It’s no surprise that we are approaching a deepening financial crisis. But how will it impact contextual advertising?
No matter how much we wish to ignore the “depression talks” and hope the situation resolves itself, it’s clear that this won’t happen. One of the most likely outcomes of the next two years of the global financial crisis is hyperinflation. The rapid depreciation of money will have a significant impact on contextual advertising.
Let’s imagine AdWords operates on a post-paid invoicing model. In this case, the money Google receives may no longer match the value of the services previously provided. Since payments to publishers are made even later, this might balance out somewhat. However, advertisers will likely delay bill payments while Google’s internal costs continue to rise. Eventually, Google will be forced to require advertisers to prepay for AdWords services.
With hyperinflation constantly increasing costs, advertisers will be forced to frequently adjust campaign parameters, leading to higher cost-per-click (CPC). AdWords doesn’t sell traffic at a fixed rate but operates in an auction-style bidding system. This means that hyperinflation will erode advertisers’ profits rather than Google’s revenue. Consequently, advertisers will avoid keeping large deposits in their accounts and instead opt for frequent small payments.
Independent webmasters and mid-sized site owners relying on contextual advertising for revenue will be the most vulnerable during hyperinflation. Advertising and referral payments are already subject to delays, further diminishing their real value over time.
The Problem for Advertisers and Publishers
In such a scenario, contextual advertising models like AdWords-AdSense become unprofitable for both advertisers and publishers. Large websites may have the flexibility to navigate this issue by selling banner space directly to advertisers. However, small sites will face significant challenges as hyperinflation aggressively devalues their contextual ad revenue. Google, too, will struggle with the loss of advertisers and publishers.
Possible Solutions
Google may need to either develop its own instant payment system or partner with an existing one (such as PayPal) to allow publishers to withdraw earnings as needed. Without this, AdSense’s popularity among publishers could drop dramatically.
However, if Google is slow to adapt, a new competitor could enter the contextual advertising market. A platform that offers webmasters instant fund withdrawals or daily payouts via PayPal could quickly capture a significant share of the market.
Time will tell how this unfolds.