What's the Buzz?

Editor’s note: What’s happening on the always-active industry discussion lists? What’s got people riled? What’s the buzz? John Day tells all in the first of a weekly column that digests the major threads on two leading online ad industry discussion lists: the Internet Advertising Discussion List (IADL) with moderator Adam Boettiger and Richard Hoy’s Online-Advertising list.

ClickZ subscribers will receive this column in addition to their regular dose of ClickZ for the next several weeks. After that, you’ll have to opt in to a special list…and ask for it yourself.

Internet ad spending doubled last year over ’97, but the average CPM is dropping. The supply of ads — practically infinite — far exceeds demand. Competition for eyeballs is ferocious, and sites are spending big bucks to attract an audience.

That’s the gist of a story by Marc Gunther in the April 12 Fortune that got the juices flowing for several Internet Advertising Discussion (IADL) participants. Perhaps it was the headline, “The Trouble with Web Advertising.” Giant firms with deep pockets and niche sites with well-defined audiences are likely to make it. But the future’s dim for the mass of web marketers, or so the story goes. Meanwhile, Fox sold its comparatively miniscule inventory of :30 Super Bowl spots for $1.6 million each — a $20 CPM.

Hmmm… on a CPM basis, an average online ad ($35) costs more than an ad on the Super Bowl ($20)? Are both prices governed solely by the law of supply and demand? If not, what is the basis for pricing an ad? IADL participants tackled those questions last week without much consensus.

First off, the online number is suspect. As Jaffer Ali pointed out, take away the portal ads — the big sites get both the momma and the daddy lion’s share of ad revenues — and the average online CPM would be way smaller. Ali said the supply of Internet ads is estimated to be doubling every six months, and that’s why CPMs are low and headed lower.

But the supply and demand theory discounts the web’s ability to target ads to select groups of users and report on the results, and the fact that not all sites are created equal.

As Howard Liptzin put it, there are a lot of good ad opportunities on the web as well as a lot of bad ones. The inventory on the good sites isn’t doubling every six months, and those are the sites that are getting the high CPMs they deserve. Advertisers are willing to pay to put their messages on those sites.

Other IADL threads were a tad more prosaic. Louis Jay, for example, threw open the question of the effectiveness of email marketing and got some pretty tactical answers.

His good news was that his firm got a 7 percent response from the 4,000 emails it sent. The bad news (to him, at least) was that the campaign cost an average of $3 per visitor attracted to the site.

He’s looking down the wrong end of the telescope, because he needs to be asking how many visitors became customers (2.8, presuming a 1 percent conversion rate) and whether they bought enough product to cover the cost of the campaign. More importantly, how many of the customers acquired will remain customers for life? Perhaps he’ll tell us.

Online-Ads moderator Richard Hoy got a little controversy brewing when he waved the red flag of privacy. Is this a real issue, he asked, or a bunch of crap?

Seems IBM has vowed to pull its ads from any site without a privacy policy. But according to Richard, all of its sites already have such policies, so the point’s moot, or clever PR on IBM’s part.

Richard suggested that IBM’s announcement is part of the fallout from the report on privacy the Federal Trade Commission submitted to Congress last June, and he charged the FTC with contributing to “incredible misinformation” about what marketers can track. Neither of the O-A participants who responded last week were huge FTC fans.

The only other serious dander raised on O-A, other than Bob McLauchlan’s rant on Rob Frankel, came from an innocent-sounding question about the efficacy of banners that tease without telling us what they’re promoting. Mike Scanlin directed the inquirer to Four Corners and, we hope, stepped away quickly so as to avoid the flak.

One respondent labeled the banners on the site “dirty tricks.” Another was content to say that they give advertisers a bad name and are counter-productive. Yeah…and your mother dresses you funny.

In the tips ‘n tricks department, the best way to get paid quickly is to get paid up front. Second-best is to offer a discount for early payment. The magic number of times a user should be exposed to a particular banner? Three or four.

And here’s one we almost overlooked: Responding to a European participant’s skepticism about the practices of ad networks, Ray Taylor opined that networks give poor service to web site owners, advertisers and agencies. They often prefer to book business direct in order to keep the 15 percent commission.

What’s more, networks avoid discount buying, seem to like to sell “turkeys” to naive first-time buyers, and are responsible for large-scale heavy discounting of network inventory. And here’s a Bambi trivia question: Who told Thumper, “If you can’t say something nice…”

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