Although the Internet economy experienced a general slowdown in 2000, there was a record number of online ad impressions—more than 172 billion—in the fourth quarter of that year, according to a report by AdRelevance, a subsidiary of Jupiter Media Metrix. Online ad impressions in December 2000 rose 21 percent over November to reach more than 65 billion ads viewed. The report predicted that Internet users in the United States would view 610 ad impressions per day in 2001. By 2005 the number was projected to reach 950 per day.
What is the purpose of online advertising? According to a Myers Report cited in the February 28, 2001 issue of eMarketer, some 85 percent of advertising and marketing companies in the United States believed the most important aspect of online advertising was to drive traffic to Web sites. The other principal reason cited for using online advertising was brand building and related opportunities for branding and sponsorship.
The same report also asked ad agency executives and marketers what obstacles prevented them from increasing their expenditures for online advertising. The major obstacles cited included budget limitations, low click-through rates, high cost-per-impression (CPM), inadequate research, difficulties in measuring return-on-investment (ROI), and a lack of faith in the Web's branding abilities. Other reasons given for not spending more on online advertising included lack of measurement standards, low conversion rates, market fragmentation, and bandwidth limitations.
BANNER ADS DOMINATE ONLINE ADVERTISING FORMATS
Although still the dominant format in the year 2000, banner ads were in decline and losing favor. One problem had to do with click-through rates, a measure that advertisers used to help determine return-on-investment (ROI). Since many Internet users go to Web sites to perform specific tasks, it's not surprising that they often ignore unrelated messages. By mid-2000, click-through rates had fallen to.3 percent, with business-to-business advertisers reporting average click-through rates around.5 percent.
The key to successful banner advertising is proper targeting, which ensures that ads appear in contexts relevant to the target audience. Banner performance also can be enhanced by purchasing larger banners; this might involve purchasing what is called the "sky-scraper" unit, which runs down the right-hand side of a Web page, in addition to the standard banner centered at the top of a page.
Advertisers who are focused on ROI typically use banner ads to drive traffic to their Web sites. Another strategy involves using banner ads for brand building. The practice of using banners for brand building recognizes that driving traffic may not necessarily be the best measurement of a banner's effectiveness. Click-through rates do not measure offline actions that people may take as a result of seeing a banner ad, nor do they measure visits to Web sites that may take place later as a result of seeing an ad.
Effective use of banner ads also is dependent on profiling techniques. The pioneering Internet advertising agency DoubleClick Inc. introduced its proprietary DART (Dynamic Advertising Reporting and Tracking) software technology in 1996. DART enabled the company to determine within 15 milliseconds which banner ad should be presented to the current user, based on pre-selected criteria. In order for DART to match ads to target audiences so quickly, it uses the controversial "cookie" technology that creates a user profile and monitors an Internet brows-er's movements through Web sites in DoubleClick's media network. Using this technology DoubleClick created a database of user profiles that enabled it to better target banner ads to users who visited Web sites in the DoubleClick network. Similar technology is used by other online ad networks such as 24/7 Media and Engage.
According to a report commissioned by the Interactive Advertising Bureau (IAB), banner ads accounted for 47 percent of online ad revenue in 2000, but only 40 percent for the fourth quarter, confirming the decline in revenue from banner advertising. Sponsorships accounted for 28 percent of online ad revenue for the year and 31 percent for the fourth quarter. Other types of online advertising cited in the report included classified ads, which accounted for seven percent of online ad revenue for the year and 10 percent for the fourth quarter; referrals, which accounted for four percent of online ad revenue for the year and five percent for the fourth quarter; interstitials, which accounted for four percent of online ad revenue for the year and five percent for the fourth quarter; e-mail advertising, which accounted for three percent of online ad revenue for the year and four percent for the fourth quarter; and rich media, which accounted for two percent of online ad revenue for the year and for the fourth quarter. Keyword searches accounted for one percent of online ad revenue for the year and two percent for the fourth quarter.
