Special Report -- Web Advertising
WEB ADS START TO CLICK
As Web marketing starts to show significant results, mainstream advertisers are jumping in
It began as an experiment. Bristol-Myers Squibb Co. wanted to see if the Internet was all it was cracked up to be when it came to plugging products and services. So during the 1997 tax season, the giant drug company teamed up with financial software maker Intuit Inc. and launched an online advertising campaign extolling Excedrin as "the tax headache medicine." For 30 days, Bristol-Myers ran ads on financial Web sites offering a free sample of Excedrin to Net surfers who clicked on the ad and typed in their name and address.
The response was as good as any elixir. In just one month, Bristol-Myers added 30,000 new names to its customer list--some 1,000 per day and triple the company's best-case scenario. What's more, the cost of obtaining those names was only half that of traditional marketing methods. "I don't think anyone can deny the long-term potential of the Web as a marketing tool," concludes Margaret Kelly, Bristol-Myers' vice-president for advertising services. Adds Seth Goldstein, president of CKS Site Specific in New York, which produced the campaign: "We turned a packaged-goods company into QVC."
Ah, the power of advertising--on the Net, that is, and at long last. In the past nine months, swarms of new ad banners, buttons, sponsorships, even TV-like commercials in which a car explodes onto your computer screen and speeds away, are now splashing their way across the World Wide Web. In the first quarter of 1997, Internet ad spending hit $133 million--still just a fraction of the billions spent on TV advertising, but a remarkable fivefold increase over the same period last year. What's more, analysts now say that Web advertising will approach the $1 billion milestone by yearend. "Net advertising," says Andrew S. Grove, CEO of computer chip powerhouse Intel Corp., "is becoming a big deal."
Not surprisingly, tech giants, already the biggest online ad spenders, are planning to pump up the volume even louder. In August, Intel announced that it will extend its cooperative-advertising program, which subsidizes ad dollars spent by its industry partners, to include Web promotions--a move that analysts say will boost all online ad spending some 40% in 1998. IBM says it's placing ads on 500 Web sites this year, a tactic that will balloon its Web advertising budget 300% above its 1996 level. And software giant Microsoft Corp. is upping its Net outlay by as much as 70% in fiscal year 1998, on top of the $24 million it spent in fiscal 1997, which ended in June. "This year, Web advertising is a permanent part of our marketing constellation," says Microsoft's John Zagula, director of marketing for desktop applications.
But the biggest change yet in this surge of cyber ads is that it's not all coming from computerdom. Today, makers of everything from Toyota Corollas to Kellogg's Corn Pops are hawking their wares over the Web. Yahoo! Inc., the first Net startup to turn a profit just from ad sales, says its mix of advertisers has gone from 85% tech in 1995 to almost 80% consumer brands today. Excite Inc., the No.2 search company, has seen its proportion of nontech advertisers grow from 38% to 59% in just the past six months.
Proof is in the list of top-20 advertisers in the first three months of this year. According to New York-based researcher Jupiter Communications Inc., online high rollers now include General Motors, American Express, Walt Disney, Procter & Gamble, and publishers such as Dow Jones. "The Internet is no longer in the realm of experiment," says Farris Khan, Internet advertising coordinator for Saturn Corp. "It's part of our mainstream advertising, like television or print."
In ad parlance, the Net has come a long way, baby. Just a year ago, Web site operators were wringing their hands over disappointing ad sales--$301 million for the full year, hardly a flyspeck amid the $175 billion pumped into all U.S. advertising in 1996. This was even more distressing since ad sales had been expected to be the Internet's cash machine--a rich and ready supply of revenues that could support all the jazzy Web 'zines, flashy entertainment guides, elaborate sports sites, even Internet E-mail.
So what changed? Why is advertising on the Net starting to click? For starters, the sheer number of Netizens prowling the Web, some 24 million today, is becoming too large for companies to ignore. Forrester Research Inc. expects that number to double to 52 million by 2000, putting the Web on a fast track to coveted mass-media status. What's more, in the past two years, the Net has gone from being a haven for nerds and academics to a hangout for professionals, teenagers, and grandmothers alike. This rich demographic shift, coupled with technology that promises to make Net ads almost as much of a "must see" as those on TV, have finally turned the Web into a hip place to pitch.
