Web Ad Buyer: Online Less Robust Than You Think, CPMs Headed Down
Most prognosticators predict another booming year for online advertising, but Carl Fremont isn't so sure. Fremont, the global media director for digital ad giant Digitas, says the weakening economy will slow down Web ads as well.
Context & Ripple Effects
Silicon Alley Insider has been building this case since October, when its Internet Recession Watch started tracking falling ads alongside taxes and housing, followed by a December cheatsheet on slowing online ad spend. What makes today different is who is saying it: Carl Fremont runs digital media buying at Digitas, so this is a demand-side voice, not an analyst's model.
The timing sharpens the split. The very same day, paidContent published a bullish forecast of $50 billion in online ads by 2011, and most prognosticators still expect another booming year — while the buyer actually signing insertion orders warns CPMs are headed down.
First-order effects
- Publishers selling display inventory face direct price pressure from their largest buyers: if a media director of Fremont's scale negotiates 2008 rates assuming softness, CPM floors set in upfronts and rate cards drop before any downturn shows in reported numbers.
- Forecast credibility splits along buyer/seller lines — bull cases like paidContent's $50B-by-2011 projection now compete with purchase-intent signals from agencies actually allocating budgets.
Second-order effects
- Ad networks and exchanges get squeezed between falling CPMs and fixed publisher revenue shares, pushing consolidation among intermediaries whose margins depend on spread pricing.
- Performance-based formats gain share relative to brand display: when budgets tighten, advertisers shift toward measurable, cost-per-click spending where the weakening economy is visible immediately rather than at renewal.
Third-order effects
- If the pattern holds, the 'web ads are recession-proof' thesis that underpinned most 2008 forecasts gets tested against the reality that online budgets are discretionary like every other medium — resetting expectations for how cyclical digital advertising actually is.
- Buyer-side forecasting becomes the signal to watch: agency media directors' budget assumptions, not industry projections, become the leading indicator for online ad pricing cycles.
The trend: Online advertising's reputation for immunity to economic cycles meets its first real stress test, as the buyers controlling budgets begin pricing in a slowdown the sell side still refuses to forecast.