AD NETWORKS OFFER REACH, CONVENIENCE FOR ADVERTISERS
The first Internet advertising network was created in 1996 by the newly formed Internet ad agency DoubleClick Inc. The DoubleClick Network began as a group of about 30 Web sites that the firm represented to advertisers. It was a model that other Internet advertising agencies would emulate. Over the course of its first five years DoubleClick expanded the network of Web sites it represented, segmented it to match the needs of Internet advertisers, and reorganized it to reflect changing market conditions. By April 2001 the DoubleClick Network represented nearly 1,500 Web publishers worldwide. It consisted of 16 different networks. Advertisers could purchase ad space on any individual country network, as well as in categories such as automotive, business, commerce, entertainment, technology, travel, and women and health. The company's premium network was called the Double-Click Select Network. Consisting of high-profile, high-traffic sites, DoubleClick claimed its Select Network reached 48 percent of the U.S. Internet audience.
Other smaller networks compete with DoubleClick. They include the 24/7 Network, operated by Internet ad agency 24/7 Media. The 24/7 Network is a global advertising network represented in 24 countries. It includes high profile, high-traffic Web sites that 24/7 Media represents to advertisers, including more than 400 Web sites in the United States, 80 in Canada, more than 250 in Europe, and more than 30 in Latin America. Through an agreement with China-dotcom Corp., 24/7 Media represents more than 500 major Web sites in Asia. The 24/7 Network is organized into topical channels representing such areas as automotive, business/financial, career, college, entertainment, music, news/information, search engines, sports, and more.
Engage Inc. is a multi-channel marketing company that also operates a global interactive media network. Its integrated network of more than 4,700 Web sites reaches more than half of the U.S. Internet market, according to the company. Engage is a majority-owned subsidiary of CMGI Inc.
ValueClick Inc. employs a different type of model for its network of Web sites. With its cost-per-click (CPC) model, ValueClick only receives payment from an advertiser—and in turn pays a publisher of a Web site—when an Internet user clicks on the advertiser's banner ad. At the end of 2000 ValueClick's network consisted of more than 20,000 small and medium-sized independent Web sites that had agreed to sell their advertising inventory to ValueClick on a non-exclusive basis. According to Jupiter Media Metrix, the ValueClick network reached more than 30 percent of the U.S. Internet population in early 2001, and it delivered more than 40 million ads daily. Through a strategic investment transaction completed in February 2000, DoubleClick owns about 30 percent of ValueClick. In exchange, ValueClick is allowed to use DoubleClick's ad serving technology, known as DART.
ONLINE ADVERTISING REVENUE
Online advertising revenue has increased steadily from 1996, when the Internet Advertising Bureau (IAB) began compiling its Advertising Revenue Report, through 2000. According to IAB reports, which were conducted independently by the New Media Group of PricewaterhouseCoopers, online advertising revenue grew from $906.5 million in 1997 to $1.92 billion in 1998. In 1999 the IAB report noted that quarterly online advertising revenue exceeded $1 billion for the first time in the third quarter.
Having changed its name to the Interactive Advertising Bureau, the IAB reported in April 2001 that year 2000 online advertising revenue reached $8.2 billion in the United States. Fourth quarter ad revenue increased by nine percent sequentially over the third quarter, but the percentage increase was markedly lower than historical levels. That reflected the overall slowdown in ad revenue in the second half of 2000 across all media sectors, as well as a higher revenue base. The report also noted that advertisers were being more selective in reaching the online audience of more than 140 million users. There was a higher concentration of ad spending in the top sites; high-profile, high-traffic Web sites were gaining ad revenue at the expense of smaller sites.
According to AdRelevance, in December 2000 the top two advertising sites on the Internet were Yahoo! and the Microsoft Network (MSN). MSN brought in the most advertising revenue that month with $180 million, while Yahoo! was second at $118 million. In terms of number of ads served, Yahoo! took the top spot with 7.6 billion ad impressions in December, while MSN had 6.3 billion ad impressions. It was the difference in advertising clients that gave MSN the top spot in terms of revenue. MSN's clients spent an average of $486,000 each on advertising there, while Yahoo!'s advertising clients spent an average of $105,000.
