Search And Display Spending Diverge In Bad Economy

Traditional media is suffering in the current downturn/recession. For example, US print newspaper revenues were down 16 percent in the second quarter, compared with a year ago. Online (and Outdoor) are really the only media segments that are growing or holding their own (maybe TV). However, the Wall Street Journal reported yesterday about a divergence between paid search and online display advertising and the relative fortunes of the companies that rely on each for their revenues.

The single largest online ad segment, paid search, accounted for 41 percent of online ad revenues in 2007. It has been tracking at about that same level this year. The second largest segment, display, was 32 percent of online revenues for FY 2007.

However the WSJ says that online marketers continue to spend on search while many are cutting back on display advertising because they’re short on cash. The article cites an online spending forecast that argues display ad spending may come in at 50 percent of search revenues for the full year. That’s probably too pessimistic but it illustrates the potentially diverging fortunes of search and display in a bad economy. (At SMX East I’ll be moderating the Search & Display panel featuring Yahoo and Microsoft.)

AOL, Yahoo and Microsoft have strong display portfolios compared with Google (which now owns DoubleClick). Google, of course, gains the overwhelming majority of its revenue from paid search. The company has been trying to diversify into display (with YouTube, DoubleClick, AdSense) for some time. And it will continue to move in this direction to attract more brand advertising dollars. Yet in the context of this economy Google appears to be in a stronger position than its immediate competitors.

I have several reactions to the WSJ article. First, we logically should be seeing more display ad spending online (not less) because brand advertisers should be moving from traditional media, which is more expensive and increasingly less effective, onto the internet. But the evidence shows that they’re not doing so as quickly as one might have expected.

Second, search is a branding medium. There are lots of studies that show a branding effect or lift from paid search. And consumer behavior also argues that search should be thought of, if not as a branding medium, then as something more complex than simply a direct response medium. Yet paid search is often regarded only in this narrow context. (iProspect recently released findings that show many search marketers continue to treat search as an isolated silo, despite the way consumers interact with search and traditional media.)

If you recognize this dual, search + branding possibility, you could argue that boosting search budgets at the expense of online display makes some sense. Indeed, you could potentially get both brand and direct response value from search (depending on the campaign and keywords). But most search marketers don’t necessarily see it that way.

So what we’re seeing from marketers, traditional and online, is arguably not entirely rational behavior. Nonetheless, it would appear that search is in fact more “recession proof” than other forms of online marketing.