TIGHT FOCUS. At the same time, the buzz about how the Net's technology makes it possible to target specific customers is becoming a reality. Unlike a TV ad on say, Seinfeld, which is aimed broadly at the cool, thirtysomething crowd, a cyber-promo can zero in on Netizens who live in a specific part of town, are female, and who have shown an interest in certain topics or products.
Toothpaste maker Mentadent got a taste of that when it recently launched a two-week test on the Net with PointCast Inc., an information network based in Sunnyvale, Calif. But first, PointCast sent E-mails to random visitors to its site asking about their dental-hygiene habits: 72% said they brushed twice a day, and 33% brushed at the office. Mentadent was then convinced the PointCast audience was ripe for its pitch. The result: Double the average number of people clicked on the ad for more info. "The Internet is a marketer's dream," says analyst Peter Storck of Jupiter Communications.
And a nightmare for some Netizens. While advertisers drool over the ability to target specific customers, Web surfers who preciously guard their privacy may find it unnerving and start to balk, throwing a monkey wrench into this newfound ad machine. A new BUSINESS WEEK/Harris Poll, for example, found that 65% of those surveyed say they are not willing to share personal information about themselves so online ads can be targeted to their tastes (page 140). "If I think someone is tracking me, it bothers me," says Matthew Hart, a 23-year-old Los Angeles Web surfer who is willing to give out information when he chooses.
SECRET STASH. Many Netizens may not even know their Web habits are being monitored. Much of this is done through a technology called "cookies," which is like an electronic footprint that chronicles your movements on a particular Web site--what ads you saw or what you clicked on for more info. That data is stored in a "cookie file" in your browser. The next time you drop by the same Web site, the server picks up your footprint and gathers more info that can then be shared with advertisers.
Privacy advocates fret about cookies, but Web site operators insist they're not a problem since surfers can disable them by clicking on a browser option to reject cookies. Indeed, as cybernauts become more familiar with the Net, they will either get accustomed to handing out personal data or slam the door. "If you're under the impression you're anonymous when surfing the Internet, you're wrong," says Dennis L. Wilson, a 31-year-old intellectual-property lawyer in Los Angeles who cruises the Net regularly. "I don't have a problem with that. It's how you get advertisers to pay."
That's the attitude admeisters are banking on. Netizens are opening their arms to ads in cyberspace, though sometimes grudgingly. The BUSINESS WEEK/Harris poll showed that 67% of those surveyed were not willing to pay users' fees to avoid online commercials. What's more, 57% said they "somewhat agree" that Net ads are useful sources for product data and information. On the flip side, 46% also said they "somewhat agree" that it's easy to ignore Web ads.
And that's the rub. While there is more ad activity on the Web than ever before, much of it is still crude and far from the standard-setting slickness of TV commercials. But that doesn't mean Net advertising isn't headed in that direction. To be sure, Web advertising is borrowing pages from its broadcast counterpart with the gradual addition of sound and animation and the growing use of sponsorship ads, such as Visa's backing of Restaurant Row on the GeoCities Web site, where Netizens swap recipes and chat with guest chefs.
The next step: Netmercials. The biggest attempt yet to mirror TV can be found in a new genre called "interstitials." These are full-screen, in-your-face ads that pop up either in the lag time between requesting a Web page and its appearance on the screen or, much like TV commercials, between segments of shows produced exclusively for the Web.
Take the Web site for You Don't Know Jack. This irreverent quiz show, a favorite among CD-ROM game players, now offers its game online, where companies such as Seven Up, Hugo Boss, and 20th Century Fox Film reach out to the site's 150,000 players each month. There, they show 15-second ads that run the gamut from previews of movies such as Speed 2 to an insect riding a motorcycle across your screen hawking Cuervo Gold. The cost: $14,000 for every 100,000 games played--still a fraction of what companies pay for a slot on TV. "Advertisers see this and say: `Now I see what the Internet can do for me,"' says Chris Deyo of Berkeley Systems Inc., which produces the game show.