ONLINE ADVERTISING STRATEGIES
Two principal advertising strategies are used in online advertising: building brand recognition and direct response. Advertisers may focus on one or the other or combine the two strategies. Online retailer Amazon.com, for example, focused on building brand recognition during much of 2000, and then switched its emphasis to direct response ads in the middle of the all-important holiday shopping season. An ad designed to build brand recognition might say, "Buy Books and CDs at Amazon.com " and allow the user to click through to the company's Web site. On the other hand, a direct response ad typically would extend a special offer, such as free shipping.
According to a IAB report, consumer-related advertisers accounted for 31 percent of online advertising in 2000, followed by computing (18 percent), financial services (14 percent), business services (nine percent), and media (eight percent). According to AdRelevance,Amazon.com was the most advertised company on the Internet for eight out of nine weeks during the 2000 holiday shopping season. The company employed a combination of brand recognition and direct marketing advertisements in its campaign. Before the holiday season, 270 million of the company's 275.3 million ad impressions were branding impressions, while only 5.3 million were direct marketing impressions. By the end of November,Amazon.com had begun to place more emphasis on direct marketing impressions in an effort to achieve immediate results. During the last week of November, Amazon.com ran 320 million branding impressions and approximately 212 direct marketing impressions. Seven of the company's top 10 holiday ads offered free shipping. Each direct marketing ad had 4 million impressions, while each branding ad had 750,000 impressions.
Amazon.com advertised on more than 100 Web sites, but it made an effort to dominate on the top sites. The top five sites it advertised on were MSN, AOL, Netscape, Juno, and Excite.Amazon.com was the number one advertiser on four of those sites and third on Excite behind the Home Shopping Network and First USA. AdRelevance reported that Amazon.com spent the most on Internet advertising in December 2000 with its $61.8 million budget. It led all advertisers with nearly 3 billion ad impressions. Amazon.com spent 42 percent of its ad budget in December on MSN. Other major advertisers in December 2000 included Barnesandnoble.com at a distant second with $23.8 million, Classmates.com with $19.3 million, First USA with $11.2 million, and eBay at number five with $11.1 million spent on online advertising. The ad spending figures include all Internet banner and button advertising, excluding house ads and sponsorships. The most heavily advertised company, Amazon.com purchased 6.1 billion impressions in the fourth quarter of 2000. The other top five advertisers during the quarter were Microsoft (4.1 billion ad impressions), MSN (3.2 billion impressions), America Online (2.6 billion impressions), and Nets-cape (1.6 billion impressions).
Advertisers also like to advertise on their own Web sites. A study by AdRelevance found that 28 percent of U.S. Web sites used self-promotional advertising. In the entertainment and society sectors, some 30 percent of ad inventories were used for self-promotional online ads.
Although there were cutbacks in online ad spending in the second half of 2000, dot-coms continued to spend more as a group than traditional brick-and-mortar companies. According to AdRelevance, Internet companies of all sizes purchased 769 million ad impressions on average during the fourth quarter of 2000, more than twice as many per firm than traditional companies. Mid-sized Internet companies purchased an average of 454 million impressions per company, roughly four times as many as mid-sized traditional companies. Another report issued by Ad-Relevance in November 2000 indicated that traditional companies were beginning to show more confidence in the Internet as an advertising medium. The fact that half of AdRelevance's "Hot 100" online advertisers were traditional, non-Internet based companies suggested that online advertising was becoming a bigger part of those companies' overall marketing strategy.
Although advertising opportunities on wireless devices are limited by small screens, text-only capabilities, and the potential to annoy consumers, marketers have found ways to exploit this opportunity. According to a study published in the eMarketer Newsletter, wireless advertising was projected to grow slowly through 2002 due to technological hurdles. However, it was then expected take off in 2003 through 2005.
The top three markets for wireless advertising were Europe, Asia/Pacific, and North America. In Europe, for example, expenditures on wireless advertising were projected to grow from $2 million in 2000 to $443 million in 2002, accelerate to $1.5 billion in 2003 and then reach nearly $6 billion in 2005. Expenditures in Asia/Pacific were projected to reach $4.7 billion by 2005, and in North America expenditures were projected to increase from $363 million in 2002 to $4.6 billion in 2005.
