Every quarter, Shop.org conducts a survey of online retailers. 2009 is proving to be one of those contrary years, especially in retail — with a  mixture of stops and starts.

59 retailers participated in the Q2 Online Sales Flash Survey. Respondents represented a mix of business type (variations on multichannel, branded manufacturers, pure plays) and annual Web business size. As usual, we asked simply, “How did your gross online sales (top line) for the period April 1, 2009 through June 30, 2009 perform relative to the same period last year”

For more information visit the Shop.org Web site; following are a few highlights:

• Fully 59% of retailers surveyed reported that their gross online sales had indeed grown for the quarter compared to the same quarter in 2008. 9% reported flat sales (in this economy, nothing to sneeze at), and one third (32%) reported sales decreases.
• Average YOY quarterly growth across all retailers surveyed was 11.8%
• Close to two thirds of large retailers ($100+ million in annual Web sales) reported revenue increases for Q2 2009 vs. Q2 2008. Ditto for mid-sized retailers (defined as between $10 million and $100 million in annual Web sales). Smaller retailers (under $10 million) struggled somewhat more, but half of those surveyed in this segment did in fact realize sales growth.

ZenithOptimedia, part of Publicis Groupe: The Internet has performed better than expected this year, Zenith raised its forecasts from 8.6 % to 10.1 % growth this year; by 2011 Internet will have a 15.1% share of advertising spending, from 10.5% last year.

The natural migration of money flowing to media where consumer are spending their time continues. If Zenith’s report is even close, we are talking about a sea change over a very short period (2009 – 2011) that will put some air into the sails of a lot of Internet marketing firms. While display advertising as a share of Internet has dropped (PriceWaterhouseCoopers: in the U.S., display-ad spending is expected to drop to $4.4 billion in 2013 from $4.8 billion in 2008), we expect performance marketing spending as a category of Internet spending to continue to increase dramatically. We also see a shift in venture interest away from purely ad-sponsored models, which should provide additional focus on other practical models.

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!

I spent the last two days at the Piper Jaffray Global Internet Summit in Laguna Beach, California. The conference covered Internet, online content, media and enterprise software (particularly SaaS).

An area of particular interest was content distribution and the rapid change that is occurring. According to the Piper Jaffray research team many companies are poised to take advantage of a shift towards digital delivery and away from physical delivery. We have seen a massive shift in music distribution with the emergence of the iPod and video is next. The FCC mandate that all television stations cease analog broadcasts on Feb. 17, 2009 will also likely help accelerate this shift. It is estimated by the U.S. General Accounting Office that 28.0 million U.S. households will need to purchase a digital TV (DTV) or a converter box. This will ultimately open the door to real adoption of digital delivery of video since consumers will not have to change behavior, just TV’s, to receive digital content.

The snake pit of digital distribution continues to be rights management and the content owners balancing act between piracy and usability. With no standardized digital rights management (DRM) technology in use it is hit-or-miss for consumers. In September of this year a group led by Fox, Microsoft, NBC Universal, Paramount Pictures, Sony, and Warner Bros. formed Digital Entertainment Content Ecosystem (DECE) to address growing consumer confusion around buying, downloading and playing digital content offered by multiple services by working toward a simple, uniform digital media experience. We shall see…we are still in the early rounds of a long fight.

While there were many interesting panels and some very good presenters including Neil Ashe, President of CBS Interactive, and Jason Kilar, CEO of Hulu, the “ahha” moment came during a panel of young consumers that shared their Internet and mobile usage habits. They asked a room full of 30 and 40-somethings why they needed a TV. The shift to digital is being fully embraced by the next generation…time to catch up!

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.