Web Ad Economy Faces Recession ... Possibly

Is the internet advertising economy the picture of health or a disaster waiting to happen? Both scenarios have been reported recently, but of course they can't both be true.

The WSJ's take on the matter is that a "shakeout threatens" digital ad serving networks as investors pull funds, clients nickel-and-dime their budgets, and holding companies end their buying sprees.

On the same day, Joe Mandese at MediaPost reported the exact opposite, that digital was a "still growing" "sweet spot."

It could be that both scenarios are partially accurate, as long as you assume that the WSJ has conflated two separate issues. The WSJ rightly points out that 300 digital ad networks is too many. That's a crazy number of ad servers. The category is ripe for consolidation. But just because there's a period of consolidation ahead doesn't mean that web ad spend as a whole is going into decline.

Most observers are expecting a flat year. Logic suggests that if you have too many networks operating, then some of them will see a decline in revenue even if the total size of the pie remains the same, simply through the normal shifting of client budgets from one network to another.

One of the first victims of that process: ValueClick on Wednesday showed a 2.5 percent decline in Q3 revenues, to $153 million.

Does that decline mean a recession in web advertising is on its way? Probably not. As marketers like GM slash their traditional budgets, they move more money onto the internet to compensate. Although the overall spend is down, the portion going onto the web rises. Some of that is happening now.

As ValueClick recently found out, some clients are simply reducing all their spend. But in the first half of the year, global web spend was up 8 percent, according to TNS. It was up 14 percent among the 30 biggest categories. So networks like ValueClick will have to see a crushing fall-off in revenue ahead of Christmas for the entire year to be recessionary.