Wireless advertising can take many forms. Brand building and awareness messages can accompany other content, such as news or stock quotes. Wireless devices can be used to notify users of sales or other timely offers. Discounts or coupons that users can redeem through their mobile device can be offered. In addition, traditional telemarketing pitches can be delivered to cell phones.
Other forms of wireless advertising include e-mail messages that allow mobile users to buy an item by clicking on an advertisement. Links also can be embedded in advertisements that enable users to click through to an e-tailer's Web site. Finally, direct response ads can be sent to wireless devices that allow users to call the marketer with one click.
Wireless ads can be part of a "push" strategy or a "pull" strategy. Ads that users download as part of other content rely on the user to "pull" them to their device. Other types of wireless ads can be sent to mobile devices at unexpected times as part of a "push" strategy.
Wireless advertising offers advertisers the possibility of delivering ads based on the user's location. While current technology only allows wireless operators to roughly estimate a user's location, that is expected to change. As part of a Federal Communications Commission (FCC) initiative, mobile operators will be required to be able to trace users to within 400 feet of their location. While the initiative was designed for emergency calls, it potentially could benefit marketers.
One big question affecting the viability of wireless advertising is how receptive consumers will be to the ads. Unsolicited wireless ads that are pushed at the user have the greatest potential for alienating consumers. Such annoyance can be alleviated to some extent by using opt-in models, whereby the consumer has to agree to accept commercial messages on his or her wireless device. Another problem affecting wireless advertising concerns how wireless time is billed. Most wireless users are billed by minutes of use, so that an ad sent to a wireless device would cost the consumer in terms of time used. To overcome this, wireless advertisers must be prepared to compensate users for every ad received.
OUTLOOK FOR ONLINE ADVERTISING
Although revenue from online advertising has consistently grown more than predicted, the online advertising industry faces many challenges. Operators of online ad networks like DoubleClick and 24/7 have yet to turn a profit. Low click-through rates and the difficulty of measuring ROI for advertising dollars are symptomatic of a larger problem: the lack of standards for measuring online ads. The IAB has made the development of such standards a top priority, and one the industry must address in 2001. Without them, advertisers and their agencies will be reluctant to commit to online advertising as part of their marketing mix. Other problems facing the online advertising industry include the general slowing of the Internet economy, the dot-com shakeout of 2000, and tighter budgets at the surviving dot-com companies.
In spite of these obstacles, a report from Forrester Research predicted that the amount traditional U.S. companies will spend on digital marketing campaigns, which include online advertising, promotions, and e-mail marketing, will increase from $11 billion in 2000 to $63 billion in 2005. Spending on online advertising alone was projected to increase to $42 billion worldwide by the end of 2005. Among nearly 60 vendors surveyed for part of its report, Forrester found that the amount spent on online marketing per company would double by 2003.
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SEE ALSO: Banner Ads; DoubleClick Inc.; Microsoft Network (MSN); 24/7 Media Inc.
Ever since their debut on the HotWired site in October 1994, banner ads have been the dominant format for online advertising. They also have been a disappointment for advertisers and Web site publishers alike. They have been blamed, perhaps unfairly, for everything from the high rate of failure of content-based Web sites (which are dependent on advertising revenue) to creating a one-inch wasteland on computer screens.
Banner ads come in a variety of sizes and are measured in pixels. The most popular size in 2000 was the 468-by-60 size, which was used more than six times as often as the next most popular size, 125-by-125, according to the 2000 Engage Adknowledge Online Advertising Report. In February 2001 the Interactive Advertising Bureau (IAB) released a new set of recommended guidelines for banner ad sizes, but it remained to be seen whether these would be adopted by the industry. In general, the newly recommended sizes were larger and would require more computer memory.
While banner ads were the dominant online advertising format in 2000, they fell out of favor with advertisers as click-through rates declined. According to a report commissioned by the IAB, banner ads accounted for 47 percent of online ad revenue in 2000, but only 40 percent for the fourth quarter, confirming the decline in revenue from banner advertising. By mid-2000, click-through rates had fallen to.3 percent, with business-to-business advertisers reporting average click-through rates around.5 percent. In other words, only three to five of every 1,000 impressions resulted in a click-through on a banner ad. In an environment where there were too many ad pages and too few advertisers, the cost of advertising online fell dramatically and an estimated 75 percent of the Internet advertising inventory remained unsold.
