July 25, 2008

Lifetime value rises all boats, but can also drag them out to sea

TradeDoubler's 2Q report came out today and lower than expected results, driven primarily by the UK, led to the company losing about 15 % of its value on the Stockholm Stock Exchange.

With online advertising growing and TradeDoubler being active in the performance-driven space (which some claim is "recession-proof"), what is going on?

The good thing with performance-driven advertising such as affiliate, lead generation and search advertising is that when you find number-driven advertisers and show that your solution works, they will shift advertising spending quicker than brand-oriented advertisers will.

However, the number-driven advertisers will also know how much they can spend to acquire a customer or sale. If the underlying value of a customer decreases and the advertisers want to keep their margin, they will pay less for leads and sales which hit publishers, affiliates and advertising networks.

In addition, if the overall demand for a product (like mortgages or credit cards) decreases because a downturn in the business cycle or shifting consumer behavior, the volume of possible leads and sales will also decrease.

It looks like both things are hitting the UK market this year, which then hurts TradeDoubler's (and a bunch of other companies like ValueClick, Monesysupermarket.com, Yahoo, to some extent Google) sales and profit.


jackie said...

I think your analysis is quite sound.

The main reason for the Tradedoubler share price slide was the poor UK affiliate performance. The local management team that ran the business in the prior years of stella performance have left and it appears their replacements aren't stepping up just yet.

However, the former MD has resumed control and I am sure things will turn around, but it will take time.

In times of recession, marketers will look more closely at spend and I would suggest performance based marketing, like affiliation marketing would be the last budget to be cut. So, across Europe at least, TD should be a strong, growing performer for the forseeable future.

Henrik Torstensson said...

Thanks for the comment Jackie!

I agree on the budget not being cut (as in an across the board marketing cut), but if value per sale/customer decline the spend can shrink (as in not finding profitable places to advertise). If the difference makes sense.