Hank Blodget is worried

Say what you will about his record in the late 90s, but he’s still one of the most insightful internet analysts. Unfortunately, he agrees that display ads are about to go into the crapper.

Hank predicts a 10% decline for the next two years, but I’m afraid that might be a little on the low side…I’m bracing for something worse as ad budgets often experience unjustifiably large pullbacks (as they also grow to be unjustifiably large as well).

Separately, Blodget also wrote a good piece on why this recession will be particularly bad.

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The Internet is about to get a lot less profitable

I don’t care if you’re selling funky t-shirts, or have an online glamour magazine, the internet is about to get a lot less profitable. The US and world economies are going to the crapper and the internet is going to be taken along for the ride. People around the world will be buying less of everything. That means almost all products and services, and that means fewer ads, fewer clicks, and less revenue. 

In the advertising arena, brand advertising and “experimental advertising” will go first. It’s harder to measure their effectiveness so will suffer a more knee-jerk pull-back. But Pay-Per-Click (PPC) advertising will soon follow. The move of ad dollars from traditional media to the Internet will continue to help plug the hole in the dam, but if consumers are spending much less money, they will click on ads less often and each time they do they will be less likely to make a purchase. 

So what does this mean for web start ups? Get a new business model or prepare for your business to be a fraction of what you thought it would be.

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