More on Drooping Ad Spending, Yahoo, Google

Smart debate in the comment section about whether yesterday's Yahoo news reflected a Yahoo issue or a market issue, as well as whether a general slowdown in online ad spending would affect Google.  My take is that it is almost certainly a market issue and that, eventually, it would/will almost certainly affect Google.

As several readers noted, the slowdown was attributed to two sectors, automotive and financial services.  Given what's happening to Ford, GM, and Chrysler, the first isn't a surprise.  Given what's happening to the housing market, the second isn't a surprise either, especially if "financial services" is really a synonym for "mortgage brokers."

A Bloomberg story today reports data from Nielsen that confirms some of the above, but also suggests the problem is worse at Yahoo than elsewhere:

Advertisers reduced the amount they spent on graphical image
ads in the U.S. by 6.3 percent to $163.6 million in the week
ending Sept. 10 after a 2.7 percent drop the previous week,
according to Nielsen//NetRatings...         

Demand for banner ads on Yahoo by financial services
companies fell 4.2 percent to $16.9 million in the week ending
Sept. 10 and 16 percent in the previous week, Nielsen said.
Outlays across the Web rose 2.2 percent for the week ending Sept.
10, after falling 10 percent a week earlier.

The story also notes that, at Yahoo, financial services accounts for an extraordinary amount of revenue.

     Financial services accounted for 33 percent of U.S. display
ad spending on Yahoo at the end of August, the highest of any
category, while automotive took 2.6 percent, according to
Nielsen.

The Bloomberg story focuses primarily on display advertising, and it is possible that, for now, search has been spared.  If the problem is the economy rather than Yahoo, however, as consumer demand falls off, search spending should drop, too.  Less consumer demand will likely translate into fewer clicks (less revenue) or a reduced conversion rate, which will put pressure on advertisers' ROIs (reducing the amount they can profitably pay for clicks).  It is also worth noting that, thanks to their high-ticket sales, both automotive and financial services have extremely high keyword prices, so any fall-off in advertiser spending or end user demand in these categories will have a far greater impact on revenue than on overall clicks.

Bottom line, I have never seen a general industry revenue slowdown that did not eventually affect the biggest player.  If that's what this is, therefore, the safe bet is to assume that Google will eventually be affected, possibly severely.

Comments

[Still Inside]

"It is also worth noting that, thanks to their high-ticket sales, both automotive and financial services have extremely high keyword prices, so any fall-off in advertiser spending or end user demand in these categories will have a far greater impact on revenue than on overall clicks."

Henry: I agree with your conclusion, but not your equasion. To wit:

Revenue = price * volume.

In other words, the price of the click PER SE doesn't portend overall volume.

The problem with the mortgage guys is that their model works so well online. Like viewing porn, filling out a mortgage application (and viewing the results) is something that many people like to do in complete anonymous privacy. Home owners / buyers are also folks that have a strong tendancy to be online-savvy types as well, and almost everybody buying a home these days uses the Internet to do the research.

As such, its is reasonable to guess that brokers already have "moved online" in their advertising mix in a fairly hard core way.

Mortgages are a pretty big chunk of the overall economy, so its reasonable to layer another assumption, which is that mortgages probably make up a fairly material part of online ad spending (1%? 5%? this wouldn't be that hard to research...).

To me, the more interesting side of this debate is not whether the status of the economy can predict online ad spending, but the other way around. The speed and accuracy of the tracking of online ads changes the game to the point that its not hard to imagine the Fed demanding that YHOO and GOOG show them their numbers on a monthly basis to take the economy's temperature.

SI

[billy]

second.
King Troll is dead apparently.

[Victor]

Read this Henry:

http://www.nytimes.com/2006/09/20/technology/20place.html?ref=media

'James E. Riesenbach, the chief executive of AutoByTel, said his site had seen no changes in spending by auto manufacturers or dealers, despite the financial ills of Detroit.

“What I keep hearing is the auto manufacturers see the Internet as their most efficient sales channel, and they want to figure out how to spend more money online, not less,” Mr. Riesenbach said.'

I really think we're a long way from saturating CPC adversiting so I don't think macro factors will come into play yet. Evidence like the above, and speaking with friends and collegues who use Adwords makes me think there's still a lot of push form advertisers to put more money in to the system. We'll see how it goes this quarter. I'm particularly interested in what the bears, like SI, think will happen to Google. I expect them to be wrong once again.

best,
Victor

[Niki Scevak]

Henry, I agree with your conclusion that Google will be affected if Yahoo is, but citing Nielsen AdRelevance data (which is even highly suspect in aggregate never mind drilling down to a specific site in a specific week) is hardly a proof point. The fact that they didn't cite search data is simply because no one but Yahoo and Google have that data.

My sense is that Yahoo is just finding its place as number two in the online ad industry and over promised on numbers it couldn't hope to deliver.

[Victor]

Another interesting article on Google:
http://money.cnn.com/magazines/fortune/fortune_archive/2006/10/02/8387489/index.htm?postversion=2006092009

one thing that strikes me reading that is the size of the advertising network is important. Once critical mass is achieved the network grows and reinforces itself; hence "the network effect". My sense is that the growth and strengthening of the Google network and consolidation with partners like myspace, Viacom, ebay etc, will also tend to have an atrophying effect on Yahoo's network.

[Joe Schmo]

so what you're saying is GOOG isnt going to 800 like AMZN...

[Victor]

Or, evidence in support of your theory Henry:

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B7FD638C6%2DE495%2D47DB%2DA1EA%2D1F1290186923%7D&source=blq%2Fyhoo&dist=yhoo&siteid=yhoo

(just to show I'm not blind so such evidence :)

[Gerber]

The king (Troll) is dead -- long live the king!

(Sniff...) I'm going to miss that fucker.

[Royal]

Here's what doesn't add up for me:

If tighter times are ahead, companies begin to reduce by cutting what's difficult to test and/or expensive to initiate and/or hard to measure and/or just plain isn't working.

(At least that's what I did when I had a $5 million ad budget and a downturn hit.)

Those are all offline advertising qualities, not online.

Maybe the real question is with low single-digit marketshare of the overall advertising market, has online hit saturation levels yet? Or, is there more low-hanging fruit out there?

What is the practical percentage online can take from the overall market?

(Mary Meeker once said "15% falling off a log".)

How will this change once TV truly becomes online and interactive?

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[vfsv]

The Yahoo mandatory shut-down is worse news than anyone seems to want to admit.

Keep up with, "What's really happening," at www.viewfromsiliconvalley.com

[Henry]

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