SpectatorBytes

This was a tough week for online advertising given Valueclick’s lower guidance for Q208 (see below), Google’s less than stellar performance and even eBay’s cautious outlook for Q3.

While Valueclick’s performance is in part driven by internal challenges, these numbers have raised questions about the growth prospects for the overall online performance-driven advertising market.

The Web had been expected to be insulated from the economic slowdown since it is a much more efficient channel than other medial. However, it seems that two things are happening:

1. Consumers simply stop responding as they are spending less. In that sense, online is a good reflection of the general economy.

2. Advertisers are putting downward pressure on CPMs given hyper-competition among performance ad solutions.

The question that still remains for me is whether or not there is a consumer fatigue element to this growth slowdown. Like with junk mail, consumers may have gotten tired of direct response advertising (particularly display). Will keep an eye on reports.

So, what are the implications for advertising-supported businesses:

1. Ad Revenues are likely to take longer to scale for sub-scale sites than previously expected given state of the direct response market. 10-30 cent CPMs are here to stay.

2. Publishers must focus on finding ways to make their experiences attractive to brand/premium advertising revenues. Premium-focused/Vertically targeted ad networks (e.g., Glam and Gorilla Nation) will benefit from this trend.

3. Companies which delivered high-quality experiences/content and highly engaged audiences will be big winners as competition for “sponsorable” experiences increases. Companies which are not able to deliver this type of experiences will struggle.

4. We will hopefully see new innovative and scalable ad solutions – including better targeting.

5. We will likely see consolidation among performance display ad solution providers