Online Advertising Study

A free survey and study of online advertising prospects.

Background: History of Internet Advertising

Advertising has faithfully served the print industry for 200 years, and was applied to the Internet with every expectation of success. Static, rotating, scrolling, animated, Flash and interstitial banner ads were designed to generate traffic, increase brand awareness and generate leads and sales. Internet companies were founded on advertising revenues, and for some years the companies prospered. {1}

Unfortunately, average click-through rates then began to fall, from perhaps 3% initially to 0.15 - 0.3% in 2000 (i.e. only 1.5 to 3 per thousand viewers actually clicked on a banner ad) {2} Rates paid for CPM (cost per thousand pages viewed) were adjusted downwards, {3} {4} and many companies folded. {5}

With hindsight, it's obvious that Internet ads were different animals. Advertisements in print magazines survived because readers kept the magazine for future reference. Advertisements often added a useful body of content, and some were even works of art. None of this could be said of banner ads, which were brash and distracting.

But marketing itself was reaching saturation point. To make themselves heard above the din of advertising — grown from to 35 billion in 1980 to 86 billion items in 1999 for US direct mailing alone {6} — the leading manufacturers launched massive campaigns on hoardings, glossy magazines and TV. The ads were expensive, and were intended to appear so, to assure customers that these were big players with solid resources behind them. {7} Such campaigns were not practical on the Internet, which prides itself on being a level playing field, but, for all the lavish spending in traditional ways, brand erosion continued apace. The average US company cannot expect to retain more than half its original customers after 5 years. {8} The world is changing fast, and even the ad companies are not sure what to do. {9}

One instance is ROI return on investment). It's always been hard to measure {10} — which explains the appeal of software for customer relationship management, {11} and for GRP (gross rating points, equivalent to a 1% reach of intended audience), an approach that is now being beta-tested. {12}. There were always gaps in the accounting process, and customers nowadays will compare prices online before making purchases off-line, {13} a practice that makes the website important but difficult to assess. {14}

2003-4 Prospects

In 2001, Myers forecast a 10% growth in 2002 online ad spending, and Jupiter Media Metrix predicted an annual increase of 18% until 2005. {15} In fact, there was a small decrease in ad spending generally in the first half of 2002, but a second half rise of 6.2% has been predicted by AdAge. {16}

Proprietary information needs to be treated with caution, particularly when freely provided. Nonetheless, there is some evidence that banner ads are more effective than once thought {17} and one advertising site reports click rates of 3-4% for well-targeted ads, (though this translates to a high $100 customer acquisition cost). {18}. Online advertising is beginning to make a comeback {19}, perhaps {20}

Nonetheless, it does not appear that CTR (click through rates) have recovered to their 2000 levels, {21} {22} so that web merchants advertising through banner ads may wish to plan with a 0.5% {23} click-through rate, if:

• ad is well targeted.

• ad has unusually good content and design.

• demographic and psychological customer profiling has been used.

• Ad has been optimized by repeated testing. {24}

More important than click-through rates are conversion rates, and web merchants will need to consult other surveys on this site for figures, and/or purchase third-party research reports. {25} {26} {27} Rates clearly depend on a host of factors, but a 1% conversion rate may still be a reasonable figure. Email marketing can improve these figures, particularly for the all-important cost of acquiring a customer, but only if a customer is retained. {28} Video ads remain a distant dream, according to a July 2000 Jupiter Research report. {29}

Sites relying in part or wholly on advertising revenues must do their sums carefully. References are listed here and below in our Sources section. Subject to the usual disclaimers, overall rates around $5/cpm may serve for initial planning purposes, but will need to be firmed up with specialist information purchased from sites listed below.

References and Sources

This page was written in 2003. To obtain a current survey, plus references and information sources, please consider the e-book.

 

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