So far, reaction from Web surfers is mixed. While interstitials have more pizzazz than banners, some Netizens think more animation can be downright irritating. AT&T found that out the hard way. In mid-September, the telecommunications giant silenced an ad showing a young, sassy girl knocking on a door and asking to be let in. Again and again, she knocked until the Web surfer clicked on the door. She then walked through the doorway and said she was off to college, and users then got info about AT&T's communications services. But many found her voice annoying. "In a word, it backfired," says an AT&T spokesman.
Today, in-your-face ads account for just 5% of the pitches made online. Instead, the ads of choice are banners, which amount to 80% of all electronic plugs. Typically, banners are plastered across the top or bottom of a Web page, much like a billboard on the Info Highway. A click on one of these ads usually whisks the Netizen off to the Web site of that company, where more info can be found.
BURNING RUBBER. No company knows the power of banner ads better than Toyota. The auto maker slaps these road signs all over the Net. For the 12 months ended in May, Toyota says 152,000 Web users typed in their name and address and requested a brochure or video about a car. Toyota later matched those names with buyers at its dealerships. It turned out the Web ads led to the sale of 7,329 cars--a remarkable 5% conversion rate. "The Internet," says Jon Bucci, national interactive communications manager for Toyota Motor Sales USA Inc., "is the No.1 lead generator for Toyota."
But the static, wallpaper-like approach of banners also draws criticism as a cyber-snore. "There's a certain coldness to the Web. It's quiet and flat," says Stephen Block, AT&T's director of brand and interactive advertising. Adds Jupiter's Storck: "I have yet to see a banner that can make me cry the way an AT&T television ad can."
Net advertisers are working on that. Today banner ads are getting a makeover with animation, music, even games that help advertisers build brand awareness. Cereal powerhouse Kellogg Co., for example, is running a series of interactive games about Corn Pops and Pop Tarts inside banners. One, called "Mean Granny," is aimed at kids on the Sony PlayStation site where players try to keep grandma from getting to the Corn Pops.
No matter what form they take, online ads are being targeted to more precise audiences than in any other medium. Using keywords is one effective way. These are words surfers type into a search engine to generate a list of sites about a particular topic. These days, companies are paying for the rights to easy-to-remember words such as "beer," which instantly triggers an ad from Miller Brewing on Yahoo!'s site. IBM pays for some 200 words, including laptop, notebook, and Nagano, site of the 1998 Winter Olympics. In an especially aggressive move, Big Blue once bought the word of its major rival, "Microsoft."
An even more pointed route to the ideal consumer is through an approach by Infoseek Corp., a Sunnyvale (Calif.) Internet search service. Infoseek is using artificial intelligence software developed by Aptex Software Inc., a San Diego company, to create a program called Ultramatch. This automatically takes cookie data and sorts them into 20 categories of users, such as those interested in entertainment or sports.
Customer PC Financial Network, an online brokerage, was so intrigued by the idea that it did an experiment. It ran banner ads in Infoseek's finance area and on the keyword "finance." It also directed the same ads to Ultramatch's business users--those seeking company news, stock quotes, or investment info. The result: PCFN got an 8% to 12% response rate from the Ultramatch ads, vs. less than 1.5% for banners. "It's not how many people you reach," says Keith Halloran, the company's vice-president for marketing. "It's how many of the right people you reach."
That's the secret of E*Trade Group Inc.'s success on the Net. The Palo Alto (Calif.) online brokerage integrates its print and TV campaigns with its efforts on the Web. E*Trade is spending about 7% of its media budget on the Net, but it plans to increase that to 15% next year after the results it has had so far. In May, E*Trade began an ad campaign on Yahoo!'s finance site. In the first ten days, the ads generated some 3,118 leads for new accounts. Today, 17% of all E*Trade's leads come from online advertising. "A media strategy without the Internet is suicidal," says CEO Christos M. Cotsakos.
