Advertising spend on the Web has moved out of the experimental stage during the past year as a result of online demographics becoming more diverse and more precise customer targeting.
The Internet Advertising Bureau (IAB) says the market grew more than 112 per cent in 1998 from 1997's value of $906.5 million, while sales in the fourth quarter of 1998 increased 34 per cent to $655.6 million compared with the year ago quarter, making it the twelfth consecutive quarter of growth.
Rich LeFurgy, IAB's chairman, explains: "It's significant to note that Internet advertising has not reached a plateau and we expect that, with online ad budgets increasing for current advertisers, and the growing number of large traditional advertisers who are migrating their advertising to the Internet, we can look forward to a sustained period of growth in the years ahead."
The IAB report, which was started in 1996, compiles data from more than 200 companies representing more than 1,200 Web sites. It is considered a leading indicator of trends in online advertising.
And according to the study, which is undertaken by Pricewaterhousecoopers' New Media Group on behalf of the IAB, some 29 per cent of the advertising in the fourth quarter of 1998 was consumer related, 20 per cent was computing related, 19 per cent involved financial services, eight per cent, telecoms and seven per cent, new media.
The report also found that 93 per cent of revenue transactions continue to be cash based, with barter trade and packaged deals accounting for six per cent and one per cent of total revenues respectively.
The predominate type of advertising is still banner ads, which account for 56 per cent, with sponsorships at 30 per cent, interstitials five per cent, email one per cent, and miscellaneous others at eight per cent.
But LeFurgy says that as Web advertising becomes an integral part of mainstream advertisers' media mix, advertisers are increasingly demanding properly audited statements, which indicate they have received the advertising they have paid for.
He adds that a number of Web advertising pricing schemes have also evolved from flatfee pricing, including CPM or impression only, which is the set cost per thousand of guaranteed ad views, click throughs, where an advertiser pays a fee based on the number of times the banner ad is clicked by users, and sponsorships, which are package deals of both impressions and click throughs.
Other schemes include fees paid on a cost per lead basis, where advertisers pay when the viewer registers or submits personal information, cost per sale, which is an agreed upon charge for viewers that purchase products or services based on an ad, and straight revenue sharing deals, where publishers receive a percentage of the commission paid upon sales from each ad.
But a study released by the Association of National Advertisers (ANA), on the other hand, found that its members, America's largest corporations that jointly spend more than $100 billion a year on advertising and marketing communications, had cut their online ad expenditure by 10 per cent in 1998 to an average of $649,000 per year.
Even more surprising was the discovery that the percentage of companies advertising online had decreased to 61 per cent from 68 per cent.
According to analysts InterMedia Advertising Solutions, for example, Procter & Gamble (P&G) spent 75 per cent of its estimated $1.8 billion measured media budget in 1998 on television advertising and just $4.4 million or two tenths of a per cent on the Internet.
And the reasons given for the advertisers' restraint was a lack of return on investment, a dearth of reliable and accurate measurement information, and the high cost per thousand of Internet advertising rates.
Robin Webster, the ANA's senior vice president, says that, while newspapers, magazines and television provide audited proof that an ad was run, "Internet advertising still can't prove ads paid for actually were displayed, rather than being interrupted by users' clicking links to elsewhere."
Scott Reamer, an Internet analyst with SG Cowen, explains: "A rising tide will lift all the boats. The online advertising market is only $2.6 billion right now. That's a pittance. As it rises from $2.6 billion to X billion dollars, that's going to support a lot of players."
New York based Doubleclick was one of the first to jump into the business of building online ad networks and the tools to manage such advertising. It has benefited from its early start, as indicated by solid revenue growth.
For its first fiscal quarter ending March 31, Doubleclick saw revenues increase 139 per cent to $31.1 million, and the growth of advertising on its network rise 53 per cent from the fourth quarter.
Yet despite the company's success, media buyers are still not fully satisfied with the state of the industry. One of the criticisms of current online advertising networks is that they simply blast out banner ads to thousands of Web sites, with little precision or accountability.
Tim Meadows, vice president of marketing at NetRatings, a company that tracks the online advertising world, says: "The media buyers always want more data. What they, the online ad networks, don't have yet is the ability to do a demographic profile of people they are reaching."
The technical approach to retrieving such data is still immature, leaving opportunities for existing or new companies to develop more sophisticated products, he adds.
One of the newer Internet services cropping up, however, is based on companies paying consumers to be online, with high traffic translating into advertising revenue.
To boost traffic, some Internet businesses are resorting to traditional forms of advertising like television commercials and billboards, while others are advertising online, primarily with banner ads.
The most successful of these new companies are those paying people hourly. They pay customers between $0.40-0.60 an hour as long as they run a small ad window or use the services Web browser. The first of these services, Alladvantage.com, says it has signed up close to two million people since it started on 1 April this year.
But from later this month, will pay subscribers as much as $20 a month to surf the Web. They download a viewbar with a roster of rotating advertisements onto their screens and leave it there while surfing the Net. As a result, they are paid $20 a month or $0.50 an hour for a maximum of 40 hours.
In return, Alladvantage.com tracks which adverts subscribers visit, which enables it to target the ads directly at them, and this information is then passed on to advertisers.
Jim Jorgensen, Alladvantage.com's chief executive, claims the initiative will become a new model for Internet advertising because it provides a profile of computer users.
The company was started by four people, led by Jorgensen, a serial entrepreneur, whose most recent start-up was Discoveryzone, a set of 300 indoor adventure playgrounds sold to Blockbuster Entertainment in 1994.
The firm has spent the last few weeks increasing its headcount from eight to 50, negotiating with advertising intermediaries to sell "run of network" advertisements on its behalf, and raising venture capital.
It hopes to become a megaaffiliate for online merchants and Jorgensen attests that companies such as Amazon are willing to pay even the tiniest Web site a five per cent commission on sales it brings in.
But according to Jim Nail, an analyst with Forrester Research, AllAdvantage is not delivering the Holy Grail of Net advertising - transactions - and does not even require participants to click on ads to find out more information about a company or product - mething that is unlikely to please advertisers,
"Advertisers do not want another medium like television, where you have no idea if anybody is seeing your ads or if your message is having any impact. On the Web, the only thing that works is a very tight linkage between a product and content," he explains.
And Nat Goldhaber, Cybergold's chief executive, also says that advertisers who can track the performance of their online ads, are demanding more than click throughs. "Advertisers want consumers to take an action. Cybergold and others offer discounts and other incentives to get users to look at ads," he adds.
Cybergold created the Earn & Spend community, where nearly 1.5 million members earn free cash incentives, buy digital content priced as low as $0.25, and can sell their own creative works.
Another new Web site, Get Paid to be Online, is also providing reviews and information about different online services. It provides links to pay by the hour services such as Alladvantage and Windough, pay by the email services such as HTmail and Moneyformail and will provide links to online credit services in the near future.
But as with other forms of media, the development of the Internet as an advertiser supported medium will be directly tied to its ability to provide qualified audiences to marketers.
And while the growth of online advertising may not be smooth, it is widely expected to continue to flourish into the next millennium.
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