Time to jump into the fray. The last couple of weeks a discussion has been frothing over the effects of the mortgage market chaos on online advertising.

Jerry Neumann started me thinking about what might happen to lead generation in the changing mortgage market, why some arguments seem counterintuitive, and past data in other similar markets might suggest a positive, not a negative effect in spending.

Then entered Henry Blodget of the Silicon Alley Insider, pitching online ad recession and analysts’ online ad frets over mortgage crisis.

And finally with an apparent pint of Guinness, in saunters Niki Scevak of Bronte Media and Homethinking.com and makes an argument that a downturn is evident due to concentration risk for online advertisers heavily weighted toward mortgage and financial services.

So, here goes my argument:

Mortgage Market Picture

First, we are mixing a lot of apples and oranges. Let figure out what is really happening.

Laying off workers does not necessarily imply sales, loan officers, or other direct production staff. All of whom need leads. Examples:

IndyMac laid off 1000 workers as it moved to GSE loans (subscription required), yet hired 1000 plus ex-AHM retail loan officers.

During the current downturn, Perry said IndyMac has built a retail lending group of almost 1,500 employees, despite having "virtually no retail lending presence" a year ago.

IndyMac announced in August that it was hiring hundreds of former American Home Mortgage Investment Corp. employees as part of its expansion of its retail lending group.

A similar trend is occurring at Washington Mutual, offsetting 1000 layoffs with retail hires (subscription):

WaMu plans to hire up to 1,000 retail and banking loan consultants over the next several months, and increase its consumer direct sales force, said WaMu spokeswoman Sara Gaugl.

The Seattle-based company currently employs 1,000 banking loan consultants and 2,000 retail loan consultants, and operates more than 2,200 retail stores, Gaugl said.

"We … intend to grow our retail, consumer direct and wholesale businesses and are positioning the size of our sales and support organizations to ensure that we capture growth opportunities and address customer needs," Gaugl said.

I think that is well supported. Layoffs does not equal strategic intent to decrease revenue production.

Online Advertising Picture

Now on to another gobbleygook of mixed terms. Advertising, online advertising, and lead generation are not necessarily tightly correlated. You want proof? Take a look at TNS Media Intelligence Advertising Expenditures report. Advertising spending is down 0.3 % in the first half of 2007! Oops, but online advertising is up 17.70%; the dramatic outlier in the data set.

I interrupt this as a shift with a strong indicator that online advertising is far more targeted and efficient than the other losing categories.

But, even Om Malik of GigaOM, who cites the report seems to miss the point looking for doom with his headline, "Will the Ad Slowdown Reach the Web?" Even though he notes the anomaly:

But the effect is far from uniform. The slowdown is having its biggest impact on traditional media — especially print — while Internet advertising is rising. Online advertising (not including search and online video ads) was up 17.7 percent during the first half of 2007.

Now let’s kick it over to lead generation. If I have a tight marketing budget and need to maintain revenue levels I want leads, not "advertising." Consequently, I see a trend for the market demand to switch from CPM metrics to ROI, which requires clear delineation of a lead.

My Online Advertising Predictions

Having established an clearer picture of the market and the terms, what do I think is on the horizon?

• Continued shift of traditional advertising dollars online
• Increased demand for leads not advertising
• Mortgage marketing spends redirected specifically to sales/production  activities
• Need for leads driven by tightening guidelines and special program opportunities (i.e., FHASecure)
• Consumer confusion and concerns over trust will result in behavior that advantages content generated leads from the likes of LendingTree and Bankrate.com
• Increased focus of banks and lenders on retail operations will surge the demand for hyper-local purchase leads
• Increasingly significant advertising dollars will drop from the traditional radar as they go into the social Web (i.e., blogs, wikis, FaceBook, Twitter, etc.)

Overall, I think predicting a mass contagion effect that dooms online advertising, Google, and Yahoo! is a bit dramatic. This is not the 90’s when there were massive concentrations of a couple of highly leveraged dotcoms accounting for all the online advertising revenue and only two major advertising networks AOL and Yahoo!.

Meanwhile, we are confusing a liquidity crisis and localized foreclosures with a dramatic decline in mortgage finance demand. The financial markets have created a liquidity crisis based on trends and emotional confidence reactions. Meanwhile, there is a viable, granted cyclical, ongoing market for places to live and need to refinance impending payment shock.

Jerry, I am in the Bullish camp!

Tags: mortgage market, mortgage implosion, online advertising, advertising market, online lead generation, lead generation, lead management, countrywide, indymac, washington mutual, wamu, Inman, Jerry Neumann, Henry Blodget, Niki Scevak, Om Malik, Bill Rice