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As Goes the Housing Market, So Goes Advertising

Well, okay, that’s a stretch, but the link between the prognosis for the housing market and the economy seems strong (as goes housing, so goes the economy), and when the economy stumbles, advertising is often the first expense to get cut.

In 2000, I shudder to recall, advertising-driven companies (on and offline) were the first to crater, and they were followed shortly thereafter by all manner of other industries, like dominoes.  Some will undoubtedly argue that, even if there is a recession, Google and Yahoo will be fine, because search and other forms of pay-per-event advertising have a crystal clear ROI.  These bulls will point to the success of GoTo (Overture/Yahoo Search) during the last recession as evidence: While the rest of the online world as we knew it was ending, GoTo grew like a weed.

And to some extent, this is true.  Search should weather an economic storm better than other forms of advertising, because even penny-pinched advertisers will know where each search dollar is going.  But weathering the storm is different than being “fine”, and some Google and Yahoo customers will cut back (if only because their customers are cutting back).  Also, when GoTo was powering through the last recession, search was a cute little $100 million business.  It is now approaching a $10 billion business, and, as such, is far more exposed to the vicissitudes of the economy at large.

So as the housing market continues to weaken, do not make the mistake of thinking that this is an isolated micro-event that is irrelevant to the big boys of online advertising.  It isn’t, and like the rest of us, Google and Yahoo will probably feel the pain.

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