It started around two to three years ago, when subprime mortgage holders started defaulting on payments that lead to a lot of foreclosures. The defaults soon affected banks and other financial institutions creating a cycle of higher interest rates and more defaults and foreclosures. In short order, the problem became a crisis. And from subprime real estate lending, it spread to investment grade real estate loans, and soon engulfed the rest of the United States economy. Not surprisingly, a troubled United States economy soon brought down stock markets around the globe.
Compounded by rising gasoline and oil prices, what started as an isolated problem became a worldwide downturn. Now, the United States is arguably in a recession, while European and Asian markets are panicking and near-collapse. To realize the economic downturn, one does not have to look far. Drastic changes have crept into the way we live our daily lives. Trips to the supermarket are schedules, all expenses are closely monitored. Recently, media reports said that more and more people are spending much less that not even a solid Black Friday could lift up the moods of the nation’s biggest retailers.
There are indicators that consumer behavior negatively changing. Credit cards are being left at home, while fewer people are trekking to malls, and even fewer are buying.
These changes are sure to find its manifestations online, as our online world are good reflections and uncanny extensions of our real lives. Since most Internet commerce is facilitated through credit cards, and since the plastic is increasingly being shunned by consumers, expect to have a much lower growth for online spending. In fact, a recent CNN Money article reported that online spending, the fastest growing area of retail for years, increased only by 6% in the third quarter of 2008, compared to 13% and 12% in the second and first quarters of the year. CNN also clarified that the dismal growth was brought about by the fact more and more consumers have shifted to the Internet to cut back on brick and mortar shopping. What this means is that smaller Internet retailers will be looking at a bleaker Christmas this year.
Even giants like Google and Yahoo are feeling the squeeze. With consumers and companies tightening budgets and because advertisements are the first to go during tough times, Google and Yahoo saw their ad revenues plunged earlier this year.
At a time when nobody is buying, it would seem that another vicious cycle would start in the online advertising world. Even with the lesser ads, the advertisers’ revenues would drop. The lesser revenue they have, the less money they would have to invest in online advertisement. And without adequate sales coming in, online advertisements lose its attractiveness in terms of ROI, which drove its phenomenal growth in the past years.
Advertisements fuel everything that’s free in the whole World Wide Web. Although we’re far off from having to pay Google to search for a Web site, or paying a certain fee for basic Yahoo services, or pay Mozilla for the use of its Firefox browser, this is not impossibility.
Related Posts: