Five years after the dot-com bubble burst, Internet advertising is finally delivering on its promise.
A passel of industry and analyst reports tell of a very strong 2004 and an even better 2005 for online ad spending. It's still a tiny portion of the entire advertising-dollar pie, estimated to be $12.3 billion of $256 billion in total spending by one account, but the talk is it's only going north.
"It engages people, and production values on the Internet have gone through the roof,'' said Daniel Stein, co-founder and managing director of EVB, an interactive ad agency in San Francisco whose major clients are Wrigley, LeapFrog and Old Spice. "It's the growth sector -- again.''
Stein says that with a clear view of the rubble of the dot-com bust in the rearview mirror. More than 60,000 jobs were lost in San Francisco alone after the collapse of an illusory Web-based industry, beginning around the fourth quarter of 2000. Many thousands of jobs in online marketing went down with dot-com businesses in the technology-heavy Bay Area. For many companies, online advertising just didn't work. The world wasn't ready to spend a sizable portion of its advertising budget online, but that may be changing.
The Internet didn't go away, and it has become a transforming and integral tool, particularly for marketers who want to bond with customers.
The Interactive Advertising Bureau, a trade association with more than 200 members, and PricewaterhouseCoopers said that Internet advertising totaled about $2.7 billion in the fourth quarter of 2004, the highest revenue quarter the bureau has tracked. The estimate for entire year of 2004 is just over $12 billion -- nearly double the $7.2 billion spent in 2003. The fourth-quarter figure is a 24 percent increase, the bureau said.
"You are starting to see marketers stand up and say, 'You're right, my customer has shifted his or her behavior to online, and I better be there,' '' said Greg Stuart, president and chief executive officer of the Interactive Advertising Bureau in New York.
"The experts tell us that, of the time people spend with media, including television, 14 percent of it goes to online,'' Stuart said. "That is a dramatic shift, going from zero to 14 percent in 10 years. If time is our most precious commodity, and that is where consumers are spending their time, marketers will follow,'' he said.
The phenomenon is certainly paying off for search engines. Google reported revenue last year of $3.19 billion, up from $1.47 billion in 2003. The results reflect an increase in Web site advertisements. Web portal Yahoo had revenue of $3.57 billion for the fiscal year that ended Dec. 31, up from $1.63 billion a year earlier. In the first half of 2004, ad spending in the search category was up 100 percent, according to the bureau, because of the popularity of sponsored ads that are listed next to search results on sites like Google. Spending was up 25 percent for the banner or display category and up nearly 30 percent for classified.
Online advertising's strong suit is a better sense of accountability, the watchword of the day for marketers, who say they can learn in real time whether a message or interactive elements are effective. Basically, advertisers can see whether someone clicked on an ad and bought something. "You spend a dollar, and you know what you get for it,'' said Stuart.
Overall, marketers are increasing their spending as the economy improves. In a survey released Monday, CMO magazine, a marketing trade publication, found that 74 percent of marketing executives anticipate spending more this year. Fifty percent will spend more on advertising and 47 percent will increase interactive marketing, the survey of 543 marketing executives found.
Not surprisingly, there's a flurry of hiring of Internet-savvy people at advertising agencies. Jonathan Nelson, the 37-year-old chairman of Organic Inc. in San Francisco, a Web site development and Internet advertising agency founded in 1993, needs to hire more than 40 people, adding to the company's workforce of 300-plus. Organic, a unit of Omnicom, needs creative directors, business development managers, production artists and more at offices in San Francisco, Los Angeles, New York, Detroit and Toronto. Nelson would not comment on a published estimate the company had $52 million in revenue in 2004, a 21 percent increase over 2003, putting it in 16th place among the top 50 interactive agencies.
Interactive agency EVB, which in 2004 had 25 employees and now has 40, has eight job openings and needs to find new office space. The growth pattern is seen throughout the ad industry.
The supply of talent is short in part because so many people were driven from the industry after the dot-com implosion, and it's a specific field. The demand is exhilarating for Internet survivors.
"What a ride,'' said Nelson, who at the peak in 2000 had 1,200 employees with several offices overseas. "We went from a couple of card tables in a bedroom to going public, being worth billions of dollars, nearly crashing, and here we are growing like mad again,'' he said.
There's something different this time, however. There are substantial clients with business plans to show ad agencies -- something you can hold, read and understand -- compared with many incomprehensible and shallow get- rich-quick, Web-based schemes of a few years ago.
Organic's major clients include Daimler Chrysler, Washington Mutual, Fox broadcasting and films, Sprint, and Sirius Satellite Radio. "We have seen every one of our clients increase (spending) by over 100 percent in the last year,'' said Heidi Browning, Organic's media director.
A turning point, said Browning, was making the case that the medium is an effective branding tool as well as a direct marketing vehicle, and marketers' realization they can directly reach core customers via the Internet.
"Marketers are beginning to think, 'Maybe my TV dollars are not as effective as they could be. Maybe I can start shifting my dollars to other mediums to capture that audience,' '' said Browning.
Indeed, marketers are beginning to look beyond traditional ad-supported television programming, given today's media fragmentation with so many channels available. Said Jim Stengel, chief marketing officer of Procter & Gamble: "There must be -- and is -- life beyond the 30-second spot. We must accept the fact that there is no mass media any more, and leverage more targeted approaches.''
Robyn Schroeder, a P&G spokeswoman, added, "One of the benefits of using online as a medium in conjunction with other forms of marketing is it provides a permission-based way to offer consumers more information than can be shared in a 30-second television or radio spot.'' She noted, however, that at P&G, the world's largest advertiser, each brand has a different percentage of spending on different media.
Organic's Nelson says it will soon be commonplace for marketers to spend 10 to 15 percent of their marketing budgets on the Internet. "We've gone from a testing phase to a real phase to the point marketers are saying, 'I'm going to move significant dollars. I believe the medium works. It has the right attributes.' ''
The form of Internet advertising has also evolved through the years. It all started with the ubiquitous banners, which were followed by the even more intrusive pop-up ads. Because the banners and other forms of Internet advertising are a nuisance to many users, the ad industry is trying to engage visitors in an emotional relationship, or, as EVB's Stein puts it, "to keep eyeballs on Web sites a long time.''
When Wrigley recently re-introduced the Doublemint Twins, EVB built a site, www.doublemint.com, where twins can upload their pictures and people can come to the site and vote for their favorite.
The agency built www.whensheshot.com for Old Spice, using video shot by the Saatchi and Saatchi ad agency for a TV spot. In its online form, the ad becomes a forum for viewers to mix their own music videos and to sell High Endurance deodorant.
America's favorite Internet advertising entertainment is Subservient Chicken from the Crispin Porter & Bogusky ad agency in Miami for Burger King. At www.subservientchicken.com, an actor dressed as a chicken responds to commands typed by visitors to the site. The chicken can jump on the couch, roll over and do hundreds of other things, all in the name of the TenderCrisp Chicken Sandwich.
"I need to get a life'' may occur to some viewers after spending some time on the site. Still, when the site went up one year ago, people stayed on average nine minutes. Today, the average visit is seven minutes, said Gillian Smith, senior director for media and global collaboration at Burger King Corp. in Miami. The site has had 14 million unique visitors and more than 400 million hits, she sad.
The site cost very little to create, and it reached the realm of popular culture through the power of word-of-mouth.
It surely has helped Burger King, although Smith would not release sales figures. February was the 13th consecutive month of increased U.S. sales at Burger King restaurants open for a year or more, and sales are up 11.7 percent on a two-year basis, the company said.
The Subservient Chicken site, said Smith, "is the personification of (Burger King slogan) Have it Your Way -- with a chicken.''
Although the chicken has a vast repertoire, it can be stumped. It can't, for example, find weapons of mass destruction, said Smith. You give it that order, and it looks like it's trying to lay an egg. "We need to re-program it, '' Smith said.
Although Internet advertising is on the rise, as shown in the bar chart to the right, it still represents a relatively minor portion of all advertising, as shown below.
1996 $267 million
1997 $907 million
1998 $1.9 billion
1999 $4.6 billion
2000 $8.1 billion
2001 $7.1 billion
2002 $6 billion
2003 $7.2 billion
2004 $12.3 million
George Raine, San Francisco Chronicle. April 10, 2005
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