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Online Ad Surge
Brand advertising online has taken
off -- and it's shaking up Madison Ave.
golden age of TV, they called them roadblocks. Advertisers
mounted such visual barricades by placing the same spot at
the same minute on the three big networks. That way, the ad
would blanket the entire medium, collaring viewers whether
they were tuned to Lawrence Welk, Dragnet, or Uncle
Miltie. The roadblock was a simple but powerful approach --
and near impossible to pull off in today's fractured TV market.
But who said a roadblock had to be on TV? A year ago, Ford
Motor Co. (F ) executives unveiled a roadblock on the Internet
to promote their F-150 truck. On the day of the launch, Ford
placed bold banner ads for 24 hours on the three leading portals
-- AOL (TWX ), MSN (MSFT ), and Yahoo! (YHOO ). Some 50 million
Web surfers saw Ford's banner. And millions of them clicked
on it, pouring onto Ford's Web site at a rate that reached
3,000 per second. The company says the traffic led to a 6%
jump in sales over the first three months of the campaign.
Naturally, more Internet roadblocks have followed, most recently
with the Oct. 25 launch of the F-500 sedan. Says Rich Stoddart,
Ford's marketing communications manager: "We've proved
we can leverage the Web for the mass market."
Ford and everyone else. Advertisers are seeing that the top
few Web properties now reach true mass audiences. Each of
the three biggest portals attracts 70% of the Americans online
to its properties monthly, according to comScore Networks,
a traffic-tracking organization. Demand for this prime real
estate is so strong that there isn't enough to go around,
and prices to advertise are soaring. A year ago, media buyers
could land discounted space on the home pages of major portals
for between $100,000 and $180,000 per 24 hours, say buyers.
Now, the cost is reaching $300,000. Forget about discounts.
If advertisers are lucky enough to land the space, they often
must agree to spend an equal amount elsewhere on the portal.
Facing this traffic jam at the top sites, advertisers are
jostling for spots throughout the Net. "A few years ago,
it was kids with green hair selling ads," says Gary Stein,
an analyst at Jupiter Research. "Now Internet ads are
mainstream, and part of every company's media buy."
Why the change? The Internet is growing up. Broadband connections
now reach more than half of American households, including
the lion's share of the prosperous ones. Although the Internet
still takes in only 4.3% of U.S. advertising revenue, surveys
indicate that it accounts for 14% of America's media time.
And that's not including those who are Web-surfing at work
-- a major audience for advertisers. Smitten by the growing
reach and power of the Net, blue-chip advertisers are stretching
far beyond the cramped text ads on search engines that have
turned Google Inc. (GOOG ) into a global sensation. Now advertisers
are packing online ads with music and color video, just like
those on TV. They're looking to the Web to build brands.
The result is a surge in growth that's extending from Madison
Ave. to the West Coast campuses of Yahoo! and MSN. While the
overall ad industry grows at a respectable 7.7% a year, Internet
ads are galloping ahead at a 28.8% clip. New York consulting
firm eMarketer predicts online advertising will reach $9.3
billion this year -- $5.4 billion of it in brand ads. "It's
a great time to be alive in this industry," enthuses
David J. Moore, chief executive of 24/7 Real Media Inc., an
For anyone who recalls the soaring expectations that preceded
the Net advertising crash earlier in the decade, even a touch
of euphoria is grounds for serious heebie-jeebies. Last time
around, many of the most enthusiastic advertisers -- the cash-happy
dot-coms themselves -- dropped dead. From 2000 to 2002, Internet
advertising plummeted 25%. But something is decidedly different
this time. Since the bust, the industry has pieced together
the technology -- from video delivery to customer tracking
-- to make good on the shining predictions of the boom. The
Net is winning over mainstream advertisers with its computational
precision. It delivers hard, quantifiable results measured
in clicks and sales -- down to the penny. In the process,
it's turning advertising from an art into a science.
Does this mean the Internet is going to vacuum up the world's
advertising dollars? No, but it'll angle for its fair share.
Some of the Net's market grab will come from easy pickings,
such as Yellow Pages and direct-response mail -- fields where
Internet search delivers unmatched efficiency. Brand advertising,
meanwhile, will probably come straight from the hide of TV,
billboards, and print media. Ford, in line with other auto
makers, has moved 10% of its ad budget online, and the number
is on the rise. Joanne Bradford, MSN's chief media revenue
officer, expects other industries to follow suit, with online
accounting for 8% to 12% of the advertising outlay by decade's
end. Within two years, online advertising is projected to
reach $13.8 billion, motoring past the slower-growing magazine
industry, according to Kagan Research LLC in Monterey, Calif.
Tangle of Complexity
The importance of Internet advertising extends far beyond
the numbers. Now that advertisers have their hands on a tool
that measures an ad's effectiveness, they're starting to press
other media for similar accountability. It's a process sure
to cause disruptions. Take TV. For decades, Nielsen Media
Research has been providing reports on how many customers
watch a specific program. But in a nation full of TiVo Inc.
