Commentary: Net Advertising: Still The 98 Pound Weakling

Two years ago, major advertisers such as Procter & Gamble warned Internet companies: Online revenues will never reach their potential without more effective formats for advertising on the Web and better ways to measure its impact. Did cyberfolks listen? Of course not. Back then, they were feeling fat and sassy. Their stock prices were flying, and they were just beginning to benefit from a spending spree by dot-coms looking to establish their brand names.

These days, the outlook isn't quite so upbeat. Since the spring debacle, dot-com largesse has dried up, and Wall Street is no longer convinced that double-digit ad revenue growth for Net companies is a given. On Aug. 28, doubts about the sector were ratcheted up another notch, when Lehman Brothers Inc. analyst Holly B. Becker even raised concerns about the strength of advertising on bellwether Yahoo!, the third most popular Web property.

NOT SO FRIENDLY. The industry's problem? No one ever tried to make the Web a friendlier place for traditional advertisers, and now there is no guarantee they will take up the slack from floundering dot-coms. "Traditional companies won't rush in," says Bill Katz, president and co-CEO of BBDO New York, one of the largest ad agencies in the U.S. "They're still exploring the Net."

Becker concluded that even a megaportal such as Yahoo is still tied too closely to the struggling dot-coms for comfort. And if things are bad for Yahoo, heaven help the less visible Web sites that have no strong revenue base or profits to fall back on. One example: Giant ad network DoubleClick Inc., which places ads with 1,300 Web companies, has already reported the slowest growth in ads placed in two years last quarter. Meeting revenue projections this quarter, it said, would be "challenging."

And while researcher Jupiter Communications Inc. optimistically predicts ad spending to jump to $5.4 billion in 2000 from $3.5 billion last year, traditional ad agencies are more cautious. McCann-Erickson Worldwide, for instance, expects U.S. Internet ad spending to reach about $3.9 billion. That's just 1.7% of the total $235.6 billion spent on ads.

SLOW GOING. This isn't to say that Net advertising doesn't hold considerable potential. Traditional marketers know they need to reach consumers online. But this impulse will develop much more slowly if online publishers continue to drag their feet on solving the problems that have left much Net advertising ineffective.

First on the list: Developing a better sense of what type of online ads will work for the brick-and-mortar folks. Initially, online publishers such as America Online Inc. tried to sell traditional marketers the idea that branding through banner ads works. It didn't, and the fact that Net advertising couldn't get past its own hype ultimately prevented many sites from concentrating on what did work.

In the end, online marketing seems much more akin to direct marketing than the sort of brand building that marketers typically do on TV or in magazines. Consumers seem to respond to narrowly targeted sales pitches and advice. To succeed, online ads have to be useful. P&G, for one, has found that some of its most effective Net advertising has come from placing tips on, say, an online grocery service site about treating stains and using Tide detergent.

But figuring out how direct marketing works online is much harder than sticking up banner ads. It takes lots of trial and error on the parts of both Web site and advertiser., a used-car listing service, constantly tests--running ads for six-week intervals and simply chucking packages and placements on sites that don't work. Simple messages that clearly explain the specific benefits of the service to each targeted audience work best. "The Internet is moving so fast that people don't stop to analyze what they're doing," says Clark Wood, AutoTrader's vice-president for marketing.

Few companies come close to AutoTrader when it comes to evaluating the impact of Net advertising. In fact, the issue of measurement dogs the Net. Online marketing still lags behind radio, TV, and print in offering advertisers recognized basic standards for gauging effectiveness. Nielsen TV ratings and phone surveys are certainly fallible, but at least marketers know what to expect.

One way the Web can reassure traditional marketers would be to link ad pricing to performance, such as how much it cost to get someone to make a purchase, as 20% of sites now do. But evaluating performance is labor-intensive, involving tagging and tracking visitors to various sites. Until now, most Web sites haven't bothered to--or needed to--put in that much effort to draw ads. The dot-com shakeout has underscored the lingering problems. Now publishers have to get to work.