Some of the potential benefits of banner ads resulted in criticism of the banner ad format. While they had the potential to be the most targeted and most measurable of all advertising media, online advertising in practice often was poorly targeted and not measurable. For example, click-through rates may be used to measure an ad's effectiveness in terms of making a sale or generating some other type of consumer action, but they cannot be used to measure how effectively a banner ad builds brand awareness.
WHAT ARE BANNER ADS SUPPOSED TO DO?
Banner ads serve three basic functions. Their purpose is to build brand awareness, sell something, and drive traffic to an advertiser's Web site. While the latter two functions are measurable and can be tracked, the first is not measurable, leaving proponents of banner advertising some wiggle room when critics point to declining click-through rates. In order for advertisers to make effective use of banner ads, they need to establish goals for their ad campaigns and determine whether they want to build brand awareness, sell something, or drive traffic to their Web sites.
Advertisers may purchase advertising space for their banner ads on individual Web sites, but most advertisers work through an ad agency or network. Networks such as DoubleClick Inc., 24/7 Media, and Engage represent groups of Web sites and sell advertising on them in addition to offering other services to advertisers. Advertisers are charged for banner advertising using one of two models. Under the CPM (cost per thousand impressions) model, rates are based on the number of viewers. Because advertisers demanded a model that was more action-based, the CPA (cost per action) model was developed, whereby advertisers are charged only when a click-through is made on their banner ad.
Another option is to join an affiliate network, such as Commission Junction (www.cj.com) or Link-Share (www.linkshare.com). Through affiliate programs, Web sites select banner ads they believe are appropriate to display on their site. The affiliate network then keeps track of click-throughs and pays the Web site a commission on each click-through instance.
TARGETING AND TRACKING
Banner ads have the potential to offer unlimited targeting, tracking, and measurability. Tracking and measuring the performance of banner ads allow advertisers to analyze and select the best performing ads for each placement. This makes it possible to replace poorly performing ads quickly and efficiently. Targeted banner advertising means serving the appropriate ad to a specific type of user based on a user profile. Targeting is typically based on past behavior, whereby banner ads are served onscreen based on the view-er's previous actions. This may involve knowing what Web pages the viewer has visited recently, as well as whether or not they made a purchase, signed a registration form, or took other similar actions. Tracking such behavior is somewhat controversial and opposed by privacy advocates. Some marketers defend such practices, arguing the information is used in aggregate form only and not revealed on an individual basis.
While banner ads may be targeted based on an overall profile of a Web site's typical visitors, more effective targeting relies on creating a user profile. Using software technology such as the Dynamic Advertising Reporting and Tracking (DART) program, introduced by Internet advertising agency DoubleClick Inc. in 1996, it is possible to quickly determine which banner ad to present to the current user. DART and other proprietary systems used by advertising networks match ads to target audiences through the use of the controversial "cookie" technology.
Cookies obtain information about a user's hardware and software, as well as their Internet connections and are used to create a user profile without obtaining the user's permission. This raises concerns among privacy advocates that the technology will be used to obtain confidential information against the wishes of individual users. Another profiling issue involves combining online and offline information to create even more comprehensive user profiles that might include individual names, addresses, and telephone numbers. Again, marketers attempt to address these concerns by not releasing information on individuals and only using the data in aggregate form. As the technology for creating user profiles improves, it is expected that banner ads will realize their full targeting potential and their performance will improve.
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Randall, Neil. "Profiting: Adding an Affiliate Program Links Site Content to Product Sales." PC Magazine. February 20, 2001.
Schwartz, Matthew. "Online Ads Enter the Next Generation." B to B. March 5, 2001.
Vlahos, Christopher J. "The Internet Banner Ad Now Exists in Survival Mode." Business First—Columbus. April 27, 2001.
SEE ALSO: Advertising, Online; Affiliate Model; DoubleClick Inc.; Marketing, Internet; Privacy: Issues, Policies, Statements; 24/7 Media Inc.