If you are an entrepreneur in online advertising and you don’t see this economic downturn as good news, then your business model is fundamentally flawed.
All the pessimism I am reading seems to be coming from investors and entrepreneurs involved in businesses that have poor models. Did they learn nothing from the first .com bubble? The value creation for publishers was not about content, but the discovery and distribution of it. The value creation for advertisers was not about spend, but return. The keystone for both continues to be technology & relevance.
Been There Done That
I lived through the first .com bubble. I founded my first company in 1998 selling nutritional supplements and by 2003 we had won the Nutrition Business Journal Award for growth. While the “smart money” companies went out of business we bootstrapped our way to 30% YOY. We thrived as companies offering little real value to consumers died. I’m fired up to do it all over again.
We did it with a daily commitment to analytics, testing and optimization. We did it by focusing on user experience and convenience. And mostly, we did it by using a new marketing strategy (SEO) with an emergent technology (Google) that delivered relevant content to people. We got better at all of it every friggin’ day and guess what…the Internet never went away. Neither did people’s thirst for relevance in their use of the medium. I know that formula will work again.
Excuse me if I’m not shedding a tear about the current economic climate.
• Between early 2000 and 2002, the Nasdaq index fell almost 80%
A different perspective (all deals 2007):
• Quigo Founded 2000 sold for $363m
• Tacoda, Founded 2001 sold for $275m
• RightMedia Founded in 2003 sold for $680m
• BlueLithium, Founded in 2003 sold for $300m
• Optimost 2001, Offermatica, 2003 combined price of $125m
Those exits above were all companies founded during the down cycle that were insanely focused on building new technologies that demanded a different, more relevant way of thinking about advertising. When the market turned positive they were ready to capitalize on it — and they did very quickly!
The Relevance Phoenix
What the markets are doing now is taking a giant laxative and flushing out the crap. Online advertising will not be immune nor should it. The downturn is exactly what the web needs to focus attention on disruption. Many of us, especially in display, have been comfortably numb for the past few years riding the gravy train. Now is the time to build more advanced and relevant systems. Systems outside the inefficient and antiquated Client>Creative>Media>Network>Site>Analytics hierarchy. Systems outside the false prophets…or is it profits.
If you’re building widget distribution platforms that rely on pay-to-install and CPM arbitration then you are in trouble. Impressions & CPM is a bad place to be. If your homepage has the word “behavioral” on it, also, not good. High cost, low return, little insight just isn’t worth it. If you are promoting the size of your network is or how many eyeballs you reach guess what, no one cares. Get relevant or go home. Be different or become deceased.
That’s why I’m spitting in the face of all this pessimism. Relevance and its child, Performance are something every business needs to be investing in over the next few years. Especially in advertising and especially in online display. So hallelujah, performance is what (finally!) matters. Measure it anyway you want. Call it anything you please. Just deliver it!
Most of all, I don’t give a shit about the gloom and doom because things are different this time. Let’s recall, the three-year period from 2001-2003. Online ad spending was flat at around $7 billion per year. In the four ensuing years from 2003-2007 online ad spending tripled to $21 billion. This year it should be around $28B. Even zero growth the next few years ad spend is now 4X what we had in 2003! That’s more than enough dollars for innovative start-ups to prove their mettle. Believe me, clients will be looking and listening to anyone that can improve their bottom line ad spend ROI.
Last point. Online has as much attention as TV but TV has 68% of ad spending vs. 7% for online! This is a big nut that’s going to crack. One Internet CEO I spoke with recently told me he’s starting to see media planners put TV dollars into his online platform because it is much more measurable and can be optimized. This may be a ripple now, but watch, the next few years as it becomes a wave and the companies just getting started now will become the big exits of 2012. So stop crying in your beer and get to work.