Is The Online Ad Industry Partying Like It's 1999?
Online advertising spending is healthy, and most people in the industry seem to believe that the industry faces nothing more challenging than a few speed bumps on its way to inevitable dominance of advertising as a whole.
Context & Ripple Effects
The question lands at a high-water moment for the sector's mood: 2006 closed with online ad spending near $17 billion, and the same week this column ran, Read/WriteWeb was picking up the story alongside Google's stock clearing $600 a share — a pairing that captures exactly the exuberance the piece is poking at.
Search Insider's argument is not that the numbers are weak but that the consensus reading of them is: an industry telling itself that what lies ahead are speed bumps, not cycles. That framing matters because nearly every publisher, network, and agency forecast built in late 2007 assumes the migration of budgets off other media is linear.
First-order effects
- Publishers and ad networks are pricing inventory against the assumption of uninterrupted budget migration from offline media, so any complacency shows up directly in CPM expectations and sales targets for 2008 planning cycles.
- Google's $600 share price becomes a reference point buyers and sellers both cite — sellers as proof of structural shift, skeptics as evidence of a valuation cycle echoing 1999.
Second-order effects
- If agencies keep building commitments on straight-line growth assumptions, the first budgets cut in any macro slowdown will be the experimental display and brand allocations, forcing networks to compete harder on measurable, performance-based inventory.
- Skeptical buyers — the ones already arguing online is less robust than consensus thinks — gain negotiating leverage whenever a seller's forecast has to be defended rather than assumed.
Third-order effects
- The durable fault line the column points at is between direct-response formats, whose budgets track measurable returns, and display formats, whose budgets track sentiment — a split that determines which parts of the industry absorb a downturn and which ride through it.
- If the 'inevitable dominance' narrative holds while discipline slips, the likely correction mechanism is pricing rather than adoption: share gains versus other media continue, but at compressed rates and with weaker intermediaries consolidated out.
The trend: Online advertising is transitioning from a growth story priced on momentum to one that will be repriced on cyclicality, with the search-versus-display divide deciding who is exposed.