Last summer, Park Place Entertainment tested a set of online advertisements to see which would lure customers to its Las Vegas hotels.
One ad floated a soft, conceptual message. The second ad was a bit more direct: "Bally's from $99 a night." A third, and final, ad was more focused still: "Bally's, $99 a night, click here."
Within hours, the company found the third ad received the best response; it removed the other underperforming ads right away.
"We didn't lose $50,000 or $100,000 on a badly conceived campaign only to figure it out the next time," said Frank Han, vice president of e-commerce at Park Place, which owns 27 gaming properties, including Bally's, Caesars Palace and the Flamingo. "We were able to pull the media down, swap it out and get on with life."
Park Place, a client of Seattle-based Avenue A, an online ad services company, is among the hundreds of Fortune 500 companies that have begun to spend more advertising dollars online - a trend that appears to be stabilizing an industry all but disregarded as a vestige of irrational times.
After online-ad spending peaked at $8.2 billion in 2000, the industry's fortunes fell in tandem with the dot-com bust. Internet startups with questionable business models had spent millions building their brands online. Once that money went away, so did the revenue growth of even the largest online media companies, including Yahoo! and America Online.
Two years later, a confluence of events, from falling online-ad rates and rising Internet usage to better technology to serve ads and measure results, has spelled the beginnings of a turnaround.
According to Nielsen//NetRatings, 286 Fortune 500 companies launched online-advertising campaigns during the last three months of 2002.
While last year's online-ad spending was billions less than its peak in 2000 - full-year figures aren't yet available - many industry observers say large, traditional advertisers represent a more predictable customer base, with much more to spend.
"One of the key things we saw during 2002 is that larger, traditional advertisers started to get off the sidelines and start to seriously entertain engaging the online medium in the way they hadn't before," said Charlie Buchwalter, vice president of client analytics at Nielsen//Net Ratings. "In our minds that was a big story."
A recent PricewaterhouseCoopers study, conducted on behalf of the Interactive Advertising Bureau, found that fourth-quarter online-ad revenue rose an average 66 percent for nine of top 15 online media companies. The figures become more compelling when considering that ad spending tends to precede recessions and lag in recovery.
Perhaps one sign that online-ad spending is back on the rise came from Seattle-based Avenue A, which provides online-marketing and technology services to companies such as Park Place, Lancôme and HBO.
The company, which recorded its first profit in the fourth quarter, attributed its reversal of fortunes to several factors: Its Fortune 500 clients spent more ad dollars online and used Avenue A to launch several high-profile online marketing campaigns, including a five-day marketing blitz for MSN 8, Microsoft's Internet service.
Chief Executive Brian McAndrews said both companies and media buyers have become more savvy over the years. He remembers a time when companies rushed into online advertising without understanding how to use the medium, and when the industry's earliest measurement techniques were lacking.
"In the beginning, large companies made deals with AOL, thinking that would be their online strategy," he said. "Then they turned around and thought, 'What did we get out of that?' "
If the industry got off to a bad start with large, traditional advertisers, many Fortune 500 companies came to realize that the Internet was a medium it could not ignore.
The Internet gives advertisers a way to reach consumers during the coveted work day when most users are on broadband connections, a wider pipeline that makes it easier to shop, conduct other transactions online and view richer media, enabling advertisers to tell a deeper story inside an ad.
To be sure, more advertisers have begun to purchase online ads based on the time of day (called day-parting), which means they can advertise, say, lunch specials during the morning hours, and a movie and a dinner during the afternoon.
"Between 8 a.m. and 6 p.m., the Internet dominates," said David Hallerman, senior analyst at eMarketer.
Meantime, demographics continue to be a strong draw. In its yearly Internet report, the UCLA Center for Communication Policy said at least 80 percent of all U.S. citizens between the ages of 19 and 45 use the Internet. And roughly a third of U.S. Internet users make $75,000 or more per year, according to comScore Media Metrix study released in December.
The online-ad industry has also done a better job at paring down Internet jargon and learning to speak the same language as the traditional advertisers that control the purse strings. McAndrews said traditional advertisers measure two things: reach (how many people did you reach in your desired demographic) and frequency (how frequently did they see your ad).
"What online advertising hadn't been able to do until a year ago was to predict up front what the reach and frequency would be beforehand," said McAndrews, whose company developed such a product called the Atlas GRP and Reach Forecaster. "That allows you to take the pot of money up front and divide it in ways you see fit. You can say, 'If I put this much into TV, radio and online, here's what I get in reach and frequency.' "
At the same time, Avenue A has benefited as more traditional advertisers turned to third parties to plan online-ad campaigns and purchase ads.
Han, at Park Place Entertainment, said his company started by buying its own online ads, but the results were "haphazard." Hiring a media-buying agency gives his company access to more options at a cheaper rate. The company signed Avenue A as its agency of record last week.
"It would be too labor intensive to identify the media opportunity, try to quantify the benefits and negotiate a deal," Han said. "We would just need an army of people here."
Hallerman of eMarketer said that while most people equate online advertising with banner ads, other popular advertising categories have emerged, contributing to the strength of the industry.
Paid search - where a company pays search engines such as Google to list its Web site when a user types in certain words - has grown to 9 percent of total online-ad spending, according to the Interactive Advertising Bureau.
Online classified ads also have fared well. Roughly $1.24 billion, or 22.2 percent, of all U.S. online-ad spending went to classified ads in 2002, according to Jupiter Research. The research company expects online classified revenue to rise to $2.11 billion by 2006.
Still, observers say there's room to grow. The Internet ad industry makes up just 2 to 3 percent of all advertising dollars, and observers expect that percentage to grow over time. "We're not pushing online as a replacement to other media," McAndrews said, "but as a powerful tool."
Greg Stuart, chief executive officer of the Interactive Advertising Bureau, said companies are learning that online advertising can perform similarly to TV, magazine, print and radio in terms of addressing a brand's marketing goals.
"What they didn't have in the past was a way to do it more cost-effectively," he said. "One of the reasons why the Avenue A's are experiencing growth is that the market reset itself, pricing has changed, online has become a real deal."
Posted on aef.com: February 21, 2003.
Monica Soto, The Seattle Times. February 17, 2003
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