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As the economy slows, will advertising take a hit?

Question: As the economy slows, will advertising take a hit?

Jimmy Wales: I think, you know, during a downturn, you know, how much is advertising gonna drop by?  Well, it may drop by three percent, five percent.  It shouldn’t be a total disaster for anybody, except those who’re really on the margin.  At the same time, I think we’re still, though, we’re experiencing a very long term trend towards internet-based advertising, away from traditional media.  And that is probably a big enough factor that it would override for our industry any downturn in general ad revenues.  I think that what we haven’t seen in the past-- I agree with John Battelle who says that we sort of went down the rat-hole of pay-per-click advertising for a long time.  And that the idea of brand advertising is one that has not gotten its due in the online space.  I think it’s because clicks are measurable, people over-focused on clicks as a measure of the effectiveness of the ad, and so we haven’t seen a lot of really, really big advertisers doing all that much online.  But I think that’ll change.  I mean, just the idea that, you know, so pick your random big advertiser like Coca-Cola, or McDonald’s, right?  Well, they’re not selling Coca-Cola online.  It’s not an ecommerce product, and never will be.  McDonald’s, same thing.  And so measuring the success of an advertisement online by a click-thru rate, and the number of people who came and played with your stupid flash animation, may be not that great, right?  I think, instead they have to step back and say, “Oh, actually, this is kind of like TV, right? It’s kind of like a billboard.  We put up a billboard.  We know how many people see it.  We really have some historical understanding of what that might mean for people thinking about Coke when they go to buy a beverage next time.”  But we need a lot more of that on the web.  Just to say, “Look, actually we’re gonna mention Coke’s name in a banner ad, or in a little sidebar ad, and we really don’t care if people click on it.  We really don’t care.  It’s not about that.  It’s actually just getting that word in front of people everyday, so that when they do get ready to think about it.”  That’s one type of product.  Another type of product would be a very information dense product, so something like Toyota Prius, right?  There, I think that the lure of interactive advertising is to actually-- it is a bit ecommerce.  It is a bit get people to come and play with your stupid flash site.  Although, hopefully, it’s not a stupid flash site.  Hopefully, you can say in that space, “Look, we actually feel like this is a product that more people would want to buy if they understood it better, right?”  If we do research and we say, “Well, people kind of like the idea of a cleaner, green car with better gas mileage.  But they’ve heard it’s some kind of hybrid.  Maybe they’re a little scared of it, and they don’t know, you know, does it run out of electricity, or what is that all about?”  I don’t know what the problems they face are-- I’m just being hypothetical.  But it is a product where you can imagine that lots of people would like to go and learn more about it, and then actually maybe click and buy it, you know?  So I think there’s still like tons and tons of room for a lot more ad money to flow into this space away from traditional models.  And that’ll be a stronger effect than any downturn.

Recorded on: 04/30/08

It will only be a disaster for people on the margins, says Wales.

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