INSIGHTanalysis: Web Advertising Pushes The Right Buttons

The data suggests that the online industry is well on track to reach its target of almost 2% market share by 2004. However, the internet is still in the process of establishing itself as a reliable, mainstream advertising channel and the decisions the industry takes now will be of paramount importance to its long-term future.

The majority of media commentators have viewed the latest adspend figures as a major breakthrough for the industry and the IAB believes the results show that online advertising has made a full recovery from the devastating effects of the dotcom crash. However, others view the celebration as somewhat premature, claiming that the internet’s hefty 12% share of media consumption (source: Freeserve) is not reflected by its relatively small share of the advertising market.

Critics believe the IAB’s goal should be to get online spend to account for 5% of the UK’s total adspend within three years and claim that the present growth targets are too low in relation to external trends. However, the IAB has made no secret of the fact that since overtaking cinema advertising, its sites are squarely set on radio.

A breakdown of the types of formats online advertisers are using reveals that a range of ads, including rich media and interstitial styles are driving the growth of the medium. However, some in the business still maintain that page impressions and pay-for-performance models are the lynchpin of the industry.

In the pay-for-performance model, the cost of internet advertising is relative to the success of a campaign. For example advertisers pay in relation to the number of users that actually click through to a specific ad. This ability to deliver marketers with an exact return on investment has been seen as a key strength in the online industry. However, some practitioners are less enthusiastic about this model. Fru Hazlitt, from Yahoo, commented: “The medium really has shot itself in the foot with pay-per-click, as click through rates are diminishing as users become more savvy as to what is and isn’t an advert.”

Sponsorship has also become a key growth area of internet advertising, following on from its success in television and radio. The growth of this type of marketing, which is traditionally associated with broadcast media, supports the idea that the internet is no longer merely a direct response platform.

Many in the industry would like to see the online sector embrace this approach and claim that internet advertising will only become an indispensable part of media schedules when brands look beyond traditional online formats and embrace the power of the internet as a broadcast medium. However, according to the IAB, the two biggest formats in internet advertising are still embedded banners and search targeted marketing. Search in particular has a natural affinity with direct marketing and has no connections with a broadcast environment.

Martin Child, managing director of search targeted marketing company Overture, believes search will continue to grow, commenting: “I struggle to see how the internet will become a broadcast model. Search targeted marketing is more akin to direct marketing as the primary reason for paid search is targeted leads. There are many new formats developing as ad spend and consumers’ understanding of the internet grows. However, search is a huge growth area and is by no means under threat from new formats.”

The changing nature of internet advertising formats has been mirrored by the change in the type of brands embracing the online platform. According to the IAB, the venture capital-based, new media start-up companies that dominated internet advertising during the dotcom boom have given way to more sustainable big brand, blue-chip advertisers.

The figures show that during 2002 financial services became the largest online advertiser, with a 26% share of the total market. FMCG and automotive also grew their market share. Internet advertising has also benefited from the changing fashions in ad-land, in particular media neutral planning and the drive for greater accountability in the face of diminishing budgets has driven online growth. There has also been the knock-on effect of the industry maturing and as big brands such as McDonald’s increase their digital media spend, others are being encouraged to do the same.

The changing nature of the industry and its rapid evolution throws up a number of issues for practitioners, agencies and clients. Perhaps one thing the industry is completely united on is the need for further evaluation of the medium and its audience. Research already on the horizon looks set to change the way advertisers view internet advertising, with both Nielsen//NetRatings and and ComScore Networks in America working on panel research which will assess internet usage in a similar way to that used by television viewing. This move away from reliance on click through figures alone may stop internet adspend from being concentrated on the big guns, such as AOL and into more niche websites.

The increasing number of ad formats and in particular the growth of rich media also poses some challenges to the industry. Rich media provides an opportunity for advertisers to address what many in the industry have viewed as the “gulf of creativity” in internet advertising.

Rich formats may also serve to highlight the impact the internet can have on branding. However, the growth of rich media is not without its problems and Associated Newspapers claims it is a hit and miss format due to the difficulties associated with measuring the frequency and targeting of campaigns. How the industry tackles these issues over the coming months will help to define not if, but how much the online ad market will grow over the coming year.

Although the online advertising market still only represents a drop in the ocean compared to the spending on TV, radio and outdoor campaigns, it is vital that agencies get to grips with the medium as it continues to evolve in the rapidly changing media marketplace. If internet advertising revenues are to catch up with internet audiences, online marketing must become more than just an afterthought or an add-on to an existing campaign and must become a truly important part of brand development.

A version of this report appeared on MediaTel Newsline last week.