Why Social Applications Will Thrive In A Recession

Posted on February 6th 2008

by Josh Bernoff

Is a recession coming? Don't ask me -- I'm not an economist, and even the economists don't really know. But if it's anything like the last recession, advertising will plummet and experimental media will crater. (In the 2001 recession, US advertising dropped 9% and Internet advertising plummeted 27%, according to Veronis Suhler Stevenson.)

But do not panic. Things are different this time.

Here's what smart marketers should know:

  • It's not a tech bubble. The last recession was caused by the dot-com bubble and the terrorist attacks. There was a lot of ignorant money out there chasing illusory opportunity, and companies had overinvested in technology. This time, the precipitating event is a housing bubble, and technology spending is not irrational.
  • Awareness ads will lose effectiveness. Advertising (or as we often call it, "shouting") is mostly about generating awareness and reinforcing brands. In a recession, ordinary consumers like you and me aren't as willing to spend. Sure, we'll be aware of the product, but that doesn't make so much difference when you're worried about your future. Advertising is expensive and is a lot easier to cut than headcount. Many are predicting ad spending will hold up; I'm not so sure.
  • But social applications are about consideration, not awareness. Blogs, word of mouth, social networks . . . they're about people connecting with other people. You may resist advertising if your finances are tight, but if your bud tells you that new movie is really worth seeing or that the Gap has the cutest new tops, that's more persuasive than advertising. Basically, in a recession, the consideration phase is more important than awareness -- and that's where advertising flops and social applications succeed.
  • It's cheap. Social applications can be nearly free (think blogs, Ning.com, facebook pages) and even more sophisticated communities are typically $30K to $200K -- a lot cheaper than a significant sized ad campaign. After our last post, all the responses were positive. One interactive marketer from a highly cyclical company told us this:

"Budgets are tight in light of the economic conditions as you surmise, but [the budget for social applications] has not been impacted. We are still keen to move forward with our trial and have support….at this point anyway.  Interactive in general has been more protected than other comms areas and saw an increase."

  • It's measurable. If your social application doesn't have a measurable output, you'd better get one. But if it does -- if it generates leads, or conversions, or buzz, or something useful -- then you can prove it's working. beinggirl.com is four times as effective as TV ads, Procter & Gamble told us. That won't get cut in a recession.

These same arguments apply to some other forms of online marketing, including search ads and email marketing. Those are going to be good investments in a recession. If you're smart, you'll position yourself now with proof your apps are working. Then when the ad dollars get tight, you'll be in good shape.

Click here to see what we wrote for our clients (we've made this piece of research free for everyone).

Also on this topic, see also David Armano's post on 10 ways digital can help you thrive in a recession. And an earlier Paul LaMonica post (CNN Money) featuring my old colleague Jim Nail.

Finally: I'm anticipating this topic might get some currency around the blogosphere and the mediasphere . . . if you want to follow the reactions, tune in to my twitter feed at twitter.com/jbernoff


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Comments

Josh/Charlene

Bravo on this post.  Yes, the value of an "engaged" customer vs. an "exposed" prospect can't be underestimated.  Thanks for your thoughts.