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by Sreejiraj Eluvangal

Downturn forces advertisers to switch to pay-per-performance models from display ads

MUMBAI: Online advertising industry is expected to continue with its high rate of growth despite a global economic downturn dampening the outlook for traditional advertising players.

The growth is expected to be led by digital pay-for-performance advertising companies, who are making hay as companies seek higher returns on their investments.

Unlike the traditional display advertising, companies investing in performance-based advertising have to pay only if the target audience or the viewer performs or acts as a reaction to an advertisement. The action can be just a click or filling up an order form or even an online sale.

Vivek Bhargava, chief executive officer of Communicate2, said last month was the best period for the company since its debut more than a decade ago. Communicate2 helps companies manage their accounts on Adwords, the largely pay-per-click advertisement service run by Google.

“One of our old clients in the financial sector suddenly increased their account size from around Rs 20 lakh to Rs 24 lakh to Rs 80 lakh,” he said.

Bhargava said his clients feel more comfortable when they have to pay only when someone clicks on the ad or buys a product through an ad. “Sales are sales. Even if it’s a downturn, a company still needs to sell. So, if I offer a pay-per-sale offer, how can they refuse?”

Mahesh Murthy, a veteran of Grey India and Ogilvy Hong Kong, said, “The conventional advertising industry is likely to miss its targets by a wide margin this year.”

Murthy, the former country head of Channel V, is the founder of Pinstorm, a pay-for-performance firm that is handling around a seventh of the Rs 700 crore online ad spend in India this year.

Last year, total revenues for the advertising industry were around Rs 17,000. Murthy estimates that revenues will fall well short of the Rs 19,000 crore target for the current financial year.

“The industry is expected to see revenues of around Rs 8,000 crore in the first half and the second half is unlikely to be any better,” Murthy said.

Revenues of the online advertising industry are, however, expected to increase from around Rs 450 crore last year to around Rs 700 crore this year despite the downturn. Currently, display-based players and performance-based players have almost an equal share in the total online advertising ad pie.

Murthy said Pinstorm, which is only into pay-for-performance advertising, has been growing by 300% every year for the last few years. “This year, too, we expect to be at least double our size last year,” he added.

However, unlike the performance-based digital firms, players into display-based online advertising are feeling the heat of the downturn.

Subho Ray, president of the Internet and Mobile Association of India, said the downturn is forcing advertisers to switch to pay-per-performance models as they seek higher returns on every rupee spent. “Smaller websites and ad networks are benefiting, while big portals, which use the traditional display advertising, are losing their importance,” he added.

Portals like Rediff.com that depend on display-based advertising — where ad-rates are not linked to number of clicks on the ad — have taken a hit.

Rediff.com, one of the most sought-after ad destinations on the Internet in India, said its second quarter advertising revenues (denominated in dollars) slid by almost a fifth over the previous quarter, partly because of the rupee devaluation.

Despite an increase in the number of advertisers, Rediff has been unable to maintain its growth in advertising revenues in the last two quarters.

Indian firm chosen among “Asia’s Hottest” three times in four years.

Pinstorm, the world’s leading pay-for-performance digital marketing firm has been selected by Red Herring Magazine to their list of Asia’s 200 Hottest companies for 2008. This is Pinstorm’s third appearance in the list, having graced it earlier in 2005 & 2006. Pinstorm has the distinction of being perhaps the only firm in the world to be selected thrice in four years.

The Red Herring Award is bestowed by Silicon Valley-based Red Herring magazine after evaluating the business model, analysing profitability forecasts, and assessing the management team.

Mahesh Murthy, Founder, Pinstorm said “Colour us red with joy. We first won when we were barely 20 people working out of one office. Today we are over 120 from 7 offices in 6 countries – and it’s a thrill to know that the world sees us just as hot as ever. Our pay-for-performance model is revolutionizing advertising both on the search and display fronts – and we hope to continue this hot streak for a long time to come”, Mahesh Murthy added.

Pinstorm is the only India-based MNC advertising firm, with offices in USA, Europe, China, Singapore, Malaysia and India. We are unique for our integrated approach which re-bundles creative and media in the digital world. Pinstorm’s solutions are created across Display, SEM, SEO, WAP, SMS, Social Media, Viral and other digital media – while they are charged for only on a pay-for-performance basis. Clients don’t pay for strategy, creative, servicing or media – but only pay for the measurable branding impact and prospect responses generated. Our clients around the world include Microsoft, Jet Airways, Yahoo, HSBC, Standard Chartered, Canon, Panasonic, Sharekhan and NIIT.