Promotions Could Overtake Display and Search Says Report

Display and search advertising are losing ground to spending on online promotions and sponsorships, according to a new report. Web research firm Borrell Associates claims Internet marketing dollars have shifted “away from classic online spending” in favor of non-advertising marketing expenditures, or what it calls the “nebulous category of ‘promotions’.”

“This is one of the most fascinating phenomena we’ve seen, and it’s a bit of a sleeper. It’s been a bit understated so far,” said Borrell Associates CEO Gordon Borrell. “But we think the overall trend is going to make advertising look considerably different in the next 10 years than it has in the last 100 years.”

Spending on display ads, including banners and pop-ups, has been flat for the past two years, and will peak this year at $12.6 billion before beginning a “precipitous decline to less than half that amount over the next four years,” according to the “Online Promotions: The Big Shift” report. The same can be said for search advertising, which Borrell predicts will peak next year at $16.9 billion, then decline more gradually.

Meanwhile, online promotions accounted for $8 billion last year, a number that will nearly triple over the next five years, eventually reaching $22.8 billion and eclipsing all other categories of online marketing, the report said.

“What’s driving it is an overall dissatisfaction or nagging feeling on the part of advertisers that their advertising isn’t working, or that they’re overspending on it,” said Borrell. “With the Internet, they can go straight to consumers. If they’re having a sale, they can put it up on their Web site and consumers will come to them, and if their Web site is good enough, consumers will keep coming back.”

This shift brings with it a host of challenges and opportunities for media companies, which will need to offer greater inventory for non-traditional media plays. Those include giveaways, coupons and online contests. If publishers adjust, they stand to reap vastly greater advertising revenues than they would from selling standard display advertising alone.

“I think there’s a lot of complacency among a lot of traditional media that companies will always have to advertise, so they’re not adjusting fast enough,” said Borrell. “These traditional and legacy media companies are going to have to start being much more creative and less order-takers.”

While no particular category of advertiser is driving the shift toward promotions, Borrell added it is national marketers, rather than local ones, who are doing the most experimenting in the area. “They have the size to understand it and experiment and do different things,” he said. Nonetheless, local advertisers are following, he said.