Online Ads: What Good Are They?

As click-through rates fall and ad revenue plunges at content sites around the Web, a lot of advertisers and agencies are starting to ask whether online advertising “works.”

It’s a stupid question.

Why? Because it leaves out the objective. We shouldn’t be asking whether online advertising “works”; we should be asking whether it accomplishes what we’re trying to accomplish with it.

It’s like asking whether or not sticks “work.” If you want something hard to hit somebody over the head with, sure they work. If you want to prop open a door, a stick’ll work fine. If you want to perform delicate eye surgery, a stick’s probably not the best tool.

What’s It For?

For a long time, ever since HotWired put up its first Zima ad, people have been debating whether banners should be considered direct response or branding vehicles.

The direct response people point out the measurability of click-throughs — you know exactly when an ad’s clicked and can measure the effectiveness of a campaign by those clicks. The branding people, increasingly vocal as click-throughs decline, argue that banners can help build brand recognition, regardless of whether they’re clicked.

Some of the more radical proponents of the direct response model go even further, declaring that pay-for-performance models are the only form of advertising worth anything. The branding camp (understandably) scoffs at these assertions, holding fast to the belief that repeated exposure to commercial messages builds brand awareness and, gradually, traffic.

So far, the measurement camp is winning — at least the hearts and minds of online advertisers. While a few have concentrated on using banners for branding, most have stuck to their guns on requiring “measurable” results.

But if a new study from Booz7Allen & Hamilton is right, serious consequences may be in store for the whole online advertising industry.

Not Enough Ad Revenue

Booz7Allen looked at the top 15 portals and came to the conclusion that banners aren’t working — at least as far as being able to keep portals alive through advertising revenue. As click-throughs drop (currently as low as one-tenth of one percent, according to the report), advertising on portals drops, too.

Advertisers are starting to question the value of the ads they place there and pull back. The portals are already economically shaky (look at’s demise) and starting to slip into serious financial trouble as ad revenues decline. Even Yahoo might miss revenue forecasts — by $300 million.

That’s bad news for those of us in the biz. According to some estimates, the top 50 sites currently receive 95 percent of ad revenue. And most of those top 50 sites are portals. If they start to go out of business due to lack of advertiser interest, much of the online ad industry could come crashing down with them.

What to Do?

How can the portal slide be stopped? Booz7Allen has two answers. First, portals may have to go to paid subscription models to boost revenue. Second (and, I think, more important), advertisers need to start considering online advertising as a branding vehicle.

There’s no question that banners as branding vehicles can work and recognition can lead to enhanced sales. A November 2000 study by AdKnowledge found that 40 percent of people who recalled seeing an ad for a site — but didn’t click on it — ultimately made a purchase (8-30 days later). As long as the banner was noticed, it did its job… eventually.

And there’s also no question that click-throughs work to drive site traffic and sales, albeit at rapidly declining rates. Last week I discussed how has ridden the pay-for-performance model to riches while its competitors overspent themselves into oblivion.

Define the Objective

The real answer to the clicks versus branding debate isn’t whether banners can accomplish either of those tasks. They can. What advertisers have to decide is what they’re looking to accomplish with online advertising, then modify their expectations accordingly.

If you’re looking to drive direct sales or visits through your online advertising activities, you should concentrate your efforts in a direct marketing mode. Your banners should have an immediate call to action. You should use email. You should look at contextual commerce links. Whether your efforts “work” should be immediately apparent: Visits either go up after you start the program or they don’t.

On the other hand, advertisers who want to build brand awareness online need to take into account a lot of the traditional limitations (and benefits) of awareness building. Success is harder to measure. Building awareness can take a long time and requires repeat exposure. Your creative must not get confused: If you’re looking to build awareness for the brand, make ads that do that — and don’t get upset if they don’t directly drive clicks.

And because of their small size and tendency to get lost in the noise of a site, banners might not be the right vehicles anyway. Sponsorships, advertorials, and larger-format ads are probably better ways of building knowledge of your company over the long term.

The Bottom Line

The bottom line is this: Measure in accordance with your goal, and don’t get upset if your marketing attempts don’t do what you weren’t intending them to do. If you’re going direct response, measure clicks. If you’re going for brand recognition, looking for increased traffic, sales, and coverage over time — in fact, past the end of the campaign.

The online advertising industry was able to gain credibility and customers early on by selling the measurability of the medium while neglecting its ability to ensure brand recognition. We’ve done a great job of convincing people that click-throughs are all that matter. Maybe they are, if that’s what you’re going for. Not knowing is the real sin and could kill our industry.

Related reading