SCRAMBLING. No wonder, then, that marketers from Silicon Valley to Madison Avenue are now scrambling to take advantage of the Net. "I'd say 75% of our clients are asking us how they can use the Internet as an ad vehicle," says Greg Smith, director of strategic services at Darwin Digital, a dedicated Web-advertising unit of Saatchi & Saatchi (page 138).
Indeed, in contrast with the ho-hum approach Madison Avenue once took toward the online world, it is now going all out to make it a core part of the business. Early this year, Ogilvy & Mather established an electronic arm, OglivyOne Interactive, that caters to clients such as IBM. Not to be outdone, giants such as Young & Rubicam and Leo Burnett are joining Saatchi in setting up their own shops to focus on the Net (page 138). Says OgilvyOne's J. Sandom: "We need to be on the stick."
Huge billings are the incentive. According to Jupiter, online advertising revenues will soar in 1997, to $940 million, more than triple last year, but still less than 1% of all ad spending this year. Jupiter predicts that by 2002, Net ad revenues will approach $8 billion--some 4.1% of total ad budgets.
Some online operators are already watching the ad dollars roll in. Netscape Communications Corp. nabbed $24.1 million from ads in its most recent quarter, triple the same period a year ago. And Yahoo!'s revenues of $23 million in the past two quarters have surpassed its take for all of last year. So have its advertisers, which totaled 900 in its most recent quarter--nearly nine times the number it had in early 1996. "Whatever the growth is this year, it'll be twice or three times that next year," says Marc L. Andreessen, Netscape's cofounder.
Revenues are jumping in part because the most popular Web sites are starting to command more money per ad. In general, advertisers pay a fee for every 1,000 times their ads are displayed, known as "cost per thousand," or CPM. The average rate for banner ads is $17, says Forrester Research, but search-engine company Lycos charges $20 to $22 to gain access to its 15 million visitors a month. That compares sharply with ad rates for TV, for example, which are $5 to $6 per thousand, while consumer magazines such as Cosmopolitan can command $35. Net ads carry higher fees than TV because they are able to target preferred customers. "The technology has matured so much that if you just put your zip code in once, we can tag you," says Halsey Minor, CEO of CNET Inc., a San Francisco interactive-media company.
CNET is doing its part to hurry along the process. On Sept. 22, it launched Snap! Online, a consumer-information service that is going head-to-head with America Online Inc. Minor says Snap!'s charter advertisers, such as American Express Financial Services and Visa USA, will receive a first-of-its-kind monthly statement about the ages of the people who clicked on their ads, what part of the country they came from, and a slew of other demographic statistics they are willing to hand over. Yahoo!, Excite, AOL, and others are working up similar user profiles.
Key to the Net's arrival as a hot ad spot, however, is the establishment of independent measurement tools to gauge the effectiveness of ads. Accounting giants Ernst & Young, Coopers & Lybrand, and Price Waterhouse have recently begun auditing claims made by Web sites about their audiences and the number of impressions an advertiser gets. This month, Microsoft will begin sending its advertisers quarterly reports of all its Web sites, audited by Coopers & Lybrand. And on Sept. 9, the New York-based Internet Advertising Bureau issued guidelines to create standards for Internet advertising.
If advertisers still aren't satisfied, they can follow the path carved out by marketing heavyweight Procter & Gamble. It was one of the first companies to pay a Web site operator for ads only when someone clicked on them. "[Advertisers] like to tie somebody else's feet to the fire, saying: `You're my partner, you're going to deliver the ads, and you're going to have a vested interest in increasing the performance of them, just like I do,"' says Yahoo! CEO Tim Koogle.
That ability of advertisers to hold Web sites accountable is just what experts say will ultimately make the Internet as easy an ad sell as a spot on Seinfeld. Indeed, Web site operators are out to prove to advertisers that, like Visa, the Net "is everywhere you want to be."By Linda Himelstein in San Mateo, Calif., with Ellen Neuborne and Paul M. Eng in New YorkReturn to top