Internet Advertising: Not Dead Yet

In our two and a half years of writing for ClickZ, we have tried to look beyond all the Internet hype. Many of our articles were like pins busily trying to pop the overinflated balloons of e-business. Yet this year, the financial markets have done far more than we ever could, and we’ve been covered in waves of balloon shrapnel.

Boo.com won our first, and perhaps last, annual Digital Darwin Award. Three months and a complete shutdown later, there was no one left to congratulate. And the hits just kept on coming. C. Everett Koop proved that it takes more than a former cabinet member with a funny beard to build an online business. Gazoontite.com proved that even nose portals require legitimate domain names. And Furniture.com proved that high-priced TV advertising won’t sell furniture if your commercial spot looks like a dot-com pet food pitch.

With so many balloons popped, or at least deflated, you’d think we’d run out of targets. But just as a healthy dose of sanity started to re-enter Wall Street this spring, we’ve since encountered the latest overinflated bubble in need of bursting: panic over the viability of Internet advertising.

Trigger Happy

Last Friday, third-party ad-serving giant DoubleClick courted trouble by announcing a slowdown in its ad sales growth over the next several months and projecting widening losses for the quarter. Citing that Internet companies, under greater VC scrutiny and with weaker IPOs, are now less flush with excess cash to spend on advertising, DoubleClick shed nearly $700 million of its market value within hours of heavy trading following the announcement.

Yet even the performers are getting whacked. Also last week, Yahoo announced earnings, beat analysts’ quarterly revenue expectations by $15 million, and was subsequently punished. Analysts expressed grave concerns that Yahoo, like many other advertising-supported online publishers, was not sufficiently weaned from revenues derived from its bubble-market brethren, many of whom are now writing bad checks against insufficient funds.

(Anyone looking to go public should take heed. Being public can be about as rational, and as much fun, as dating someone with a bipolar disorder.)

It’s one thing for analysts and investors to suggest that ad-supported sites diversify their revenue sources away from dot-com clients to more brick-and-mortar (or at least silicon-and-shrinkwrap) businesses. This sort of risk-reduction makes sound financial sense. But with Wall Street Journal articles questioning the viability of online advertising to analyst statements, such as “Everybody has finally figured out banner ads don’t work,” the entire Internet as an advertising medium has been put on trial.

Step 1: Admit That You Have Problem (But Make Sure It’s the Right Problem)

Rumors about the death of Internet advertising have been greatly exaggerated. Of course, here’s where most online advertising advocates turn to platitudes, citing flawed research studies as fact. For example: According to Jupiter Media Metrix, online advertising is expected to reach $11.5 billion in 2003, up from $4.6 billion in 1999, with much of that growth coming from traditional advertisers. Of course, none of this matters if today’s online advertisers decide that the economics don’t make any sense as click-through rates continue their decline.

But the Internet is being held to different standards than other advertising media. Although it’s establishing itself well for direct marketing (banners do work for some things, just not everything), the Internet is being maligned for its weakness on branding. It’s as if society passed the unanimous judgment: “If it hasn’t worked well at branding, what good is it?”

The problem with this logic is that people today are too eager to blame the medium, and not the messaging, for the shortcomings of online advertising. If a great problem exists in getting a company’s branding message in front of online consumers, and there most definitely is, is that the fault of the Internet or the messaging units currently used to achieve that? Is television advertising a boondoggle if many advertisers fail to achieve a respectable ROI by repurposing radio commercials on it? (Not to mention if their sofa ad is better at selling flea collars.)

You would expect industry groups, such as the Internet Advertising Bureau (IAB), to take the lead at ensuring the Internet remains at the forefront of viable advertising mediums in the minds of media buyers, planners, and agencies. Yet the IAB is heavily weighted by third-party ad-serving companies rather than publishers. Therefore, instead of addressing online ad performance, the IAB has spent much of its time navel-gazing over how it’s going to scale operations and delivery to expand market share in areas such as wireless.

Going “beyond the banner” constitutes risk and experimentation with nonstandard units, things that run counter to their short-term scaling interests. As a result, advertising standards in this fledgling industry have evolved at glacial speeds over the past three years. How many television shows do you know that still break away from live stage sets for dancing packs of cigarettes?

Thawing the Online Ad Ice Age

To achieve the sort of performance that will lure traditional advertisers, someone must break from the pack and take the lead in tackling this messaging problem. As it looks now, the Internet’s larger publishers will undoubtedly solve the problem. They are best positioned to apply their in-house resources to leverage their above-the-radar status with advertisers, and they have the scale and inventory to make the necessary nonstandard experiments worthwhile to the advertiser and publisher.

Interstitials and pop-ups have been tried and failed, but a lot can be done with size and placement and in the advertising content itself. If web publishers can’t get users to click through to the messages on advertisers’ web sites, then perhaps they have to bring more of the advertiser’s site onto their own.

We’re already witnessing the birth of prototype, nonstandard ad units on sites such as ESPN.com. More, and better, examples are certain to follow, with some of them, given enough momentum, eventually becoming standards. However, for small publishers without the resources or scale, this may well mean that any influx of traditional advertisers is a lot further out.

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