Recent uncertainties about US credit and its distribution throughout the world economy have meant that we’ve been seeing and hearing a lot more of the word “recession”. Naturally, this has prompted occupants of the online world to ask how another recession might affect them now the Internet is a far more established part of marketing. This might seem like a very daunting question, answerable only by those in possession of a crystal ball, but in fact, advertiser behaviour in a recession follows a reasonably predictable pattern. Here’s a brief summary of what is likely to happen:

1) Advertisers spend less: For many companies, a line of red ink through the ad budget is a quick and easy way to put some more money on the bottom line. If there’s no immediate and significant downward effect on sales, then many senior managers will see it as a painless way to maintain profits.

2) Advertising gets cheaper: As there’s still roughly the same number of advertising opportunities, but lower market demand, the cost of advertising falls.

3) It’s easier to cut through: With many advertisers spending less and the price of advertising falling, advertisers who maintain budgets get more cut through for the same money. Old hands at advertising like P&G and Unilever know this, and almost always maintain spend in a recession. For them, it’s a good time to invest in their brands.

4) There’s a focus on measurable sales results: In a recession companies want to maintain sales. As a result, tactical direct marketing often fares much better in a recession than brand advertising. If an ad budget can be shown to be make a direct contribution to sales, it is more defendable. The marketing manager who can say, “If you cut my budget by 50%, my sales will fall by 50% and here’s the proof” is far more likely to retain budget than the marketing manager who cannot.

So, where does this leave online?

Because the lion’s share of online advertising is evaluated by its ability to deliver clicks, leads and sales I believe online media would be in a relatively strong position if we were to enter a recession. There would be increased investment in online as more companies sought to invest in channels that are seen to deliver sales.

Superficially, this might look good. But ironically, it’s likely to be bad news for existing online advertisers. This is for two reasons. Firstly, increased demand for online could have an inflationary effect on costs, particularly in highly accountable areas of online marketing like paid search - where increased demand would manifest itself in higher bid prices. Secondly, as well as experiencing higher bid or CPM prices, advertisers would experience more message competition as more companies switched their budgets into online.

So the ‘net’ effect of a recession would be superficially good (higher online spends) but fundamentally bad (higher online prices and a more crowded marketplace). I think this would affect different areas of the online marketing community in different ways. For online media owners, it’s good news - they’d experience increased demand and higher prices. For digital agencies it’s both good and bad; more advertisers spending online, but it becomes harder to get cheap deals. And for advertisers, it becomes more difficult to maintain a low cost of sales.