Global Trend

The On-Line Advertising Boom

In the golden age of television, companies that wanted to make a major impact created what was called a “roadblock” ? they advertised at the same precise time on all three networks to ensure that anyone watching television at that moment would have to watch their message.

Last year, Ford created a similar roadblock on the Internet to promote their best-selling F-150 pickup truck. They placed banner ads for 24 hours on the three most prominent portals: AOL, MSN, and Yahoo. The banners were seen by approximately 50 million Web surfers. Ford reported a 6 percent jump in sales over the campaign’s first three months. Ford’s marketing communications manager, Rick Stoddard said, “We’ve proved we can leverage the Web for the mass market.”

Advertisers everywhere are realizing that the Web’s most popular sites now reach huge audiences. Gary Stein of Jupiter Research told Business Week,1 “Now Internet ads are mainstream and part of every company’s media buy.”

Although it accounts for only 4.3 percent of advertising revenue, the Internet occupies 14 percent of U.S. media time. What’s more, advertisers are no longer content to settle for text ads on portals and search engines; they’re pulling out graphics, animation, and music to catch the customers’ eyes. Most telling is that while the overall ad business is growing at 7.7 percent a year, the Internet ad business is roaring along with 28.8 percent growth. One Internet marketing firm foresees advertising in this medium hitting $9.3 billion in 2004.

On-line ad revenue was at its peak in 2000, with just over $8 billion, according to the Interactive Advertising Bureau, just before the Internet stock crash. The industry’s trade group has been keeping tabs since 1996. The revenues for 2003 approached that record with $7.27 billion.

Internet advertising may be having more impact than simply its growing numbers. Advertisers can measure an ad’s effectiveness by the number of hits, and they’re looking more carefully at other media for the same sort of reassurance. Perhaps to that end, they’re now aligning their newspaper and TV ads to Web campaigns.

In the auto industry, this can have a profound effect. Research shows that today’s prospective auto buyers spend five hours, on average, researching on-line before they even think about going into a showroom. In spite of newspaper saturation of sales announcements, search engine advertising can have an enormous impact.

In fact, it was search engine advertising that proved to be the savior of Internet advertising after the dot-com crash. Yahoo and Google came up with an innovative way to sell their effectiveness. Search-related ads, which are generally simple text spots that appear next to salient Web search pages, have gained tremendous popularity because they are easy to place and are very effective in identifying new customers.

Part of their popularity was fueled by the search engines’ policy of requiring the marketers to pay only when a customer clicked on an ad, so it was an extremely efficient media buy.

The Interactive Advertising Bureau commissioned some studies that put the ad picture into clearer focus. It concluded that while consumers pay attention to TV ads that announce a new product is available, they turn to the Net when they want more details.

Trouble is, as the popularity for Net advertising grows, it’s all clustered around the mega-sites ? the home pages of the major portals, as well as their sponsored financial, auto, and sports sites. The portals themselves are trying to ease the situation by shunting the overflow advertisers to thousands of the portals’ less-visited pages. On the other hand, advertisers have plenty of room on their own home pages for as many fancy video spots as they want. And they are increasing their efforts, in print and on-line, to coax customers to visit their home sites.

Last June, during the television coverage of the U.S. Open, TaylorMade-adidas Golf ran ads for its new driver, the R-7. Its Web site experienced a 22 percent increase in traffic during the hour after each ad appeared.

With this sort of response, it’s little wonder that more traditional advertisers are leading the on-line advertising growth spurt. AT&T Wireless, recently acquired by Cingular, increased its on-line ad impressions by over 1,000 percent. Schering-Plough, the pharmaceutical company, in-creased its ads by over 700 percent. MBNA, the financial services and consumer credit company, increased its ads by a 470 percent margin. DaimlerChrysler’s ad presence grew 460 percent, and Safeway’s grew 440 percent.

Analysts expect growth in each of the three primary areas of on-line advertising when all the numbers are in for 2004:

Paid search ads (which accompany search engine pages) are expected to grow 34 percent to $2.3 billion.

Internet banners and display ads should grow 24 percent to almost $4 billion.

On-line classified ads are expected to grow 27 percent to just under $2 billion.

One company’s dramatic surge in revenues and earnings in the first quarter of 2004 startled Wall Street when it blew past its forecasts. Yahoo’s reversal in fortunes was so dramatic that it raised its financial prospects for the entire year and announced a two-for-one stock split. The Financial Times2 pointed out that it was the company’s first stock split since the dot-com boom, and it came at a time when the company’s stock market value had climbed to over $32 billion.

The financial results are largely due to increased advertising spending by traditional companies that deal particularly in consumer goods and entertainment.

Terry Semel, Yahoo’s chairman and chief executive officer, surprised many on Wall Street when he left his position as co-chair of Warner Brothers to head the struggling company three years ago, while buying $17 million of its stock for his own account.

“We are gaining market share in an industry that is gaining traction,” said Semel. Yahoo had been expecting growth of 25 percent in 2004. Semel added, “We now believe that we may approach 35 percent.”

Among the businesses that have joined the on-line ad resurgence are the major credit card marketers. The Internet media research firm eMarketer believes this points to the heavy spending on Internet ads by Chase, Citigroup, American Express, MBNA, and Capital One.

However, some analysts believe that credit card marketers are not yet fully exploiting the lucrative on-line exposure.

DoubleClick, which provides on-line marketing measurement options, conducted a survey that showed Web advertising has become a significant area for people who are shopping for a new credit card.3

Kathryn Koegel, DoubleClick’s director of research says, “Many credit card companies never get past the first part of the on-line selling process ? getting the consumer’s attention. The second stage is perhaps the most important, when the consumer learns more about the product, and the third stage is when a decision is made. Each stage requires separate on-line tactics.”

Ads that provide audio, video, fill-in forms, or pull-down menus are often helpful when tailored for the specific stages of a marketing plan.

“The newest rich-media innovations hold great promise for credit card advertisers in differentiating their on-line offers and targeting consumers at each stage of the decision process,” Koegel says.

And it is through this sort of innovation that other categories of products will find on-line exposure to be most effective.

Because of the renewed strength in on-line advertising, we can make the following four forecasts:

First, the on-line advertising environment will continue to enjoy healthy growth ? and it is likely to be at the expense of other, traditional media. Print advertising, especially in the general-interest magazines, is likely to be the hardest hit.

Second, the top portals will have to continue to make available continually evolving rich-media options for advertisers to capture their audiences’ attention. They will get help in this from the marketers themselves and this will enable a creative synergy.

Third, as on-line advertising becomes more sophisticated, the presence of pop-ups and other difficult-to-negotiate-around ads will seem even more annoying. Pop-up filters will gain popularity and the advertisers who rely on pop-ups will wither away.

Fourth, on-line ad strategies that are predicated on helping consumers make choices and providing them with information ? by adding an editorial component ? will be very effective, especially with high-end products.

References List :
1. Business Week, November 22, 2004, “The Online Ad Surge,” by Stephen Baker. ⓒ Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.2. Financial Times, April 8, 2004, “Online Advertising Surge Boosts Yahoo,” by Richard Waters. ⓒ Copyright 2004 by The Financial Times Limited. All rights reserved.3. Credit Card Management, October 1, 2004, “Another Life for Internet Ads,” by Kate Fitzgerald. ⓒ Copyright 2004 by Thomson Media, Inc. All rights reserved.