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Online market stumbles
Sunday, October 12, 2008
Online advertising has experienced a poor summer. Catherine O’Mahony and Martha Kearns take a look at what the future holds for the Irish market.

Online advertising, the star performer of the Irish advertising world in 2007, has lost some of its shine this year. Advertisers, who have been reining in spend on traditional media as the economy weakened, reduced their online investment substantially, interrupting what had seemed an unstoppable gallop for online ad sales.

According to figures supplied by the Institute of Advertising Practitioners of Ireland’s BASE system, spend on online display advertising by Irish advertisers has fallen each month since June, and became progressively less as the summer continued.

The figures do not measure search advertising expenditure, but they do signal trends. In June 2007, Irish advertisers spent €2 million on display ads; in 2008, just €1.8 million was spent. In July 2007, they spent €1.8 million online; in 2008, that dropped to €1.4 million.

In August 2007, €1.9 million was spent online. But by August 2008, the figure had plunged 30 per cent to just €1.3million.This is despite the release of a survey last week by Results International Group that predicted online ad spend would rise by as much as 200 per cent in the coming year.

‘‘What we seem to be seeing is a return to 2006 levels of spend,’’ said Michael Dwyer, chief executive of Pigsback.com, one of the most established online businesses in Ireland.

‘‘It’s clear to us that online in Ireland isn’t immune to the budget cuts that are happening everywhere.”

At the same time, Dwyer said talk of a dotcom crash was not justified for the Irish market and said his own business had no plans to downsize.

‘‘Irish brands have taken a very conservative approach to online investment, so what’s there is pretty robust, in my view. We don’t have ... as far to fall as people do in Britain.”

In Britain, where online spend is much higher than in Ireland, there are some jitters about the future. The Internet Advertising Bureau has just released robust figures for the market this year, showing that spending rose by 21 per cent year-on-year to stg£1.68 billion in the first six months of 2008.

Online advertising there is, in fact, propping up the market and preventing what would otherwise have looked like an industry-wide spending decline.

It increased its market share of the total British advertising pot by four percentage points to 18.7 per cent (in Ireland, online advertising is reckoned to have a market share of about 5 or 6 per cent). However, two research firms, Enders and PwC, recently revised downward their growth expectations for British online advertising in 2008, and there are concerns of a more dramatic slowdown in online spend next year.

Sly Bailey, chief executive of Trinity Mirror, who addressed an Association of Online Publishers conference in London last week, described how the digital growth of recent years had slowed and suggested there were ‘‘tough times ahead’’ for the industry.

‘‘Well, 2009 will be like Groundhog Day. Lucky people should expect consolidation - and, for the less fortunate, failure,” she said. ‘‘Digital businesses can no longer rely simply on a rising tide of growth. The latest market figures show that the downturn in the economy is now affecting digital media, with growth rates in internet advertising revenue falling in 2008 and the market expected to be more challenging in 2009. As we’ve seen, even Google is not immune,’’ Bailey said.

‘‘Only the strong will survive. Building new digital audiences is the right thing to do. Attracting millions of unique users to your digital brands is great. But if businesses can’t convert those users to revenue and then to sustainable profit, they will simply run out of cash. This is no time for vanity publishing.”

Bailey was, in part, simply attacking the BBC, which is planning a launch of a large array of new websites. But she’s not the only one talking about the horror scenario of a dotcom crash.

Maurice Levy, chairman and chief executive of communications giant Publicis, warned of a second crash last November. ‘‘Far too many people are building plans based on advertising, and they may well be disappointed because there is not enough money for everyone,” he said.

‘‘It’s exactly the same situation as we saw at the end of the 1990s,when everyone thought that, because they had a website, they’d get the valuation. Now everyone building a Web 2.0 operation believes they will receive the advertising.”

Dwyer said Britain’s over-reliance on banner advertising had been a mistake. ‘‘It never made sense tome and, if there were a ‘dotbomb’, it would be there,” he said. ‘‘But our business in Ireland is robust and profitable. We’ve steadied at a level that we’re happy with.”

Google, the giant of all online businesses, is also looking on the bright side. The company’s Dublin headquarters last week played host to 200 advertisers and agencies from across the greater European area for a conference designed to encourage their commitment to the online world.

Ronan Harris, director of online sales and operations for Google, conceded that all businesses would be affected by the recession. However, he said that the downturn would benefit the online world, as it would encourage more people to stay home and seek bargains online.

‘‘All the research we’ve done shows that businesses need to structure themselves to take advantage of the changing times. The best example of all of this was Ryanair, which bought a fleet of aircraft right after September 11,” he said.

Google was working with advertisers to help them create more useful online retail offerings, he said. ‘‘There are still people out there who think having a web presence is just having a placard up there. But consumers expect to transact online. They’re very tentative when they first move online, but once they take the plunge, they’re very loyal and they will come back to you again and again.”

Around 5 per cent of all retail sales in Britain are now carried out over the internet and, by 2015, it is expected that figure will double. Similar figures are not available for Ireland - although Google’s estimate is that average daily Irish web sales may exceed €12 million.

One of the reasons for the relatively slow development is the slow upgrading of broadband. ‘‘In Ireland, we are only catching up. We are years behind Britain - that was really down to broadband penetration. Our road system and coverage is also not as good as in Britain,” said Helen Kelly, relationship director with Barclays Bank Ireland.

She said that, because of the economic environment, price was vital for those competing online. ‘‘People are spending less because they have less money in their pockets. They are being choosier, so price is important.”

Other ways that those who are doing business online can differentiate between each other is through product range and delivery costs. ‘‘It’s all about having the right product - you can’t put every single one up there, as you need a huge investment to make sure it’s updated and that the prices are correct. It’s all about making sure that the products on the website are available and that the website is easy to use.

‘‘A lot of shops are not letting you buy online - that is another model. They are saying, ‘Here are the items we have in our shops, and you can come in and buy them if you like the look of them’,” said Kelly.

She said that some sectors, like the travel sector, realised very early how they could use the internet to increase sales, but other retailers were also now getting on board.

According to Kelly, recent internet growth had all been around food, but fashion was now another big growth area. She said people were now shopping online for smaller items while previously it was only big ticket items where large savings could be made that were being purchased.

‘‘Now, you can go onto the Clerys’ website and buy a Tefal saucepan for €18.50; they charge you nothing to deliver it if you are in Dublin and €6outside Dublin. If you had looked at an Irish website in the last year or two, you would not have been able to do that,’’ said Kelly.

Websites that rely purely on advertising for income could struggle in the current climate, according to Cillian Barry, an online consultant at Feep Marketing and the co-owner of racing community website www.racecaller.com.

‘‘There are a lot of dotcom businesses looking to make money from advertising, and there’s only a very limited pool out there. I think there are online media owners that will struggle to cover their costs, not to mention turn a profit,” he said.

‘‘It’s different in Britain, where there’s a great big pot of money. In Ireland, it isn’t nearly as big and there are established players like Google and the social networking sites that will always take the biggest chunk. What’s left is a long tail of thousands of smaller sites trying to make a living.”

According to Harris, online advertising spending remains set for considerable growth in the long term.

‘‘You only have to look at the amount of time people spend online - it’s up to 25 per cent of media consumption in most markets. Irish consumers are no laggards in their adoption of online [use], so ad spends are totally disproportionate.”

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