If the Recession is Long, Web 2.0 Startups Could Be Screwed

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Andrew Chen, writer of the online advertising-focused blog Futuristic Play, has a post up today talking about online advertising in a recession. Included is a stark prediction about some of the most active areas in online. From his blog post:

Unfortunately, some of the weakest areas for online spend during a recession are also some of the hottest spaces for startups right now. In general, startups based in video, social networks, and communication applications are some of the most brand-dependent companies out there. The problem is that generally, they have a hard time monetizing pageviews because users aren’t in a buying mindset when using the products.

Because of this, you need to be at a critical mass point to be relevant to agencies - and of course, this bar can be expected to rise over time in the case the economy is sputtering. Why spend a dollar with a no-name publisher when you can buy premium inventory for relatively cheap CPMs?

This mirrors what I’ve been hearing over and over about marketing in a recession: brand advertising is screwed while direct response is only going to get stronger. Of course, the main beneficiary of direct response is anyone involved in search advertising. As always, its good to be Google.

Still, it’s not all gloom and doom. Andrew Chen goes on to note the giants of today were mainly founded in the doldrums following the last economic downturn:

The brand-oriented web properties that exist today were built in the 2003-2005 era, when brand advertising wasn’t so healthy. Similarly, Google was created during a period where online ads was out of vogue, and they had to figure out a model that works.

For the new startups that are building their business plans from scratch today, I think there remains tremendous opportunities in the advertising-supported model. It pays, as many investors can attest, to be counter-cyclical. Perhaps the startups being incorporated this year who reach scale 3-4 years from now will be the ones that really kill the TV ad market by doing things we can’t even imagine today.

Tags: Web, Web 2.0, Brand, Start-up, Online Advertising, Andrew Chen, Branding, Marketing, Jake Swearingen

Jake Swearingen has written for Wired and Business 2.0, covering everything from locative technology to high-definition online video.

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1

4ftern00n

07/18/08 | Report as spam

dotbomb, dotbrightfuture

The same thing happened after the dotcom crash. Marketing budgets were
squeezed as organisations struggled to get real value from the web. They did
that eventually though. A lot of what was promised then has now been
delivered. It was the assertion that it would happen over night that was false.

Social media change the way consumers view and interact with organisations. I
think they cut back on embracing those media at their peril. If visitors are not in
a buying mood, reading negative Twitter posts about your customer service all
day long is only going to make things worse.
2

Michael Fitzgerald

08/02/08 | Report as spam

RE: If the Recession is Long, Web 2.0 Startups Could Be Screwed

online advertising is badly fragmented and has no real business model. Perhaps a site shakeout will help one emerge.
3

rob4CEOSpace

08/28/08 | Report as spam

RE: If the Recession is Long, Web 2.0 Startups Could Be Screwed

As I see it, much of your success is directly dependent upon your business strategy. I can certainly understand the position of direct marketing vs brand building but I do believe there can still be a major market for the start up if they start with the proper plan.
One major thing that most never foresee is the cost of building their brand. For most part, a start up is doomed if they don't have the needed capital before they start their branding process. And, there in lies the problem. How do start ups get funding. Banks are not fond of the idea unless you have equity to put up against the loan. The SBA from all I've heard, is not much better...the red tape and time consumption can kill a project before it gets off the ground. The biggest killer is that they will try to get you to drop the loan amount. You accept only to find out that after a year or two you run out of money and you don't have the project floating. One great resource that many start ups have been finding very helpful is an organization called CEO Space. They actually show you how to raise capital which shifts the dept load from the start up to the investors. They also work to help you build a team with members who have strengths the supplement yours. You'll never grow a business to any size if you want to be the lone ranger in the business world.
4

PAB-SB

12/17/08 | Report as spam

The Times They Area A-Chang'n

Nothing is guaranteed long-term. The public is fickle. Get used to it. Some people can't even watch a TV program without the remote in their hand -- why would we expect any type of loyalty online or anywhere else?