While all types of advertising are expected to be hit by reductions in 2009 budgets, paid search is likely to be the long-term winner as advertisers increasingly look for evidence that they are getting a clear return on investment, according to the latest Nothing but Net report from JP Morgan.
Imran Khan (pictured), the JP Morgan internet analyst who led the team that compiled the report, points out that advertisers have been forced to try out performance-based search advertising at a faster pace because of the weak economic environment. He believes the effects will outlast the downturn. “Even after economic strength returns, we think advertisers will stick with their new allocations based on better metrics and higher measurable returns. Specifically, we see newspaper and radio advertisements suffering the most from these budget shifts.”
Performance-based advertising has gained market share over the traditional CPM (cost per thousand) model over the past five years, according to Khan. This trend, he says, is most clearly seen in the UK where the online ad market is more mature, with 15pc of spend going online compared with 8pc in the US. “In the UK market, we think roughly 85pc of total online ad dollars are spent on the performance-based model.”
During the downturn, this trend is expected to not only continue, but to gather pace. “We have seen advertisers place higher value on clear ROIs. As such, we believe the shift to performance-based models is only going to accelerate. In 2009, we think the display advertising market will be very tough and faced with declining CPMs. Search will likely still be a winner.”
The Nothing but Net report does, however, predict a deceleration in the search market growth rate as a result of overall ad budget weakness, a lower inflation in keyword price and possible reductions in the numbers of highly monetised searches. This time last year, JP Morgan predicted that global paid search revenues would reach US$39.6bn in 2009. However, having twice reduced its search advertising market forecast during 2008, the company is now predicting worldwide revenues in this area to hit US$33.2bn.
By Grainne Rothery
Pictured: Imran Khan, JP Morgan internet analyst
Read the full-length article on businessandleadership.com.