Economic Depression 2.0

We live in interesting financial times. Many pundits are pontificating and guessing about what it all means for the global economy, but what does it mean for us in the online world? What are the short- and long-term ramifications?

We’ve had some dips (dot-com bubble burst, 9/11), but nothing like this. Using these other low times as historical guides, what follows are some estimates on what the online world might expect in the coming months.

1. Online Marketing Spend OK

As we’ve seen during tough financial turns in the last 14 years, proven online marketing channels are often the last to be cut because they’re so efficient. The medium is trackable to a hard ROI, so companies often shift a higher percentage of their total spend to online. Paid search and e-mail are the last two pillars to be cut.

Some of this depends on which vertical (business segment) your company is in. For example, Proctor & Gamble is probably more likely to cut paid search than Hyatt.

2. Paid Search is Often the Least Affected

Let’s look at a tangible example. Suppose you run a cruise line that caters to baby boomers in their late 50s. Most likely, your buyers are on fixed incomes and travel is perceived as a luxury.

Also, let’s assume they probably had a fair amount of money tied up in the financial markets and their net worth has taken an unforeseen dip. Because of this, through no fault of your own, the demand for your cruises just went down dramatically in the last few weeks.

As director of marketing, your budget most likely has been reduced as a result of external and internal pressure. Now, are you most likely to spend your reduced budget on a 30-second television commercial that costs millions to produce and air with the hopes of reaching your target audience (note: baby boomers have TiVo), or will you spend it in an area where the few who can still afford a cruise are actively searching and you can definitively show management a direct return? The smart choice is the latter.

Unfortunately, your competitors are most likely also thinking the same way. Hence, your cost per acquisition has just been driven up by three factors:

• Less total search volume.
• Less keywords in play as searchers may be going for closer and affordable destinations.
• Competition is increasing their efforts to capture this smaller pool of people that can afford a cruise.

Many companies may actually spend more in search to get less during these times, mainly because it’s still more efficient than the other available tactics.

Or think of some bed and breakfast owners. They’re in the perfect storm with high gas prices and fewer people driving to these destinations. As small business owners, their marketing efforts rely heavily on:

• word of mouth.
• e-mail database.
• paid search.

There’s nowhere for them to cut. They’re finding themselves in a similar situation as the cruise line, and much like many other small businesses that are already as lean as possible out of necessity. The cruise line was forced to get more efficient because of the financial crisis, while the bed and breakfast owner already was efficient.

3. Only the Strong Survive

Jack Welch indicated at the World Business Leader forum in New York that his companies did their best during difficult financial times. He indicated that when you’re in a position of strength (number one or two in your market), you bury or buy people.

Some market leaders will emerge stronger from this crisis — look at Google about to bailout Yahoo in the search business. Don’t be fooled, no matter how this deal is structured, they will essentially own 90 percent of the search market in the U.S. Sites like Craigslist will also excel, as more people look to get money from non-essential assets and buyers look for bargains.

Market leaders can be very aggressive in the following ways:

• Burying the competition in the paid search space by taking a loss on keyword buys in order to gain market share and squeeze out your competition — think of it as an investment.
• Continuing to invest in SEO. Others will cut their efforts here because it’s difficult to track the return; but large, long-term gains can be made for those that stay at it.
• Buying back any branded URLs you don’t own or other attractive URLs — prices will be low.

4. Short-Term Online Losers

1. Subscription-based magazine models.
2. Display banners and large brand takeovers.
3. Experimental media.
4. Developers of fun/brand awareness social media widgets/applications/games.
5. Online start-ups with limited cash-flow.

Those that aren’t market leaders will need to be creative. Often, genius can occur, with the winner being the consumer.

One likely outcome of all of this is a permanent shift from traditional channels of marketing to online marketing. Yes, online marketing could become the highest percentage of marketing spend sooner than any of us imagined.