By Sarah Lacy Like most auto makers, Honda Motor is a big buyer of online advertising. It's continually hawking low prices and special offers in banners and click-through ads on popular auto sites such as Edmunds.com. But last year, it witnessed the power of online branding. To augment a TV campaign that showed Honda owners who look like their cars, visitors to Honda.com were invited to post photos of themselves and their automobile doppelgangers. It was so popular that Honda (HMC) produced a separate Web commercial featuring the submissions.
"We got thousands of responses," says Tom Peyton, senior manager for national advertising at Honda. "It started driving traffic there that was completely different than [visitors] coming to the site to see a car."
Honda's experience is being played out all over the Web, prompting experts to predict a rebirth in brand advertising online. These ads -- which are generally rich media, meaning they include video or animation -- are aimed at creating an image for a company or a product. They're not expected to result in an immediate click-through sale. It's the kind of advertising that fattened sites like Yahoo! (YHOO) during the boom, only to disappear once the New Economy crashed.
PORTAL BOOST. Experts predict the brand-ad rebound is more sustainable than the boom that buoyed dot-coms in 1999 and 2000, in part because it's being led by the offline world's big brand builders -- including Coca-Cola (KO), Nike (NKE), and Visa. While paid search advertising, where companies buy placement in search results from sites such as Google (GOOG) and Yahoo, was all the rage in 2003, online branding is gaining steam this year and may become the strongest growth story of Net advertising in 2005.
Yahoo called attention to this trend at its May 13 analyst day, noting that its top 200 brand-advertising customers had spent 38% more on branding ads in the first quarter of 2004 than in the year-earlier period. Of that group, 85% renewed contracts with Yahoo. In its second-quarter earnings, Yahoo wouldn't break out specific brand-advertising numbers, but it had 45% year-over-year growth in overall ad revenues, not counting acquisitions. Microsoft's (MSFT) MSN doesn't break out the numbers either, but a spokesman said they also were up.
The growth in rich-media advertising, which is where the bulk of brand-ad dollars are going, is expected to outpace growth in paid search this year and continue at a faster clip through 2006, according to researcher eMarketer. It's still a fraction of search advertising, though: Total online ad dollars going to search in 2005 are projected at just under $5 billion, vs. $1.5 billion for rich media.
CLICK AND PLAY. Brand advertising is an altogether different animal than paid search and other types of online pitches. It's back in vogue primarily because of the Internet's endless expansion. At the same time that the Web audience is getting bigger and broader, the TV audience is becoming more fragmented even as the costs of TV spots are going up. Add in the speedy adoption of broadband, which makes viewing TV-like ads online a better experience than on slo-mo dialups, and brand-building has a new mass audience to target.
Companies such as Unicast Communications are making this easier. The New York-based outfit launched a product in the first quarter of 2004 that allows video ads to load quickly and run smoothly, regardless of the end user's connection. It also permits interactive features to be included with the pitch. In Honda's ads, for instance, viewers can look up different car colors. The technology is being used in some 90 campaigns on sites including ESPN.com, Reuters.com, Weather.com, and E! Online, says Allie Savarino, senior vice-president at Unicast.
Branding's comeback is also due to the overall surge in online advertising. Year-over-year, it was up nearly 40% in the first quarter of 2004, according to the Interactive Advertising Bureau and PricewaterhouseCoopers. In 2003, online ad revenues reached $7.3 billion, up from $6 billion in 2002. In fact, 2003 represented the first four quarters of consecutive revenue increases since 1999.
JELL-O BOUNCE. Still, branding ads are a trickier sell for even the big portals because it's harder to measure their impact. Forget about counting clicks, says analyst Gary Stein of Jupiter Research. The only real way to measure the effect is through pre- and post-campaign surveys, detailing whether people exposed to the ads were more likely to buy the product.
In an effort to lure ad dollars, portals Yahoo and MSN have invested heavily in research, particularly in the area of consumer packaged goods, where ad budgets are huge, yet less than 1% of that money is spent online. MSN undertook a research project with Nestle, Kraft Foods (KFT), and Proctor & Gamble (PG), measuring whether exposure to online ads resulted in more Coffemate, Jell-o, and Oil of Olay sales. The results were positive, says Joanne Bradford, vice-president for sales at MSN, and all three are now advertising on the site. "We've seen a huge lift in that category," she says. "We expect it to double in the next few years."
Similarly, Yahoo has a partnership with ACNielsen, in which 19,000 Yahoo users have agreed to allow their groceries to be scanned every week. That data is matched up with info on what ads they're seeing online to figure out whether or not the campaigns are driving purchases. The survey was launched in the fourth quarter, and the results so far have had a robust impact on sales, says Wenda Harris Millard, chief sales officer at Yahoo.
RIPPLE EFFECT? Perhaps the biggest indicator of growing demand for brand ads is an increase in prices. The cost of brand ads on portals has jumped 68% year-over-year, while entertainment sites have seen spikes as high as 90%, according to Jeff Lanctot, vice-president for media at Avenue A, an online advertising agency. Lanctot notes that many of the spaces being offered at higher prices are larger and more media-rich, so advertisers are getting more bang-for-the-buck for those increased dollars.
The big question is whether this will boost the fortunes of Web sites beyond Yahoo, MSN, and the other big portals. In its second quarter, CNET Networks (CNET), which operates tech news and product-review sites, cited branding as a potential growth area -- but not one that's moving the needle yet, according to Jupiter's Stein. Yahoo is fond of pointing out that 14% of all media consumption in the U.S. is over the Internet, but it's getting only 3% of all advertising dollars. Yahoo and its competitors hope that number can climb to around 8% to 12% pretty fast.
But not all inequities are so easily ironed out. Such sites might do well to consider that while more mature mediums like cable TV and satellite represent more than half of viewing hours, they still get only about 28% of TV ad dollars. If rich-media ads don't grow as expected, Yahoo, MSN, and others may need to find a fresh growth engine to take over where paid search is leaving off. Lacy is a correspondent for BusinessWeek Online in Silicon Valley