There has been a great deal of conjecture and hand-wringing lately about the downturn in online display. Is the drop “cyclical” or “secular?” Most recently, this angst has been fueled by a report from JP Morgan’s Internet team.
There is no need to guess. Any analyst worth his or her salt can tell you whether a change is cyclical or not. Without getting into great detail, it involves checking the trend components — specifically, the “residual” or “irregular” component. As long as it remains small, the time series you are looking at is stable, so some changes in it are — by definition — cyclical. However, when the residual/irregular component (i.e., the part of the trend that can’t be explained by trend, seasonal, or cyclic changes) gets big, you will know that the progression is “broken.” This typically means history is no longer a good indicator of what’s coming. A new trend has begun.
That’s exactly what is happening with online display right now. The online marketing world has changed, mostly due to increased hunger for absolute measurability and ROI. Demand for online display will not come back to previous levels, no matter how much overall online ad spending rises. After all, nothing grows forever. The good news is that there are plenty of choices to replace online display. The bad news is that planners in this space can no longer do their forecasts with rulers.
