07-18-06
Category: Internet Marketing
Key Points:
- Net ads rose last year from $9.6 billion to $12.5 billion, according to PricewaterhouseCoopers.
- Despite this growth, the accuracy of ad metrics remains an inexact science.
- Many industry insiders are expecting a shift in focus from search advertising to banner advertising in 2006.
- With increasing technological capacites, there is an increasing emphasis on the quality of the advertising experience.
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Excerpt - For full article, please visit Business Week.
Counting. That's one skill computers mastered from Day One. Their knack for numbers has helped turn the Internet into an advertising sensation. No medium before has been able to provide advertisers with such detailed information on how many people see an ad -- and how many respond to it with a click.
This apparent precision has helped hoist Google (GOOG) Inc. into the stratosphere. And it has powered phenomenal growth across Internet advertising, from banner ads on smart-alecky blogs to movie videos jumping out from Yahoo!'s (YHOO) home page. Net ads rose last year from $9.6 billion to $12.5 billion, according to PricewaterhouseCoopers. And now the other media, from TV to magazines, are scrounging for ways to measure their audiences and come up with more numbers of their own.
But not all the Internet numbers tell the truth. The same technology that's smart enough to target ads automatically, and to count them, can also be engineered to churn out false clicks by the millions. Google, for one, has agreed to reimburse advertisers plagued with fraudulent clicks since 2002 for as much as $90 million.
And cyber scoundrels aren't the only ones messing with numbers. Concerns about privacy are leading an estimated 10% of Web surfers to erase their Internet cookies on a regular basis. These little bits of code dropped into computers by publishers and advertisers carry out useful chores, like remembering passwords and preferences. For advertisers, they provide the kind of detailed customer information that makes the Internet irresistible. Add up the click fraud and the erased cookies, and it may look as though Internet advertising is facing a counting crisis.
What's an advertiser to do? That's easy. Keep counting.
The race is on to find new ways to track customer behavior. Advertisers and agencies are progressing far beyond the standard arithmetic of counting clicks and page views. They're tracking the to-and-froing of the mouse on Web pages, and they're finding new ways to group shoppers by age, Zip Code, and reading habits. CEO David S. Rosenblatt of DoubleClick Inc., which serves up some 200 billion ads a month for customers, says that every campaign now allows for 50 different types of metrics. One New York advertising company, TACODA Systems Inc., is set to wire a group of web surfers with brain scanners to see which ads register in their minds.
This flood of new measurements is likely to roil the Internet ad industry. Until recently, the data have primarily shed light on the ads customers see and click. But the details pouring in are sure to provide a far more thorough understanding of the Internet players themselves: which ones assemble the best overall portraits of customer behavior, and which ones fall short. Rishad Tobaccowala, chief strategist at Publicis Groupe (PUB ) and head of a consulting startup within the company, Denuo, predicts that the new data will lead to dramatic stratification in the industry. "You're going to see a flight to quality" in Net advertising, he says.
Tobaccowala and others predict the rise of a small and exclusive online elite. These will be sites that manage not only to attract flocks of faithful customers but also to entice them -- with a combination of trust, high quality, and smart promotions -- to share their data. One brick-and-mortar model for this is the supermarket customer loyalty card, with which grocery shoppers fork over details on their shopping patterns in exchange for discounts.
BANNER VS. SEARCH ADS
Internet players who win similar trust and popularity could command premium rates for advertising and related services. Below them, in Tobaccowala's view, a vast contingent of competitors will sell ads at commodity rates, the online equivalents of pork bellies and West Texas crude. The battle ahead in every branch of Internet advertising is to gain a foothold among the ruling class.
Online advertising breaks roughly into two camps. The fastest-growing side has been search-engine advertising, led by Google and Yahoo. This industry has zoomed from zero to an estimated $5 billion in six years. The process starts as advertisers bid for keywords, whether "Viagra" or "Miami hotels." When a Web surfer enters those words, their ads show up alongside the search results. And they pay an agreed price to the search engine every time the ad is clicked. When it works, search provides such rich data that advertisers can calculate minute by minute the return on investment for each keyword. It's an unprecedented level of accountability -- provided the clicks are real. Last year search-related advertising was on pace to grow 27%, as was the competing camp, display ads.
But advertising executives predict that the display banners and videos that appear on Web pages will outpace search this year. "Most of the big money [advertisers] -- cars, movies, packaged goods -- are putting more of their budgets into display," says Jeff Lanctot, general manager at agency Avenue A/Razorfish (AQNT ), the world's largest buyer of Internet ads. "We think growth in search will fall back in '06." Google's chief financial officer, George Reyes, hinted much the same when he indicated on Feb. 28 that Google's per-customer growth in search advertising had topped out, triggering an investor stampede.
As brand advertisers push into display ads, they're hungry for new measurements. With the page view as its standard metric, display has always been far less accountable than search. Sure, Web sites can count the times an ad pops up on a page someone visits. But how many of the readers actually focus on the ad? Studies show that they take in only an average of one of every 12 Internet ads. What's more, in display advertising, even the more concrete metric of clicks is questionable. "Click measurement has been abused," says Greg Stuart, president of the Interactive Advertising Bureau in New York, an industry group. "There's no relationship between clicks and brand awareness."
Some 18 months ago, Stuart's group set out to quantify the value of Internet ads and to compare them with advertisements in other media. The agenda was clear: to attract advertisers, who were placing only about 3% of their budgets online. The resulting IAB studies, which involved 30 major advertisers, including Procter & Gamble (PG ), Kraft Foods (KFT ), and Ford Motor (F ), used testing methods similar to those of social scientists. They created control groups, exposed them to mixes of advertisements from various media, and tracked their effects in recall, brand recognition, and intent to purchase. The IAB concluded that most of the advertisers were underspending online -- and advertisers agreed. Ford, which was spending less than 5% of its ad budget online, quickly moved to triple it.
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