Mary Meeker on Online Adspend Volatility

The NYT points to a presentation by Mary Meeker (yes, that one*) at Web 2.0 Conference on the Online Advertising world and notes that:

Her main point was that advertising and sales of technology products are very closely correlated to economic activity. And since both gross domestic product and consumer spending have started falling, the prospects for both don’t look good.

Over time, she said, advertising revenue grows and shrinks three times as fast as the gross domestic product. If G.D.P. is unchanged next year, which is Morgan Stanley’s current forecast, ad spending for all media will fall by 4 percent. And it gets worse fast. A 2 percent drop in G.D.P., for example, would bring a 10 percent reduction in ad spending.

For Internet advertising in particular, there isn’t enough data to have such a precise correlation. Ms. Meeker said that in the slowdown from 2000 to 2002, online advertising fell by 27 percent, although the Internet economy had been inflated by a bubble of venture-backed ad spending. This year, Internet ad spending trends are much closer to other forms of advertising.

Ms. Meeker didn’t specifically forecast what will happen to online ads. “Display advertising will continue to be challenged, but search will do better.”

Incidentally, I love Ms Meeker's term for "FreeConomics" - she calls it "Undermonetized Internet Usage Growth Drivers"

Anyway - we are picking up data that implies that online Adspend is effectively making a flight for quality, and sadly Social Media - in Ad terms anyway - is not quality, it probably will be consigned to Adwords level of low transaction cost advertising. As Ms Meeker notes:

.....there are so many Web pages coming from social networks and other sites advertisers don’t value that there will be pressure on ad rates. But this ultimately will turn around, she predicted.

“In ‘ 00 , ‘01 and ‘02, it felt like the technology world had ended,” she said. “The reality was eyeballs continued to grow, innovation continued to occur, and the revenue followed that.”

Things, as the say, can only get Beta

*Another reminder, if it was needed, that the wisdom of crowds is nearly always swayed by a message they want to hear. Run for the hills when Henry Blodget agrees with her - oops - he just did .