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The BBC have picked up on some research by the IAB on advertising revenues. (The industry’s own “Internet Advertising Bureau”.)

The research says (surprise, surprise) that people are advertising less in the first quarter of 2009 on the internet – with advertising revenues down by 5%.  But this data is US driven and it is hard to exptrapolate from this the change in UK fortunes, because of a recent change in the UK online advertising market.

Due to the termination of Google’s “Best Practice Funding” at the start of the year, it may be that Google in the UK has either escaped this downturn due to some rather clever footwork about 18 months ago – or is in for much worse figures.  If the total UK advertising revenues are down just 5% then it is quite possible this means up to 10% INCREASE for Google.  Alternatively, my suspicion is that the downturn in the UK will in fact be much worse, due to an inflationary affect on AdWords prices amongst the largest of advertisers since the January 1st.

Google used to give the largest advertising agencies a discount if their revenues were in excess of a certain level in a given quarter.  For the largest agencies, this kickback was in itself enough for a valid business model, enabling them to win the largest accounts without charging the client a penny.

Some might say that this was unfair competition. indeed – the differential was also affecting Google’s Adwords algorithm as different companies could effectively bid more and get the same return of investment.  To give Google their due – they gave agencies a good 18 months notice that they were going to put an end to it.  The hammer fell on the 31st December for these large agencies who – from that point on – had to charge their clients to stay in the game.

This – even without the recession – meant that Google’s share of purse increased – not at the expense of the client but at the expense of the agency.  Many agencies simply reworked their clients’ budget to accommodate the change.  So if the TOTAL ad revenues have dropped by 5% – and assuming this includes agency fees – then Google in the UK will be faring better than in the US where the kickback never existed.  However – if companies are truly evaluating their return on investment on Google advertising, then the accounts still need managing by agencies or internally and this the overall cost of advertising went up significantly on that date.  Large companies will have received less for their adspend even without the recession and with the recession on top, the UK online adspend would, in a presumed free market, fall more to redress the balance.

Receptional never relied on the kick-back for its business model and we have some interesting new incentives for new clients looking to come on board for paid advertising, including a free PPC Health Check for these larger companies who may have been affected by the change and free setup for a limited period.  In addition, we are looking at new pricing models designed to concentrate on cost savings for clients during the recession.  Please ask for a free PPC Health Check if you feel you would qualify.