US Ad Sending Slips as Online Companies Fight for their Futures

Sep.17.07 | About: Alphabet Inc. (GOOG)

By Carl Howe

US ad spending slips, and online companies fight for their futures

In our Marketing 2007 report at the beginning of the year, we noted that our index of marketing budgets and spending plummeted for the year. That report suggested that advertising budgets were targeted at about half what they were in 2003. Well, we're now getting some good data to suggest that prediction was spot on. TNS Media Intelligence reports U.S. advertising expenditures decreased 0.3 percent in the first half of 2007. Now advertising is only a between a quarter and a third of marketing usually and is the categories companies almost never pull back on. The fact that advertising is falling overall should be taken as a negative sign for the overall business economy. After all, when companies don't advertise, they don't pull in as much new business, and that means worse results farther down the road.

And the rise in online advertising dollars? As Om Malik points out, that's little comfort too, When companies cut back on advertising, they tend to use cheaper media, and the online sites are substantially cheaper than traditional advertising. And today, literally millions of Web sites are competing for that fairly small (by traditional advertising standards) number of online ad dollars. The result: while overall online spending may be up, ad prices are softening.

We have one more data point here: demand for our own marketing research. We stopped publishing our Blackfriars marketing reports this year, because demand for them just dried up. Companies cutting back marketing budgets often cut market research early in the cycle too, and we fell victim to that phenomenon like anyone else.

The bottom line: 15 months ago was a great time to start an ad-driven online company, and even then there were too many companies chasing too few ad dollars. This year? It's not looking like such a great idea. And as Om Malik points out, keep a close eye on the results from Google (NASDAQ:GOOG), Yahoo (NASDAQ:YHOO), and MSN (NASDAQ:MSFT). I predict that Google, as the dominant company in online advertising today, will grow its business, and all the other portals will be static or see shrinking results. When US advertising was growing willy-nilly, everyone can post good results. When US advertising slips, results tell you who is winning and who is losing.

Full disclosure: the author owns some Google stock.