(TIVO ) zappers and channel surfers, how many are actually
seeing the ads? Nielsen is now rolling out technology that
measures precise minute-by-minute data in local markets. And
it's also working with TiVo to survey ad viewership among
TiVo users. These steps bring TV a step closer to Internet-style
accountability. But if the results show that viewers are skipping
ads, TV's economics could take a beating. "It starts
to shift the playing field," says Douglas McCormick,
CEO of iVillage Inc. (IVIL ) and a former cable-TV exec. "Internet
[costs per thousand viewers] are going to start looking a
lot more attractive."
In fact, the Net is helping break down walls that traditionally
divide different media. More and more, publishers are delivering
selected customers to advertisers, and reaching customers
across a host of media, including the Net. Instead of appearing
in a certain show or time slot, their ads are coupled with
subject areas, such as health or sports. ABC News, for example,
delivers subject-specific ads to TV, the Net, and cell phones.
Advertisers want "to reach consumers, wherever they are,"
says Alan Ives, vice-president for sales at ABC Interactive.
This new world of advertising is bubbling with innovations,
many of them blending advertising with content or other goodies.
Weather.com, for one, urges the public to download a free
weather bar that links up to a host of advertisers, from Scotts,
the lawn-care company, to American Express. And on Nov. 9,
Amazon.com and J.P. Morgan Chase (JPM ) announced a venture
to produce short films on the Amazon site. Customers who use
an Amazon Visa card to buy items advertised in the movies
will get a 5% discount.
All of this innovation creates a tangle of complexity -- and
simplifying it represents a growing challenge for the industry.
While ad agencies can snap up 30-second spots on Monday
Night Football, the Internet offers almost infinite options.
First, advertisers have to pick from a fast-growing number
of formats, from skyscrapers that crawl up a page to rollovers
-- ads that expand as the mouse runs across them. Then they
have to figure out on which of the thousands of commercial
sites to run the ad. And they must decide whether to orchestrate
the campaign to hit people with different ads at work and
at home -- or maybe arrange a succession of ads, so that a
customer's first viewing introduces a product, and the second
provides details. "The complexity can be a barrier,"
says Yahoo's chief sales officer, Wenda Harris Millard. She
says Yahoo offered 700 different ad forms when she arrived
three years ago. It's down to a fraction of that now, but
it remains a lot more complicated than old-fashioned TV or
Here the big players have an outsize advantage. They can sell
Internet ads as part of a bigger package. CNN, for example,
sold pricey sponsorships for Election Day coverage to companies,
such as Samsung and DHL. The condition? Sponsors had to advertise
on TV and the Web. While CNN's TV coverage was swamped by
rival Fox News, the exposure on the Web page more than made
up for it. Over that 24-hour period, CNN.com bested the competition
with a dizzying 650 million visits.
Already, advertisers are busy linking their Net promotions
to offline campaigns, from newspapers to TV. In the most recent
Super Bowl, for example, Mitsubishi Motors bought a 30-second
ad. It enticed viewers to visit its Web site to see what happened
when a Mitsubishi Galant faced off against a Toyota (TM )
Camry in a crash test. In the following six hours, some 11
million people visited the site. Many of them provided their
e-mail addresses, watched the 50-second video, and clicked
the tires in the car company's virtual lot. Such visits are
critical, especially for the auto industry. Why? Studies show
that shoppers, punching away at search engines, spend an average
of five hours researching cars online before setting foot
in a showroom.
"Toe in the Water"
It was the success of search-based advertising that breathed
life back into the industry following the dot-com collapse.
Led by Overture Services -- now a unit of Yahoo -- and later
by Google, the search engines delivered a breakthrough innovation.
They interpreted the key words typed in by customers as requests
for products and services. And they auctioned the rights to
place text ads alongside search results to any company or
individual that was interested. The offer has been irresistible:
Advertisers paid their bid, be it a penny or a dollar, only
when a customer clicked on their ad. Paid search grew from
a mere cipher in 1999 into a $3.9 billion business, according
to eMarketer. "Search became a way for marketers of all
stripes to dip their toe in the water," says Ted Meisel,
president of Yahoo's Overture Division.
The question is whether the search industry will continue
to pace the growth of Internet advertising. eMarketer predicts
that growth of such search ads in the U.S. could slow from
55% this year to 19% in 2005. This poses little problem for
Yahoo, a powerhouse in both arenas. But Google risks missing
out on growth in brand ads. The reason? Advertisers and agencies
traditionally separate the direct-marketing teams, which feed
into search, from the creative and brand teams that oversee
display ads. For now, Google is attempting to bridge the gap
by developing ads with images and pictures to accompany search
The rush toward display advertising online is similar to the
rise of cable TV a generation ago. Until the early 1980s,
advertisers saw cable mostly as a direct-marketing tool for
niche products, from miraculous vegetable choppers to belly-busting
exercise machines, all of them accompanied by a prominent
1-800 number. But in 1982 an advertising executive named Ted
Bates proposed a so-called 5% solution. He noted that with
half of America's homes cabled, the industry was reaching
the scale of a mass market. Advertisers would see substantial
gains, he predicted, if they shifted just a nickel from every
budgeted dollar to cable from the networks. It paid off. Cable
stormed into brand advertising -- and is positioned to overtake
the broadcast networks within two years, according to eMarketer.
