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Web Ads on the Rebound after Multiyear Slump

Online advertising has got a bit of its buzz back.

After a downturn that threatened to wipe out the nascent Internet-ad industry, big advertisers are showing renewed interest in touting their wares on the Web. Overall, purchases of Web ads rose to $3.2 billion in the first half of this year, from $2.8 billion in the same period last year, according to Evaliant, the online unit of market researcher TNS Media Intelligence/CMR.

New formats -- for example, animated ads that flit across computer screens -- are helping to fuel the revival. The growth in broadband Internet customers also is making the medium more attractive to advertisers, because ads sent via high-speed transmission load faster and can do more tricks.

"Search-related" advertisements -- which appear alongside results on well-trafficked Web-search sites -- are particularly popular. Purchases of search-related ads nearly tripled in the fourth quarter of 2002, the most recent available figures, to $330 million, compared with the same period in 2001, according to the Interactive Advertising Bureau, a trade organization.

That is helping boost the sales and fortunes of companies such as Yahoo Inc., Microsoft Corp.'s MSN unit and closely held Google Inc. Yahoo is forecasting revenue to increase as much as 37% this year, partly because of a surge in ad sales.

The Web is particularly attractive to advertisers targeting teens, who seem to live online. A recent report commissioned by Yahoo and Carat Interactive, the online arm of media-buying and advertising firm Aegis Group PLC, found that 13-to-24-year-olds spend an average of 16.7 hours a week on the Internet, excluding e-mail.

With that in mind, consumer-products giant Procter & Gamble Co. is promoting its Always sanitary napkins on Yahoo's sites, hoping to reach girls aged 13 through 17. The company saw an increase in traffic to its BeingGirl.com (www.beinggirl.com1) Web site aimed at teenage girls during the campaign, a spokeswoman says.

Also seeking younger customers is the U.S. arm of closely held Italian candy maker Perfetti van Melle SpA. It is using a relatively novel form of online marketing for its Mentos mints. With Electronic Arts Inc.'s EA Games unit, the candy maker developed a free, interactive snowboarding game where Internet users can race down a track, picking up "energy points" in the form of mint boxes, and viewing Mentos Breathmakers billboards. "We're experimenting," says Katherine Dintenfass, associate brand manager.

Amid the good news, there are pockets of pessimism. Ad revenue that AOL Time Warner Inc. derives from its America Online service is expected to plunge as much as 50% this year, according to AOL. (The drop in America Online's ad sales last year was blamed for obscuring the first signs of overall industry recovery.) America Online used to craft big advertising deals in which companies would pay millions of dollars to sponsor a section of the online service for several years, but those arrangements have been expiring.


The rising online-advertising market2 is lifting news publishers' results, based on their second-quarter figures.

Market-research firm eMarketer in New York says the Internet's share of advertising spending will remain relatively flat this year, at 2.5%. Indeed, many advertisers and ad-space buyers remain skeptical about the Internet. Advertisers say they want better tools to measure the reach and effectiveness of Internet ads before they will commit to bigger outlays. A recent survey by the GartnerG2 unit of Stamford, Conn., research firm Gartner Inc. found that 60% of media buyers believe that online ads aren't as effective as traditional media, such as television, newspapers and magazines.

Daniel Stein, founder of online ad agency Evolution Bureau LLC, says: "Connecting an online ad to a purchase is still a gray area."

To some degree, analysts say, Internet advertising is being held to a higher standard. Advertisers can't always specifically track who buys a car after viewing a television commercial or a magazine ad. Moreover, there's lingering distrust from the days when advertisers thought the Internet would let them precisely target ads, and track the resulting purchases. "Online is held to a higher standard because of the hype of its measurability," says Charlene Li, a Forrester Research Inc. analyst.

Advertisers that do use the Web say the medium is effective at driving computer users to their own Web sites. General Motors Corp.'s Saab, Bayerische Motoren Werke AG's BMW and Mitsubishi Motor Corp. advertise on eBay Inc.'s Motors site, aiming to steer potential car buyers to their own corporate sites. Executives at 10th Degree, the Irvine, Calif., ad agency that helps Mitsubishi plan and buy Internet advertising, say such ads generate visits to Mitsubishi's Web site.

Car makers spent $100 million online in the first half of the year, up from $80 million in the same period last year, says Todd Isaacson, senior vice president of business development at Evaliant. Health, pharmaceuticals and fitness advertisers also increased online spending, he says.

Office Depot Inc., for one, has tried to reach out to small and medium-size business customers using search-related ads. "I want to be there when they're thinking about my products and services," said Kathleen Stockham, director of advertising. The company "buys" key words so that when someone types in the phrase "office suppliers" and "office products" in a search site an ad from Office Depot pops up.

Ms. Stockham uses commercial software and other tools built internally to track Internet sales. Every day, an employee compiles "overnight" reports that show the amount Office Depot spent the previous day on Internet ads along with the revenue they brought in from online purchases. The Delray Beach, Fla., retailer is on track to sell $2.5 billion of goods online this year, up from $2.1 billion last year.

Retailer 1-800-Flowers.com Inc. relies on search-related ads to reach prospective customers around holidays. Two weeks before Mother's Day, the company bought ads on Overture Services Inc. and Google that would appear whenever an Internet surfer searched on the term "Mother's Day flowers." Chris McCann, president of 1-800-Flowers, calls search-related ads "direct marketing on steroids."

The Westbury, N.Y., company is continually testing different terms for search-related ads, partly to expose consumers to its nonfloral gifts, says Mary Fleck, assistant manager of interactive marketing. The company bought ads that would appear when users searched the term "gourmet gift basket," for example, and it has been selling more flowers by placing such ads, Ms. Fleck says. It can track what sales are generated by these ads because Internet users click on the ads, which directs them to the 1-800-flowers Web site, where they then complete their purchases.

Web publishers and industry groups are trying to develop even better tools to measure the efficacy of Internet ads. They are also sponsoring studies to show that spending on Internet ads, when combined with other media, increases awareness of products.

One such study, based on a survey of 13,000 adult American women, showed that Anglo-Dutch consumer-products giant Unilever could have increased awareness of its Dove Nutrium soap among such women by increasing its share of spending on the Internet, at the expense of other media, to 15%, from 2%.

Posted on aef.com: August 28, 2003


Mylene Mangalindan, The Wall Street Journal. August 25, 2003

Copyright © 2003 Dow Jones & Company, Inc.. All rights reserved.