When the market hiccups, it’s fashionable to shrug and say “it doesn’t really matter, it’s business as usual.” Today, it isn’t. The market has done more than hiccup; experienced money managers are calling the recent wave of economic trouble “a very rare event.”

Will it affect any of us? Of course. It will affect all of us.

Like O’Reilly, I believe that as either the financial or reality bubble bursts, there will be ripple effects on how digital marketers will work in 2009.

Here are a few wild guesses as to how things will shake out — some of it based on data about the situation, and some of it based on what happened to people in the digital marketing arena in the three years following the dot-com bust of 1999-2001. What’s interesting about this cycle is that Google emerged as the dominant force at the end of that bust, and is likely to survive this cycle with the same result. If this were golf that would be like winning back-to-back Grand Slams. There are few such two-time winners in economic history.

1. Paid search will remain relatively robust. Since this is the Paid Search column and this type of advertising now makes up over 40% of digital ad spend, not counting content, let’s go with first things first. Google spokespersons are probably accurate in their suggestions that they’ll weather the storm well: the nature of the auction system, the granularity of 1,000,000 diverse businesses bidding on hundreds of millions of keyword combinations in an ROI-measured environment; these factors are relatively immune to ripple effects. Of course if less cash is in the economy at all levels, some downward pressure on pricing is inevitable. Not a concern: Google’s $12 billion in cash is conservatively invested, and Microsoft is a cash king as well. Yahoo’s cash flow might actually improve if the Google ad partnership goes through. In paid search, an environment of stability reigns in the midst of chaos elsewhere. There is more yet to this story. Previous softness in the economy, back in 2002-2003, actually caused companies, entrepreneurs, and recent college graduates to become more intrigued by the promise of directly measurable digital media. The renewed interest in customer acquisition and lead generation through the quirky AdWords platform — suddenly “discovered” by newcomers as a rational communications channel and economic oddball impervious to the vagaries of market speculation — actually led to rapid growth then, and will serve to stave off a downturn today. SEM firms that focus heavily on particular sectors like travel or real estate, it goes without saying, may take a hit. When several of your biggest customers go under in rapid succession, you could go under. That’s tempered by the staggered sectoral effect of economic failures and bailouts, and the diversified nature of even vulnerable sectors like real estate. Like many other agencies, mine began to see fewer random lead requests from real estate firms and get-rich-quick schemes. But lo and behold, today we are working with a large real estate organization that is developing a systematic plan to bring its franchisees into the digital age. Once again, then, the secular trend of newcomers finally settling on a structured plan of investing in digital media serves to balance out the exit of frothy liquidity from the financial system.
2. Display ads are vulnerable in a slowdown. In the dot com bust, display ad rates got torpedoed through a combination of a lack of value, a lack of trust, and the collapse of a pyramid-scheme style economy whereby many high-CPM ads were bought by worthless, soon-to-be-defunct venture-backed dot coms. Today the online display ad business is more developed and robust, but until new ad exchange models develop past the chicken-egg stage, there will remain a lag in efficiency and measurability. The current stereotype (fueled by past realities) that search is far more targeted than display will hurt, also; as will the lower value of brand-lift “frills style” measurement that inevitably comes with tough economic times. The counterargument is that high-quality, targeted online properties should hold their CPM value well as money shifts to digital marketing generally, from less measurable channels. But until the new exchanges and networks truly begin to shine, these ads won’t sell themselves, so the life isn’t out of the profession of buying and selling online media just yet.
3. Weak companies die. The strong get stronger. Without access to capital, many ventures will be forced to shut down. (It’s a grave concern right now that so much liquidity from the federal government is earmarked for mere bailouts of financial assets, many of them troubled. So much for ‘moral hazard’ and the need for credit to be extended to promising businesses.) This puts the cash-rich leaders in a stronger position. The effect also filters down to the constellation of large and small digital agencies and independent consultants. As trust in general notches down further on most businesspeople’s dashboards and radar screens, they’ll be looking for proven players. Getting a foothold in the business without much of a reputation will require grinding hard on low-priced contracts, or might not be possible at all for some. Hanging out your shingle just got harder. Meanwhile, savvy market leaders might be interested in hiring you.
4. M&A activity and people changing jobs. Instead of going away completely, various agencies, technology providers, and content companies will opt to be acquired. This will lead to downsizing or adaptations to new corporate cultures. Crank up your LinkedIn awareness and use the opportunity (if you are not one of these people) to make new contacts, to explore new attitudes and fresh directions. Flexibility and openness will increase among those who are no longer heads-down trying to meet narrow corporate milestones.

Get the story at searchengine.com - Part 1 and Part 2