The State of the Sector

As summer sets in and the online marketing sector undergoes its usual July slowdown, it’s a good time to reflect upon how far the industry has come, and take a look at where we are now. What’s hot? What’s definitely not? And what’s not but should be?

Crunching the raw numbers of the moment, one would think the online marketing sector is enjoying a sharp bounce. A recent report from the Interactive Advertising Bureau and PricewaterhouseCoopers found the Web made a strong turnaround in 2002’s fourth quarter, and a Goldman Sachs analyst recently doubled his 2003 forecast for the online ad sector. Further, AOL, long a drag on the sector, continues to turn its online ad unit around.

Despite the encouraging reports however, many in the industry have noticed a distressing lack of buzz and excitement in online marketing circles.

Example: According to numerous marketers in attendance, this year’s Ad:Tech event in San Francisco suffered from a marked lack of enthusiasm and innovation, despite registration numbers that dwarfed those of last year’s event in Los Angeles.

Attendees complained the session content too often consisted of PowerPoint sales presentations and reiterations of old issues, such as how to persuade top management to use interactive and whether rich media works.

On the second day of the conference, event organizers issued a plea to panelists to resist the urge to use the forum as an opportunity to pitch goods and services, according to one speaker. However, based on the sessions that day and the next, that plea went apparently went unheeded.

Given the numbers, why was the content and mood of the show so very…for lack of a better word…blah? Is online marketing suffering from a crisis of innovation, or is Ad:Tech just an isolated case?

Search: Still the New New Thing

There are certainly hotspots in the sector. Search marketing is the obvious one, and even amid the ennui of Ad:Tech this year, the search panels were contentious and interesting.

“Everything at Ad:Tech was about search. The floor was all about search and the parties were all about search,” said Nate Elliott, associate analyst of marketing and advertising for Jupiter Research, which shares a parent company with this publication.

In fact, search has become so hot that its buzz threatens to outpace its effectiveness, according to Elliott, at least in certain areas.

“Whenever there’s this much buzz around one type of online marketing, there are going to be good opportunities and opportunities that aren’t good,” he said. “That’s what marketers are figuring out now.”

Pity the List Broker

As search skyrockets, yesterday’s heroes decline, chief among them email. Thanks to the proliferation of spam, consumers are now biting the hand that forced email down their throats, turning list rental services into the new hooligans of online marketing. All but a few are now considered as vile as yesterday’s cut-rate banner networks.

That’s not to say email is going the way of the vacuum tube. It’s far too effective for that, as we all discovered once again last month when DoubleClick found that open rates for Q1 2003 had actually gone up and NetCreations reported rising performance for its third-party email lists, as well.

But the scene is changing for email, and rapidly. Recent momentum in the legislative arena will likely continue, potentially protecting email from death at the hands of get-rich-quick schemers. The idea behind the harshest of the legislation is that people will go to jail for spamming your customers, and as long as you have permission, people will actually read your messages.

Still Dis-Integrated

While the rules of email and search have changed quite dramatically in recent memory, the rules of ad campaigns have in many respects stayed the same. For agencies and online creatives, it would seem that everything has changed and yet nothing has changed.

Bigger budgets are going online, yet offline still drives online creative. Publishers are pushing larger ad units, yet many agency execs cry that bigger is not better. And despite numerous agency acquisitions and extensive prophesying that fully integrated campaigns are on the way, the organizational structure of agencies continues to create obstacles.

David Glaze, VP of creative at Genex, is skeptical of the holy grail of offline/online integration. “As creatives, we abstractly love the idea of the integrated campaign, and it’s occasionally been done very well,” he said. “But the whole business is still very ego driven, particularly on the traditional agency side.”

Who owns the idea is a big deal, creatives know, and that keeps the various executives on an account from truly working together. Furthermore, there are economic incentives for agency execs to quarrel rather than cooperate, according to Gary Stein, a senior analyst at Jupiter Research.

“Even if you threw creative ego out, there’s a billing imperative that interferes with cooperation,” said Stein. “If a client brings in a top-flight agency, interactive firm and PR shop, they’re naturally going to clash — each trying to grab the most billable hours.”

So is the trend toward integration actually in the best interest of the advertisers? A recent report from New York-based Ballester Consulting showed that only 43 percent of major domestic advertisers like the idea of an integrated service offering.

“They think there’s too much control in one place,” said Glaze. “They’d rather go to a specialist.” But he quickly adds, “Still, I wouldn’t be surprised to see another round of attempts by traditional agencies to integrate online development as part of their offerings.”

Agency.com CEO Chan Suh feels the same. “I do expect more consolidation,” Suh told ChannelSeven.com. “Really out of necessity more than ambition. There are quite a few companies that would be better off as part of a larger organization.”

Gary Stein agrees. “The bulk of [consolidation] has happened,” he said, “but there’s certainly more to do.”

Ad Quality

The quality of online creative is still struggling for improvement, despite the proliferation of technologies that should theoretically elevate it.

“If you look at quality, the big thing that happened over the last year is that [rich media vendors] picked up a lot of traction,” said Stein. “Various publishers have started accepting their formats, which increases the palette quite a bit.”

Ironically, the proliferation of technologies that support online creative has often led campaigns away from quality rather than toward it.

“We understand there are numbers of technologies to blink and take over the screen, but now we need to look past these tools,” said Glaze. “Online advertising is going through a transitional phase now, in that the technology has matured enough that it’s become harder to innovate on a purely technological basis.”

That was the problem with Ad:Tech, Glaze said. It missed an opportunity to advocate good creative content and strategy over technology. In fact, the “Tech” in Ad:Tech may be the reason for the identity crisis the formerly high-flying conference seems to be experiencing. Once, online advertising was all about the technology that enabled its creation. Now it’s about the content and the strategy, as the impetus shifts to quality of creative and placement.

Studies are backing this up, such as one from the Online Publishers Association finding that consumer affinity for a Web site positively effects perception of advertising on that site.

“The more traditional agencies get involved and the less clients are wowed by the flashing, blinking stuff, the better off we’re going to be,” according to Stein.

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