Lies, Damn Lies and Advertising Statistics

In the last 2 evenings I have attended two events focusing on Social Media, and the striking thing about these compared to the ones I attended a few months ago is that they are no longer populated by geeks, but increasingly by Advertising and PR people. It feels like 2001, so is the Eyeball Bubble back in full swing?. Well, it is but there is a reason this time - there are just so many more eyeballs online now.

Om Malik wrote a nice piece about this in Business Week last year, and I quote:

Back in 2000, every entrepreneur who started a Web content company carried the same PowerPoint slide. It charted the astounding growth of U.S. online advertising, from next to nothing in 1995 to $6 billion in 1999. Then a dotted line shot up to the projection for 2005--typically the $16.5 billion figure supplied by New York City-based Jupiter Communications. If a website could just attract visitors, the slide argued, advertising dollars would follow.

Venture capitalists and big portals bought in, placing sky-high valuations on sites that promised large audiences. Of course, the market for traffic dried up as online advertising slumped from $8.2 billion in 2001 to $6 billion in 2002. But here's the kicker: Web content deals are on the rise again, and Internet ad spending should reach $12 billion this year, meaning Jupiter's once-ridiculed forecast wasn't far off the mark. Viewers for Sale

But from the Yay-sayers, there has just been a new graph in Jason Calacanis's blog here that reminded me of all this, but I see that Om is now sounding the Ominous Warning from the Sceptic tank, in the GigaOm blog there

So, is Om right and this will all flatline, or is Jason right and its a headlong charge into the sunny uplands of Advertopia?

Well, earlier this year we had to do some predictions about the whole interactive Ad market for a client, and while this is always dangerous, there is one thing that has totally changed since 2002 - and it changes everything - it is the sheer number of people connected to the internet today compared to 5 years ago. In 2001 the 'Net was a minority sport, now it is mainstream, and big bandwidth.

This means that it is almost inevitable that a large amount of Ad money still being spent in (declining) traditional media will move to the Online world. The current Online Ad spend is still tiny as a % of all Ad spend, and the basics of human behaviour - we want better stuff than what we are prepared to pay for it - will stay the same, so Ads will make up that spending gap.

So is it a 20 year spree of accelerating growth as Jason assumes...no, I don't think so either - this is an S curve, and growth will level off....at what % of the total global Ad spend I don't know, but somewhere between 15 and 20% is not unbelievable - still a big number.

What I am not clear on is whether the Total Ad Pie (all media) will grow or not - I think it may even shrink.

This is essentially because Online Ads are a darn site more efficient. The current Old Media system has high costs throughout the supply chain, and it delivers a product that "only half works, and I don't know which half". The overall value in this supply chain is under threat because:

- Costs of production and distribution are much lower online - the reason we have spam is that it is so cheap, Google's ads are essentially the old "back of magazine" classified ads moving onto the glossy (web) pages.

- Online ads are more targeted, the analytics of the real-tie feedback loops allows much higher levels of efficient iteration between campaigns

- Social Media - ie services connecting our wisdom of crowds - can now efficiently carry out some of the roles that advertising took on in a Broadcast world.

On the growth side however, there are large parts of the planet who are only now getting to the stage where someone will want to advertise to them. Will we see reduction in Ad industry pies in the OECD, as it grows in the BRIC?

As in any rapidly evolving industry, there will be oversights, blind alleys, peaks and troughs, and bad stats - and letting Ad peple near stats is bound to be dangerous