By all accounts national GDP growth in the US is expected to be the lowest it has been since 2002. Current predictions have the growth to come in around 2%. In 2002 the economy was emerging from a recession and the sluggish 1.6% growth rate was a welcome sign of good things to come. Five years later many economists are suggesting that a sluggish 2008 is on the horizon and a recession might not be far behind.
(insert scary music and read in a deep echoing voice here - I am trying to lighten this up a bit)
So, what will happen to the ad industry if the economy slows down or worse... enters a recession?
Here are my thoughts.
An economic slowdown historically means that media spending and the ad industry as a whole will take a hit as our clients feel the pressure of consumers wallets tightening. This change in spending habits will put brand relationships at risk; especially once the realities of a slow economy causes advertisers to cut their media and production budgets.
Based on what historically has happened to the ad industry many would be predicting a rough ride if a recession comes to town. I think a recession could be just what the ad industry needs.
A recession will give us a true opportunity to show our clients the real potential that the interactive environment of online offers them. Why do I think this would happen now when the online ad industry suffered deeply in 2000?
In 200o when the US entered its last recession the online world was deeply impacted as there were too many companies leveraged beyond reason that simply ran out of money and lost market capitalization. The second factor leading to many companies demise was a low level of trust, acceptance and understanding of the online environment by both consumers and advertisers. It wasn't a space that many companies saw as a strong medium.
(Are you ready for it? Insert Beethoven's symphony no 5 in C minor...seriously)
Today the digital environment is more than banner ads, websites and sponsored content. It is a dynamic landscape of limitless opportunity and consumer acceptance. As mass broadcast and print become too expensive and long-term, advertisers will find comfort in the world of online. Campaigns can be created faster, buys more targeted and short-term. The uncertainty of the next quarters financial reports won't weigh in as much as considering a Superbowl media buy, or a bulk, long-term deal with a major network.
In 2008 I believe we will find ourselves in a very different situation than 2000. The online industry is ran by a smaller group of very well respected and financially strong companies. Secondly, online sales, usage, and advertising has dramatically increased. The consumer has embraced the digital world as they openly contribute and have actually become through well designed sites and the opportunity to contribute a truly interactive consumer.
This level of interaction creates a tighter emotional bond between brand and consumer and as many have said before "without emotion there is no learning". The interactive environment will create a brand learning environment beneficial beyond belief to all parties involved. Advertisers and agencies that create emotionally connected digital experiences will come out of the recession stronger than they were before. (great timing right there if you were listening to the symphony)
My final thought on this matter is that I believe that this switch to online for many advertisers will begin to raise online costs (good old laws of supply and demand). Once we find ourselves in this disequilibrium new sites will begin popping up; but the solid, reliable, trustworthy sites will remain where advertisers want to be. Investors and advertisers are too smart to fall for another great web explosion.
So as online media costs soar what will happen?
As the media costs rise and begin to move to the realm of expensive advertising space everyone involved will begin to demand more effective and reliable reporting. We will demand accurate tracking, trustworthy security against click fraud and most importantly these demands will become a requirement if the online media companies want advertisers dollars.
The totality of the results of a recession will cause an online revolution.
We will emerge from an American depression with not only clients and agencies with a greater understanding of the digital space, a greater appetite for risk (and good advertising) but the entire online media industry will become a better place for both advertisers and consumers.
Win, Win, Win. Let us all just hope that this recession lasts long enough for my hopes to have a shot at becoming a blissful digital reality.
I admit that this entire post is just me shooting from the hip with no real research or stats to back up my predictions, just a little too much caffeine to sit still and not enough brains to move on.
So there we go people. Did anyone actually make it this far? If so, tell me what you think?
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