention overall - then they should be."
So what are the signs telling us?

The industry will contract.

The interactive industry will experience slower than forecast growth.

Marketers will look for safety – safety to many of them appears in the forms of measurability and accountability, and more cost effective marketing.

They will look for measurable results and return on investment that they can actually demonstrate to their CEO, COO and CFO.

They will look for value.

They will want justification and support for their marketing decisions.

They will want to reach their audiences in the most cost-effective way.

They will want to reach those audiences where they are researching the most about their purchases, as consumers look for the best deals to spend their hard earned and threatened incomes.

And this is where you come in. Whether you are a publisher, a buyer, a seller, or all of the above, the CMOs and media agencies in Australia are looking for reassurance, confidence and accountability. They need to feel confident when they are briefing their CEO, COO and CFO that they can justify their marketing decisions with specific supporting data as to why they made the choices and allocations they made, as well as feel confident they can deliver real data showing the return on their diminishing marketing investments.

In this industry, we can do all of that. Whether it's with case studies, previous campaigns the client/agency has implemented on your site(s)/network, relevant and recent data collected from the many sources available to us to demonstrate the accuracy and accountability of this medium, you, above all, have the tools to support marketing executives and media agencies through these difficult and challenging times.

Paul Fisher
Chief Executive Officer

IAB Australia

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