Internet Advertising in 2000 and Beyond

As the end of the year approaches, it’s a good time to look back at what 2000 has meant to Internet ad sales.

There’s Good News… and Not-So-Good News

It has been another record-setting year. The Internet Advertising Bureau (IAB) recently released its 2Q 2000 report on online advertising. Key findings included the fact that online advertising continued to increase. In fact, 1H 2000 almost matched the revenue for 1999 as a whole. (Online ad revenue for 1H 2000 totaled $4.1 billion compared with $4.6 billion in 1999.) And future growth projections are still strong.

Jupiter predicts that online advertising will reach $16.5 billion by 2005. Even Merrill Lynch analyst Henry Blodget, author of a recent report entitled “Online Advertising: Bad Could Become Worse Before It Gets Better,” is still predicting 15-20 percent growth for the ad industry for 2001. He believes that the online ad market will bounce back once the worst of the dot-com failures is over.

Two additional data points: Traditional marketing companies are now driving most of the web advertising growth — a healthy sign for the industry’s future. And a Jupiter study found that marketers plan to increase Internet advertising at a higher rate than in any other medium.

So there is a lot of good news. But not all the news is good.

None among us has missed the shakeout of the last few months and the resultant market softening. According to AdRelevance, 68 percent of online advertisers earlier this year were dot-coms. With so many e-commerce sites going under, one expects severe consequences for online advertising. Traditional advertisers have not yet made up the difference, leaving many to believe that the market for online advertising is weakening.

With all this bad news confronting us daily, why do we continue to feel optimistic about the future of the online ad model? Probably because it’s our job to get beyond the hype and figure out what is really going on.

The Story Behind the Story

So here’s what we consider to be the real story behind the gloom and doom.

The strongest media properties will have some near-term set-backs but will emerge stronger as the weaker players die off. By “strongest” we do not necessarily mean the most highly trafficked, although many sites are strong in ad revenues and total inventory. To our minds, a strong media property is one that invests in audience (not just impressions) and leverages that investment by selling real marketing solutions to advertisers whose business depends on those audiences.

Strong media properties are those that work with advertisers to understand the optimum uses of the site and help their advertisers use the site to best advantage by addressing real ROI (which, for most marketers, is not the same as click rates).

The aggregators of eyeballs that have attempted ad funding without developing a true media business will have some challenges redirecting their businesses over the next few months. Many won’t survive, and though we are sorry for the individuals involved, that will be good news for the whole industry.

When companies begin to understand how to use online advertising appropriately to meet a variety of marketing needs, the whole industry will move forward in professionalism, sophistication, and profitability.

The early phase of online advertising has ended. Sites and advertisers alike are pulling back and re-evaluating right now; we’re experiencing the slow period before the industry truly moves into the mainstream. Online advertising isn’t going away. But those who survive the current transition are going to have to get smarter — fast.

Happy New Year, and welcome to the next phase of this dynamic business!

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