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Are Click-Through Rates Really Declining?

  |  January 16, 2001   |  Comments

Yes, click-through rates have been declining, but they've stabilized over the last 18 months. The industry is maturing, and the first metric to demonstrate this stability is the click-through rate.

Enough already! It seems everywhere you turn there is some newspaper article, magazine article, or short television news story about the demise of Internet businesses.

Stocks are still being pummeled, a new round of layoffs is announced every day, and the doors of former darlings of the new economy are closing. It is sometimes with morbid glee that journalists sneer at the latest news on who's suffering and who isn't.

But this current "thrill killing" has a lot of antecedents from within the industry itself. Most notably, over the years, it has been the declaration of death of the banner as an ad unit and the ever-declining click-through rate.

As ubiquitous as dot-com tales from the dark side are, so, too, were reports of click-through rates experiencing dizzying falls from grace, signaling the end of the ever-present banner. Average click-through rates used to be something like five percent back in 1997. Then it was two percent. Then it was one percent.

At one point you could find an article every couple of weeks or two covering the demise of the banner as reflected in the dropping click-through rates we're experiencing.

But no one has stopped to question these "obituaries" for online advertising or, at the very least, put them in perspective.

Yes, it's true, click-through rates are declining. I'm going to venture a guess and say that click-through rates, on average, have been declining since the very beginning. I'm betting that the very first CTR was 100 percent and has been on a downward spiral ever since.

At the first formal Society for Internet Advancement in San Francisco panel event in 1998, Ellen Comley, then at Andersen & Lembke (which is now McCann) was asked about declining CTRs. She chalked it up to an adoption curve. Over time, more people start to do something new. This creates the conditions for more people who HAVE done that "something" already and are thus less inclined to do it again, until you end up with what appears to be declining engagement. Basically, banners used to be exotic and "neat-o"; now they are banal and de rigueur.

Presently, the industry average click-through rate is about 0.5 percent (as reported in the AdKnowledge Online Advertising Report 1st Quarter 2000). What's interesting is that this has been the average click-through rate for quite some time now. I think that for about 18 months, this has been the average CTR bandied about at conferences and quoted in reports and news articles. When I see the results in from the first month of a new campaign my agency has been running, something close to a 0.5 percent click-through rate is about right. And this has been consistent for at least a year. It is my belief that click-through rates are no longer declining.

In fact, CTRs are finally more in line with what is seen in the direct-response offline world. One-half of one percent is about what an advertiser can expect from a direct mail effort. Now that the web population is more reflective of the world at large, the kinds of things people do online and the regularity with which they do them will also mimic the offline world.

When we talk about CTRs, we are talking about response rates, which casts the online advertising effort in the direct-response light. Lo and behold! As a direct-response vehicle, response rates on the web have parity with response rates in other media. And it appears these response rates are holding.

I think we are witnessing another sign that this industry is maturing: atrophy, consolidation, and stability showing in selected metrics. And the first metric to demonstrate this stability is the click-through rate.

As the CTR's decline has slowed to a near stop, let's hope it is a small sign that the same will be true for the rest of the industry.

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Jim Meskauskas Jim Meskauskas has had a long career in both traditional and interactive media. He was most recently the Chief Internet Strategist at Mediasmith Inc., where he worked with a range of clients -- from BabyCenter and CBS MarketWatch to Eidos Interactive, Roxio, and LuckySurf. He has also been in media at Hawk Media, Left Field, and USWeb/CKS. He is a founding board member of the Society for Internet Advancement San Francisco, where he oversaw communications. Jim is now developing an independent media consultancy called Media Darwin.

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