Is the sky falling on online advertising?

Bambi Francisco Roizen · November 3, 2008 · Short URL:

JP Morgan cuts online ad forecasts, Rubicon and Pubmatic Q3 reports show declines

 When I opened my inbox this morning, one of the first emails I saw was the one from Imran Khan, Internet and media analyst at JP Morgan.

Not surprisingly, it wasn't about the sky clearing. It was more like the sky was falling. Khan's headline: Further Economic Deterioration Drives Our Second Estimate Reduction in Two Months. Khan said in his piece: "Our channel checks are showing that sell-through is declining... so far, CPMs for premium inventory are flat to slightly down. Looking forward, we think CPMs for premium inventory are flat to slightly down."

Meanwhile, Pubmatic's quarterly AdPrice Index for the third quarter, showed that the average ad price of 27 cents across its 5,000 publishing customer sites was a 21% drop from the second quarter, and a 27% decline from the average ad price in the first quarter. Pubmatic, which is only measuring display advertising, is an ad network management company. In the report, the PubMatic team said: "Ad pricing for display advertising is trending downwards - not terribly dramatically overall in terms of percentages, but consistently, and across nearly all categories, by size and vertical." 

Meanwhile, Rubicon Project put out its report on Nov. 3, saying pretty much the same thing. "Average CPMs served across thousands of sites and 270 ad networks slipped 11 percent from Q2, but performance varied by network type and channel. Several channels experienced greater than 25 percent lift in CPMs from Q2, while others dropped by almost 20 percent. This fluctuation among verticals appears little different from past quarters’ analysis," according to the latest report. Rubicon is another ad network management service.

At the same time, I read a piece by Eric Ries, co-founder of IMVU, about advice from Kleiner Perkin's John Doerr. In Eric's piece was this advice: "Get 18 months or more of cash (runway) in the business against a conservative forecast."

My takeaway from the latest online ad news and John Doerr's advice is: Don't rely too much on advertising to help bring in revenue to extend the runway. Or, if you do, you better drop the expectations of what kind of CPMs (cost per thousand views), you'll be getting.

That's exactly how many ad-supported companies should be feeling right now.

Here's more from Imran's report:

Overall ad budgets continue to weaken. Since we reduced our estimates on September 4th, we have seen a further slowdown in the economy, particularly in the last 2 weeks of the 3rd quarter. Weakness continued into October and spread from the US and UK throughout continental Europe and Asia. Additionally, dollar strength was greater than expected which will further depress growth rates. We are now basing estimates on a $1.25 exchange rate vs. our prior base of $1.40. Our updated model calls for total online global advertising growth of 25% in F’08 and 13% in F’09 vs. our prior estimates of 28% and 19% Y/Y growth respectively.

*  Deterioration of display advertising is more pronounced than expected. Our channel checks are showing that sell-through is declining. Additionally, so far CPMs for premium inventory are flat to slightly down. Looking forward, we think CPMs will remain depressed and sell-through rates will worsen. As a result, we are lowering our F’08 and F’09 domestic display estimates to $7.95B (11% Y/Y growth) and $8.45B (6% growth) from $8.15B (14% Y/Y growth) and $9.43B (16% growth). We are now modeling F’08 global display ad growth of 14% Y/Y vs. our prior estimate of 16% growth.

Search performance held up in 3Q but we expect ad budget cuts to bleed through. We continue to see performance-based advertising holding up better than banner advertising. Long tail advertisers continue to allocate additional dollars to search. However, keyword price inflation is moderating. Additionally, we think marketing spend pullback in some segments including travel, telecom, autos, and retail is worsening. As such, we are lowering our domestic F'08 and F'09 search growth estimates to 23.4% Y/Y and 17.3%, respectively, from 27.4% and 25.5% Y/Y growth. We are modeling F'08 global search ad growth of 34% vs. our prior estimate of 36% Y/Y growth.

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Bambi Francisco Roizen

Founder and CEO of Vator, a media and research firm for entrepreneurs and investors; Managing Director of Vator Health Fund; Co-Founder of Invent Health; Author and award-winning journalist.

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Rubicon Project


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the Rubicon Project is a group of industry-experienced, aggressive and passionate renegades dedicated to bringing a new level of efficiency to the fragmented Internet advertising space. As of January 2008, the company has raised $21 million in funding.

The founders of the Rubicon Project shook up the online advertising industry in 1998 when they created L90/adMonitor, one of the most successful Internet advertising platforms that served over 3,000 of the web’s most recognized sites, reaching 65% of the Internet population before DoubleClick acquired it.


$27 Billion was spent advertising online in 2007, yet it’s still too hard for websites to sell their ad space online. While Internet advertising is an explosive market, it is an incredibly inefficient one with advertisers spending money with 300+ disparate advertising networks worldwide (e.g. Google AdSense, Yahoo! Publisher Network, HispanoClick and Adtegrity). the Rubicon Project’s web-based, self-serve solution gives any size website the most complete access to the total available advertising market and its smart matching technology does all the work to perfectly match each ad impression with the optimal money-making opportunity. the Rubicon Project is the new online advertising standard that makes it effortless for websites to generate the mad cash they've always dreamed of. And, it’s free to join.



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PubMatic is focused on serving the needs of publishers by providing an industry leading platform that allows publishers to maximize their revenue while simultaneously reducing complexity.

Being a publisher is difficult these days. On the one hand, publishers want to focus on developing rich content and sustaining a user community based on common interest. On the other hand, they’re forced to spend ever more time and energy running the “business” of being a publisher.
What ad style should a publisher use? Publishers have to figure out what’s the best color combination, size, ad type, and other parameters that best appeal to their users. There are over a billion different combinations for publishers to consider.

How can a publisher manage multiple ad tags? Each ad network and ad style requires a unique set of ad tags that publishers have to maintain and manage.
Which ad networks should a publisher use? There are several hundred significant ad networks operating around the world today, with that number growing every week.
How does a publisher get consistent reports across ad networks? Each ad network is only able to provide reporting visibility for a subset of the publisher’s ads, but yet publishers need the ability to view their ad inventory performance holistically. Learn more about PubMatic for publishers.

At the same time, ad networks are finding challenges of their own.
It’s difficult to reach new publishers. Most publishers already have ad tags on their web site, and they’re reluctant to change them for a new ad network.
Signing up new publishers is inefficient. Signing up new publishers typically involves lots of emailing or faxing back and forth, requiring lots of staff time and slowing the growth of the ad network.
PubMatic was founded in 2006 and is based in the Bay Area, California and Pune and Mumbai, India. PubMatic is backed by Draper Fisher Jurvetson and Helion Ventures.