Web users may have to dodge even more annoying pop-up ads in coming years, thanks to a renewed interest in online advertising and increased expenditures on Internet marketing strategies.
What’s unusual is, the latest crop of marketers is just as irritated by that type of ad. They are learning that Web advertising isn’t just about getting in the face of users at any cost. The smart ones realize that the PC isn’t the living room TV – and they had better get with the program.
Ad revenues saw the highest quarterly growth ever in the fourth quarter of 2003, reaching $2.2 billion, a 38 percent increase over the same period of the year prior. That’s roughly equal to dot-com levels, according to a report by the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers, and analysts don’t see revenues slowing down anytime soon.
“It’s definitely a sign of maturity,” says Jim Nail, analyst at Forrester Research. “The companies that are spending money online are real companies, sophisticated advertisers who have looked around at consumers doing more and more stuff on the Internet, and they’re finally seeing real value.”
Unfortunately for many advertisers, increased expenditures don’t always mean success – especially when the Internet is concerned. Analysts are quick to point out that the effectiveness of online advertising lies not in the size of the budget, but in the ability of marketing executives to grasp the complicated nuances of this interactive medium.
Web portals will realize more revenues no matter what, but the companies who rent their ad space won’t get a big return on their investment unless they find a way to adapt to an entirely new medium that has nothing to do with traditional advertising structures.
In 2003, online ad revenues totaled $7.2 billion, a 20 percent increase over 2002. According to market research firm TNS Media Intelligence/DMR, online ad revenues are expected to increase 12 percent in 2004, outpacing every other English-speaking medium in the U.S. Not bad, considering the Internet is still in its pre-adolescent stage, and estimates for Internet ads exclude lucrative commercial search engine ads, which should rake in $2 billion on their own.
“When you look at relative effectiveness, online advertising is a steal,” says Mr. Nail. The value of the Internet lies in its ability to deliver targeted messages to a specific audience, thus giving advertisers more bang for their buck. Nowadays, most sites require visitors to enter basic information before delving deeper into the site, including zip code, age, and income range. Marketers then use these statistics to pinpoint the type of Web user that would be most receptive to certain ads.
The online world also has the power to deliver commercials at the so-called “moment of truth” – when consumers are actively searching for information about a specific product or service, as opposed to lounging on the sofa watching television. E-commerce figures for 2003 prove that shoppers are heading online in record numbers, and advertisers are eager to take advantage of consumers at their most vulnerable moment. Total online sales reached $27.2 billion in the fourth quarter of 2003, according to comScore Networks. That's an increase of 30 percent over the same time of the prior year. E-commerce now accounts for 2 percent of total retail sales in the U.S., its highest share since 1999, when the Department of Commerce began tracking online sales.
Some analysts predict that the Internet will eventually eclipse television as an advertising medium, at least in some ways. “As television audiences continue to fragment and erode, the Internet will emerge as a very effective mass medium to replace the reach of television,” says George Simpson, a public relations representative for online advertisers and developers of audience-targeting technology. With the onslaught of video-on-demand services and commercial-skipping technologies, the Web may become more appealing to advertisers who want proof that their message gets across to consumers.
The Internet may be maturing as a medium, but it’s still a toddler compared to television. Companies generally set aside anywhere from 40 to 50 percent of their advertising budget for television, while the Internet is lucky to score 5 percent. Although some research firms claim that the Internet has surpassed cable for penetration levels in the U.S., advertisers are more concerned with the amount of time viewers are exposed to advertising. On average, Americans spend at least four times as many minutes watching TV as they do surfing the Internet.
Mr. Nail says that the overall effectiveness of online ads should far outweigh worries about time spent. Nielsen ratings, the gospel of television viewing audiences, gives a “very rough estimate,” whereas Web technologies allow advertisers to gauge exactly how many people viewed their ad, and how they responded.
But technology only benefits those who know how to use it, and many companies candidly admit that they are not exactly tech-savvy. The biggest drag on the growth of online advertising is a relative lack of understanding of complicated e-marketing concepts and strategies. “Would you rather spend 5 hours trying to figure out how to spend $5 million online, or make a phone call and spend $25 million on television ads right away?” says Mr. Simpson. So far, the path of least resistance has been the most attractive, and as a result, television will probably dominate for years to come.
Among large, established companies – the ones with the most money to spend – the most common online strategy is to mimic the broadcast the world. Advertisers are “trying to fit online advertising into a traditional mass advertising model,” says Mr. Nail. How many people would enjoy watching a one-minute TV-like commercial while trying to do a quick search on deadline? Not many. The sooner advertisers realize this, the better.
“The big challenge is for Internet advertisers to make ads that are creative enough so that people want to watch them,” says Mr. Simpson. They definitely have got a long way to go.