Online advertising during a recession: 5 key trends for ad-based startups

On Andrew Chen Blog

"recession advertising"

Ultimately, the dynamics here are complex and uncertain, but here some of the key trends worth watching if you're an advertising-based startup:

1. Accelerating movement of offline to online ad spend
2. Brand areas weak, direct response will be less affected
3. Weak areas to watch: Video, social networks, communication, etc.
4. Rise of direct-to-consumer revenues?
5. Timing is everything

1) Acceleration movement of offline to online ad spend
advertising spend is already shifting online from other types of media.
In brand advertising, dollars are moving from TV onto high-quality publishers on the internet. An article from AdAge last year articulates this theory:

Many analysts now agree that when marketing budgets come under pressure in a stressed economy, those sectors that can best document their connection to ROI, such as search-engine advertising, are far more attractive to corporate chiefs than other kinds of less-trackable traditional advertising.

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2) Brand areas weak, direct response will be less affected

For companies that are focused purely on brand advertising, there will still be hits in budget as the typical reactions - a flight to quality, a flight to metrics - affect brand-oriented startups.

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3) Weak areas to watch: Video, social networks, communication, etc.
Unfortunately you need to be at a critical mass point to be relevant to agencies - and of course, this bar can be expected to rise over time in the case the economy is sputtering. Why spend a dollar with a no-name publisher when you can buy premium inventory for relatively cheap CPMs?

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4) Rise of direct-to-consumer revenues?
In the case of a long period of recession, another key opportunity will be for brand-oriented properties to transition their businesses into direct-to-consumer opportunities, but its very very hard job.............

Of course, virtual goods fits into this as well, but you all knew that.

The difficult part about these approaches is that unlike ad-based models which allow you to monetize 100% of your audience in one fashion or another, transactional revenues can usually only squeeze cash out of 1-5% of your audience - so what do you do with the rest of them? Are they just loss leaders?

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5) Timing is everything
particularly in new media channels like online advertising, timing is everything. The brand-oriented web properties that exist today were built in the 2003-2005 era, when brand advertising wasn't so healthy. Similarly, Google was created during a period where online ads was out of vogue, and they had to figure out a model that works.....

Perhaps the startups being incorporated this year who reach scale 3-4 years from now will be the ones that really kill the TV ad market by doing things we can't even imagine today.

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