What economic downturn?

Could the online advertising industry escape these turbulent economic times relatively unscathed? Commentators say online advertising may buck an economic downturn, and – controversially – even gain from it.

An article in the Financial Times notes that pressure on companies to cut costs as the economy softens could “hasten the switch in spending from traditional media to more targeted and measurable digital forms”. Citing the sub-prime crisis in the US, the FT notes that mortgage lenders (those of them that are left) are turning to online channels to help them weather the storm.

The authoritative eMarketer.com concurs with this view, emphasising that online channels are more accountable and cheaper than television, print and other traditional media.

The research company says that buoyancy in the sector will be created by the following factors: measurability with a better understanding of the audience; more effective ad placements resulting in increased prices; easier purchases for advertisers and their agencies through networks and exchanges; better targeting, and wooing of audiences through multimedia advertising.

In addition, the rapid growth of mobile media is likely to add to the online revenue pie.

Looking at the UK market, currently the world leader in online advertising, eMarketer.com says online advertising should hold its own, and even “consolidate gains over other media during the economic decline”. The bottom line is that online channels “can help advertisers to boost brand and market share even when money is tight”.

These assertions were made before the very recent dramatic bank and stock market crashes of the last few weeks, but the theory that backs these statements hold true.

How companies view the web
In times of economic turmoil, marketing budgets get slashed — and in the old days this inevitably meant your website budget got the chop. In those days, a website was merely an extension of the marketing strategy, a “brochure” to promote the business.

Companies have a different approach to the web these days. For big businesses with sophisticated online strategies, a website is no longer just a marketing add-on, but part of the very business itself. The internet allows the world to transact cheaply and more efficiently – and that’s why it’s an attractive part of business these days.

We’ve seen it in the banking world. A customer transacting online is more efficient than one who pops into a branch, fills out form after form, and chats to the teller about today’s weather. It’s common sense: In times of economic hardship, companies will turn to the web to save costs and optimise their business. This will also mean that business will need ways of driving customers to their online channels — and this, naturally, will point to online advertising.

Dotbomb flashback: Disintermediation
The thing that websites also do effectively is cut out the middleman. The effect is known as “disintermediation“. It was a big buzzword during the early dot.com boom, but the concept still has currency today.

It describes how internet-based businesses use the web to sell products directly to customers rather than going through traditional retail channels.

By eliminating the middlemen, companies can sell their products cheaper and faster. It’s had a big effect on computer hardware and software, travel agencies, book shops and music stores. It’s also starting to affect estate agencies.

The reason why the dot.com bubble popped is that many overestimated the effects of disintermediation, making the mistake that it would apply equally to all industries. It has largely failed to impact furniture, clothes or even grocery shopping industries. But the fact remains that doing business online is cheaper than travelling to a store and dealing with people.

In times of economic boom or slump, the internet remains the most cost-effective, efficient way of doing business – and that spells only good news for business online.