I am getting hammered by everyone (employees, clients, investors, mom) on what I believe the impact our current recession (including peoples’ paychecks and efforts for raises) will have on our market. I get asked not only for the effects in general or in internet marketing, but an overall effect on the online economy. It is hard enough to have to admit to the recession, let alone get bombarded by people about it.

*Disclaimer: I am known to be a fatalistic optimist, so please take my words how you wish.

In the long run, the recession should have an overall positive impact for many, because more people will be throwing more dollars online. Of the yearly $240 billion currently being spent on advertising, only 7% is online. In contrast to this, people spend 17% of their advertising consumption online. The most important advantage of marketing online versus offline is the ability to enter into short term relationships and see enough data to move and adjust a campaign, without having to pay for lunch (and you can skip the dinner invite) . To market offline, you typically have to plan months in advance and commit to a campaign (TV/PRINT/RADIO) for multi-month or even year terms. Your data will come in every couple of months, and other than seeing spikes in sales, it is hard measure what is and is not working. This doesn’t seem to fly in the technologically advanced world we live in now. And if you are still sharing your internet connection with your phone line- why are you reading this? When you spend your money online, you can see exactly what each dollar is doing and if you see problems in your campaign, you can change and adjust it whenever you want. You can also enter into short term contracts (sometimes as little as a month at a time) to experiment.

Because of the obvious efficiencies in online advertising as compared to offline, I believe more of the dollars being spent will move online. The overall advertising dollar pool may soften a bit, but online has such a small portion of it that we can only expect to see more money. I don’t think the question is whether or not online continues to grow (again phone/internet sharers, this is beyond your reach) as much as it is at what rate it is growing. Furthermore, the recession may actually accelerate the industry’s overall share of marketing dollars.

But Ay, there’s the rub; one area that the internet could see problems, is with investment dollars being thrown at us (we aren’t strippers here). Aside from Google and a couple of other real successes, the internet has not exactly been the safest play for investors. Sure, there have been some huge IPO’s for investors in the past, but most of those companies that paid huge dollars to investors were very artificial (and most have closed their doors). If you are one of those companies that relies on investment to sustain growth, you had better have one hell of a plan B, as the private equity market is inevitably going to dry up.

You all asked for it, and I believe that the internet will have a similar effect for online commerce as it does offline. I am partners in many online commerce stores and we can already see a bit of a negative effect in higher-end “luxury” items. Commerce will soften in general and will certainly appear online. We could get a nice new breed of people looking for better deals, and everyone knows (now) that the internet is by far the most efficient place to do that.

Those are my thoughts…buckle down, save money, and most importantly, make a very strict plan to be able to turn your company profitable by the end of the year.

Come on guys, do we need to do this again? I am going to remind you all of a little quote from Einstein. “The Definition of Insanity is doing the same thing and expecting different results” Should we drive up valuations based off a trend and only all get caught with our pants down looking like a bunch of idiots for jumping on the bandwagon….again? Didn’t we already do this? When will we learn?

AOL’s recent purchase of Bebo, the teeny bobber website, for $850 million dollars (90 times revenue) was a knee-jerk fad buyout in some type of response to Microsoft’s recent investment into Facebook, valuing the that company more than Ford; 15 Billion Dollars.

This is ridiculous. The moment that Bebo or Facebook comes up with a revenue model to match their current valuation, they will lose their market share and someone else will just start up the next up and coming website and the Facebook/bebo/Myspace following will all leave and go there. We need to all remember that these companies do not have software that is unique or business-changing. They are banking that the kids that occupy the sites, whom hate big business, advertisements and all things corporate, will respond favorably to a revenue model. Facebook is already 0/1 with their advertising model when their community went ballistics over their Beacon platform.

What is next people? Are we going to start investing in grocery store delivery businesses with no revenue for $500 million dollars again as well?

Far too many times when we start working with clients on their internet marketing campaign are we asked by the client to send daily/weekly reports and give them our insight about each day. This could be one of the biggest problems we are faced with.

Companies online have become obsessed with data to the point that they stopped looking at longer-term benefits of any given campaign. “What did yesterdays Google campaign yield for me yesterday?” “on Tuesday we got 73 orders, today only 52, should we shut the campaign off?”

The fact is, there are fluctuations online that no one can really point to. I call it the Conversion Chaos Theory. Although there is no evidence of what causes cycles in ecommerce, they are there. Sure, there are the obvious holiday/vacation/weekend cycles that most retailers see, but there is evidence of chaotic cycles that could be attributed to complete randomness.

I would say that although we recommend looking at daily spends to make sure something really crazy is not happening, do not knee jerk your campaigns every day (or week for that matter) as to see the whole picture you really need a longer term sampling size. I typically recommend 3-4 weeks minimum before making huge changes. Always remember, data from failing campaigns will teach you just as much or more than data from winning campaigns. So waiting the extra time even on a failing campaign will surely teach you even more about your online business model.