Breaking news!!!….

FXCM, the major retail Forex Broker - some give them over 50% of the Retail Forex Market - and also a trend setter in the industry, has just made a bold move that can have severe consequences in the Financial - Forex related - Web Sites industry.

FXCM is dramatically cutting their ad budget for 2010 and many sites are already feeling the pain of it with the good-bye of one of their major advertisers.

So far, in words of a competitor, “FXCM has always been the “Advertise anywhere, Everywhere” company”.

I would not go that far but it is true that their strategy has been very aggressive and there was not a single good forex related site without them on board. That’s not a fact anymore.

Now… let’s try to answer the “why” of such move…

Last November I made a post about the coming future of the Retail Forex Industry that explains most of it.

Retail Forex Industry - Where Are You Heading To?

I can summarize FXCM’s decision in 3 main points:

- FXCM believes - as I do - that the battle in 2010 is going to be in M&A - merger and acquisitions. They consider that it is going to be cheaper acquiring competitors than getting new clients on board. Also, I think this move will give them more negotiation power to get back to some of those sites they have now withdrawn at a much better prices. That will reduce their cost of acquisition of new clients.

I’m not sure that the cost of getting new prospects is going to be higher than M&A. M&A not only have costs in terms of dollars, but also in terms of human resources, motivation, falling of productivity as the acquisition is processed and many times, the final outcome you get is far from the price you paid. What makes M&A now very appealing is that brokers valuations this year are going to be based in real cold numbers and not in non-sense expectations.

- The product offers of the company are VERY competitive. In February, they should be coming out with Mobile and Web Based trading, after the launching of Active Trader and CFD trading in 2009 and MT4 platform in 2008.

- Many competitors are already reducing their advertising budgets. Many of those that don’t will be forced to do its as well due to the lack of profitability and in order to respond to the M&A to competitors moves.

What is going to be the impact on the Forex Web sites industry?

2009 was a year of explosion of Forex sites. The consequence of the dramatic cuts in the Retail Forex brokers’ budget is going to be that many new Forex related sites will be forced to close their doors due to the lack of monetizing of their ad stock.
Major Forex sites will also have difficulties to monetize ad stocks. I expect most of them starting to have spare inventory to sell and see their revenue falling… How much?

Well… our revenue fell of 15% in the last quarter of 2009 compared with the previous quarter, the best quarter of our history. I expect our revenue to recover this quarter based on previous performance, but I could be perfectly wrong as we are dealing now with a combination of a general financial crisis with a change of strategy of Forex advertisers.

If FXstreet.com is one of the best positioned sites to not heavily feel the pain of a major withdrawing of advertisers as I assume we give advertisers a good ROI, I can foresee that the fall in revenue for many surviving sites could easily be of at least 30%-40% from 2009 levels.

Financial sites will also suffer from the loss of forex brokers advertisers. Major advertisers were often found at sites like nasdaq.com, investopedia.com, reuters.com, bloomberg.com…. In fact, one of these sites already contacted us offering ad space at a 50% discount.

If you start seeing self promotions on ad locations you previously saw 3rd party advertisers, then you can conclude that they do feel the pain.

Tough times ahead… more to come.

Francesc

note: A colleague has just contacted me saying that I seemed a little bit bitter at FXCM. I got quite puzzled as I just tried to explain facts, not to show my bitterness reading between the lines.
FXCM is not the only broker reducing ad budget and it is not going to be the last one. Others did before, but what it shocked to me is the size of FXCM cut that probably exceeds cuts from others and that could lead others to follow… we will see.

Update: Read Yohay’s at Forex Crunch response to this blog post: Forex Advertising in 2010