Cheatsheet: Online Ad Spending to Slow
If you have been following this space, here is a conclusion that's not going to surprise you: Online advertising will grow, but it will do so more slowly over the next few years. — That's the headline on a handy chart sent over by eMarketer this morning.
Context & Ripple Effects
eMarketer's December 2007 forecast lands two months after Search Insider asked whether the online ad industry was partying like it's 1999 — so the deceleration call reads as the research firms' measured answer to that bubble question: growth continues, but the curve flattens over the next few years.
First-order effects
- Publishers and ad networks whose 2008 planning assumed straight-line growth now have to size budgets against a shrinking growth increment rather than a shrinking market — revenue still rises, just by less each year.
- Ad buyers gain leverage at the negotiating table, since a slowing-growth forecast from eMarketer hands them a third-party citation for pushing rates down in renewals.
Second-order effects
- With the total pie expanding more slowly, share battles between ad networks, portals and search platforms intensify — competitors can no longer count on rising tides to lift every player's numbers.
- Media buyers under pressure to defend online allocations will lean harder on performance-based formats, squeezing brand-oriented display inventory hardest when growth disappoints.
Third-order effects
- If the slowdown coincides with a broader economic downturn, the industry's core pitch — online takes share from offline media regardless of the cycle — gets its first real stress test, with forecasters' credibility riding on whether deceleration means plateau or pause.
The trend: Online advertising is transitioning from an early hypergrowth market to one judged on share shifts and format efficiency, making forecaster revisions like this a leading indicator for publisher valuations.