Despite writing this during the marketing spending doldrums of a cold 2008 winter, I am equally warmed by hot chocolate and a heated optimism about the future of online marketing. In fact, similar to those who feel there are unequalled investment opportunities to be had during this recession, I believe that from this economic shakedown the online marketing sector is going to emerge stronger than ever, creating a Golden Age of Online Marketing.

Data from Q4 2008 shows that online spending slowed along with other media spending; however, investment in online marketing is still on the ascendant (albeit at a slower rate than over the past several years) while other media – particularly traditional media spending – has seen serious declines. By all accounts, 2009 will be a rough year, but through this turmoil I believe the online marketing space will continue to gain traction as the core of marketer strategic focus (and thus, a magnet for marketer spending). In fact, the decidedly oppressive economic backdrop against which this process is taking place actually plays well to the online marketing sector’s historical causes célèbre: better, more measurable marketing programs with clear ROI and immediate impact. So, when CMO’s do take their feet off the spending brake sometime next year (I just knocked on wood), the acceleration effect on this sector will be tremendous!

In addition to the decade-long, broader natural ‘balancing’ of spending across media, where money continues to chase eyeballs, the Internet will further establish itself as the “hub” of marketing focus and expenditures simply because it is uniquely online where companies’ dialogues with customers and prospects increasingly takes place. Per this power position, online marketing firms will increasingly drive client strategy, control brands, and lead trends…thus, as direct beneficiaries of all of the above, the players in this space will enjoy their Golden Age!

After having advised several clients seeking to acquire digital agencies I have seen a desire among buyers to pursue firms with strong strategic capabilities. For an acquirer, the advantages inherent to companies that offer digital strategy capabilities include a higher-level client relationship, higher margin revenues, an ongoing stream of new business opportunities created via strategic recommendations, and of course, smart talent. I’ve previously built such a “digital strategy” group and core offering at two different interactive marketing firms to date (blatantly changing one company’s tag-line from “digital marketing services” to “digital marketing strategy and services” to reflect the clear forward focus on strategic partnering with clients), and therein bore witness firsthand to that empowering element, which is now more centrally a decision-turning factor among acquirers in the digital marketing services space.

From left to right: Brendon Kensel, Managing Partner of Kensel & Co.; Peter Horan, CEO of Goodmail Systems; Safa Rashtchy, former Managing Director & Senior Internet Analyst at Piper Jaffray & Co.; Richard Rosenblatt, founder, Chairman & CEO of Demand Media; and Peter Adderton, Founder & CEO of Agency 3.0

The shift of advertising budgets from traditional to digital media is expected to drive digital advertising revenues in the U.S. to $42.0 billion by 2011. With a convergence of media underway, advertisers face the challenge of identifying effective advertising models for emerging forms of digital media whether delivered by computer, mobile device or digital television. Despite the already staggering spend Safa Rashtchy’s opening question for the panelists was, “Why isn’t digital advertising growing even faster?”

Richard Rosenblatt offered a social media-centric view. He viewed social networks as, “the best use of the web,” and marveled at how much time users invest in social media tools. The former MySpace.com chairman, who helped sell the company to News Corp., pointed out that despite numerous emerging user-generated social platforms and outlets, a lack of great programming on the web still prevails. “Ninety-nine percent of it is junk; it’s your dog walking backwards,” he joked.

Peter Adderton focused on his vision of the three screens – television, computers and mobile devices. However, the mobile pioneer and founder of Boost Mobile and Amp’d Mobile felt that, “Mobile will ultimately deliver the most personal interaction point with consumers.”

Peter Horan felt that digital advertising to date has not always played to the strengths of digital channels. He stated that the web is overspent right now, and that low barriers to entry cause a bevy of marketers to try to deliver the same type of “many to many” messages that are more effective on broadcast channels. The former CEO of IAC Media & Advertising held up search as the more effective approach to digital saying that, “Search was a new way of distributing attention.”

The panel shared another reason that digital advertising hasn’t grown even faster – fear. Rosenblatt noted that advertisers are still afraid of making a mistake. “Media buyers don’t get fired for buying (in traditional channels).” Adderton said that in allocating ad budgets to digital channels, there is still “Distrust among advertisers that you’re (just) buying traffic.”

Rashtchy, whose 400+ page report “The User Revolution - The New Advertising Ecosystem and the Rise of the Internet as a Mass Medium” is still seminal in the industry, brought the evening to a fitting, forward-looking conclusion by citing emerging trends.

A video of the event can be found here: http://bschool.pepperdine.edu/images/alumni/events/digitalmedia/digital.wmv

Welcome to the Kensel & Co. blog. This blog will provide insights and analysis on mergers and acquisitions, private equity investments, venture capital, business strategy, and emerging trends in the media, marketing and technology industries. The authors bring a wide range of expertise on these subjects and I encourage you to visit this site regularly for recent posts.