The end of advertising?

Back in November, I suggested that online ad sales might fall 40% in 2009 as a deep recession carved into online ad budgets. Looks like the market is headed that… or worse, at least according to this Ad Age article:

Cost-per-thousand ad impressions for online publishers are generally off about 20%, according to several people on both the buying and selling side, and sell-through rates are dropping. And where publishers used to unload 60% of their inventory, some are now able to sell only 30%.

But perhaps indicating more trouble ahead is just how cheap the low end of the market has gotten. An August study from the Interactive Advertising Bureau and Bain & Co.* found the average CPMs on ad networks ranged from 60 cents to $1.10, only 6% to 11% of the prices publishers could command when they sold inventory directly. And the pricing for networks appears to be getting worse not better. CPMs for ad-network-sold ads are dropping, some by 50% year-over-year, according to a recent study of pricing by Pubmatic, which tracks pricing among many Long Tail ad networks.

Put those percentages together and you’ll discover that some publishers have seen revenues collapse 60% or more.

Compounding the recession-driven collapse in revenues is the fact that the volume of online content is still doubling yearly, thanks to all the blog posts, comments, photos, videos, ratings, interactions and e-phemera that we all create singly and socially.

With supply doubling and demand stagnant or down, advertising prices are headed to zero for any property that doesn’t deliver VERY compelling value to advertisers.

What a lot of publishers don’t get is that “selling” is only a tiny portion of the formula for survival in the short run, and success longer term. The real keys are innovating, keeping overheads low, improving processes and talking relentlessly to your customers about what they want.