Now Net publishers and ad agencies are pushing their own 10%
solution. And they have the ammo to make their appeal. Recent
case studies by the industry's trade group, the Interactive
Advertising Bureau, showed that while TV spreads the word,
the Net can drive home the particulars. One case covered Universal
Studios' 2002 DVD release of ET, the Extraterrestrial.
The studio spent 94% of the budget on TV, nearly 6% on banner
ads, and less than 1% on animated ads that floated at the
top of Web pages. The result? While most viewers learned of
the offering on TV, the animated ads reinforced a key message.
Among pure TV viewers, 39.4% learned that the DVD contained
never-before-seen footage. But of those who saw TV and the
animated ad, the number rose to 48.1%. The study's conclusion:
Universal would have fared better by reducing TV by about
a quarter and lifting the animated component to 25%. Universal
declines to comment on the study.
Video is the latest rage in Net advertising. It represents
11% of online spending, says Jupiter Research. And advertisers
are budgeting for more. Take brokerage TD Waterhouse Group.
In addition to search and banner ads, the company is running
30-second online videos with Law & Order's Sam
Waterston. This will contribute to a 42% hike in the company's
Internet spending in the next year, says Senior Vice-President
Stuart Rubinstein. "Full-motion video is the perfect
The biggest trouble with online video is a shortage of slots
for it. While demand grows, much of it is focused on the Net's
biggest sites, the home pages of the major portals, along
with their finance, sports, e-mail, and auto sites. It adds
up to perhaps two dozen pages, all of them run by the giants
of the Web. While smaller targeted sites reach niche audiences,
most of the crush for branding campaigns is for megasites
-- and many advertisers get crowded out. "We called MSN
to run some video for Adidas," says Sarah Fay, president
of Carat Interactive Inc., a Boston media buyer. "They
gave us one day in November, and it was on a weekend."
The squeeze is so severe that advertisers in the hottest segments
of the market -- autos, finance, and entertainment -- are
gobbling up prime video slots months in advance. Within a
year or two, industry insiders expect this buying to evolve
into an Internet version of the TV industry's annual up-front
The portals are taking advantage of the hot video market to
funnel advertisers toward thousands of their less-trafficked
pages. Increasingly, they're bundling prime spots into package
deals, which include more obscure placements -- on pages for
foreign-language studies or artisanal cheesemaking. MSN is
even offering advertisers who venture into these digital hinterlands
a hand in developing new and innovative advertisements. MSN's
Bradford says varied locations have different uses. The home
page serves a message to 20 million users a day, while placements
in back pages reach niche audiences, sometimes numbering only
in the tens of thousands.
Advertisers have plenty of room for video on their own home
pages. And much of their ad effort, on and offline, is focused
on getting Web surfers to drop by. Many TV watchers these
days sit close enough to a computer to type in a Web address
or "Google" a site without moving from the couch.
During golf's U.S. Open in June, TaylorMade-Adidas Golf ran
TV ads promoting its new R7 driver. Traffic on the site jumped
22% in the hour after each ad, says Jason Woodmansee, the
company's director of global eMarketing. Once visitors came
to the site, they not only clicked through videos showing
the club in action but also located nearby stores and signed
up for e-mails. That way, the company used the Net to turn
a broad TV audience into a vast collection of individual relationships.
But how to reach customers with just the right message? Increasingly,
advertisers are tracking them down. With a technology called
behavioral targeting, a Who's Who of publishers, from NYTimes.com
to BusinessWeek.com, use systems that quietly map the click
path of registered visitors to their site or network. These
programs do not accumulate personal data on the user. But
using digital cookies dropped into each visitor's browser,
they focus on behavior. For example, the system knows which
site an anonymous Web surfer comes from. It also keeps tabs
on how much time that reader spends looking at a particular
article, and which ads he or she clicks on. Instead of asking
consumers loads of questions about themselves, says Eric Christensen,
general manager of Belo Interactive in Dallas, "we can
now infer from their behavior on the site. That has been a
big change in the last year."
Publishers follow their customers gingerly, knowing they run
the risk of inciting a privacy backlash. Web surfers, under
siege from spam and torrents of pop-up ads, are primed to
fend off bothersome ads. And previous attempts to track customers
have run into legal tangles. Aggressive consumer profiling
by DoubleClick, a once high-flying Net ad company, sparked
a lawsuit four years ago by 10 state attorneys including New
York's Eliot Spitzer. DoubleClick, which set out to build
databases combining personal info with Web-surfing habits,
retreated on its plans and settled the lawsuit. It failed
to recover its market leadership, though, and now is up for
But while DoubleClick fades, scores of companies are storming
into the growing world of online advertising. They range from
tech outfits that create new forms of banners and skyscrapers
to advertising startups that tie together vast networks of
publishers, from fishing sites to political blogs. "Net
advertising is only nine years old, and everybody's just now
getting started," says Gurbaksh Chahal, CEO of BlueLithium,
a San Jose (Calif.) advertising company. Those who manage
to climb atop the Internet's advertising wave are in for a
By Stephen Baker [From Business