When Delta Air Lines started running ads last month on 20 Web sites popular with New Yorkers, The New York Times Digital got the biggest share of the budget. What did Delta like about the Times Web site? Over the past two years, it has shifted into overdrive in its efforts to make online ads bigger and more animated. It also can dish up reams of statistics and survey data on reader preferences.
That was enough to persuade Rob Sherrell, Delta's manager of electronic commerce and interactive marketing, to throw 20% of the ad campaign to the Times. Web "publishers are making it easier for us to make sure our message gets heard," says Sherrell.
Bit by bit, Internet advertising is thus carving out a place for itself. True, the size of the market and the impact of the medium still fall short of the revolution once predicted by Net boosters. But deals such as Delta's campaign on the Times site are proving that a solid, more stable online ad market finally is emerging.
DOUBLE-DIGIT JUMPS. Indeed, a two-year decline in Internet ad revenues seems to be bottoming out. When bellwether Yahoo! reported third-quarter earnings on Oct. 9, it showed surprisingly decent results in its core advertising business. Though down 3% from a year earlier, sales had rebounded from the second quarter's 22% decline. Better still, Yahoo expects its ad revenues to rise 5% this quarter -- the first increase in two years.
Yahoo isn't alone. Ad sales at New York Times Digital jumped 26% in the third quarter, to $18.2 million. ESPN is seeing double-digit sales growth, and CBS MarketWatch rang up a 15% increase in third-quarter ad revenues, to $3.9 million. Washington Post Co.'s third-quarter online revenues rose 18%, to $9.1 million. Salomon Smith Barney analyst Lanny Baker projects that total U.S. online ad sales could rise 8% next year, to $7.56 billion.
"Plenty of my competitors have misread the Web," declares Peter Weedfald, vice-president for strategic marketing and new media at Samsung Group, which increased its online budget from virtually nothing to about $10 million this year. "We believe it's a critical and highly profitable information channel for us and for consumers."
GETTING SNAZZIER. Of course, online ad sales remain dwarfed by the overall market. After dropping 6.5% last year, total U.S. ad sales are expected to rise 2.1% in 2002, to $236.2 billion, estimates Robert J. Coen, senior vice-president at Universal McCann in New York. Compare that with the likely 10% drop this year for online ads, to $7 billion, on the heels of last year's 12% decline. Cable TV is expected to slide 3.5%, to $11.5 billion, while direct mail is projected to increase about 2.5%, to $45.9 billion.
Web advertising's improving prospects have several explanations. For starters, better technology is allowing advertisers to bring greater creativity to the computer screen than was possible just a year or two ago, when annoying pop-up ads were the hot thing. Now, such sites as espn.com, CBS SportsLine, and RollingStone.com carry snazzy ads featuring clever graphics, such as images of Budweiser beer flowing out of a bottle into a glass or an Acura zooming across the screen.
And about 16 million consumers are expected to have high-speed connections by yearend, up around 33% from 2001. That makes it easier for sites such as CBS MarketWatch and Yahoo to show movie trailers and graphics-rich ads without alienating readers who hate slow screens.
WIDER WOOING. Publishers are becoming savvier about packaging deals as well. Last January, New York Times Digital introduced a scheme that throws up a series of spots from a single, featured advertiser as readers click through the site. About 45 advertisers have signed up for this approach, which now accounts for 6% of New York Times Digital's ad revenues.
Just as important, online companies that once disdained making pitches to print advertisers and their agencies are trying harder to woo traditional bricks-and-mortar clients. Digital publishers such as Yahoo and MSN are cozying up to ad agencies that work with such deep-pocketed advertisers as General Motors and Procter & Gamble. Three months ago, MSN created a service to help advertisers research specific audiences and tailor marketing campaigns around those data.
These days, Web sites are spotlighting their steadily evolving ability to offer more information about their audience and its actions than advertisers can glean in most other media. After years of pitching such nebulous metrics as "eyeballs" and "click-through rates," sites such as CBS MarketWatch and ESPN are offering surveys and sophisticated testing to measure the brand impact or purchases inspired by ads on their sites.
"TRYING TO BE SMART." Such tools have won over GM, which began a two-month project on Oct. 14 to track 5,000 prospective car buyers via Yahoo. GM's goal: To learn more about that audience, how its ads affect brand awareness, and which ads do the most to turn shoppers into buyers. "We're trying to be smart about advertisers' needs," says Wenda Harris Millard, chief sales officer at Yahoo, which held three summits this year to show ad agencies different metrics and new options. "In the past, we would blow into someone's office and say, 'Buy Yahoo, we're big.'"
Of course, for all its recent success, online publishing still has a long way to go. America Online continues to suffer a hangover from the dot-com binge. Its ad and e-commerce revenues dropped 48% in the third quarter, as long-term ad deals that are proving hard to replace ran their course. Publishers still need to improve the standardization of online ads, so that, as advertisers do with TV commercials, they can produce one ad that can easily run many places.
And plenty of advertisers still have to be persuaded that the Web is for them. "Online advertising isn't where we want to be," says William Bass, senior vice-president for e-commerce at Land's End. Fortunately for Web publishers, many other advertisers disagree. By Heather Green in New York