December 1st, 2006

The Deeply Painful Growing Pains of Online Advertising

by

Everybody is betting on the future of online advertising, but catching up on reading for this week, I was struck again and again by how deeply painful the growing pains are…

The Internet Advertising Bureau has launched an ad campaign to “convince” advertisers to spend more money online (via MediaPost):

To help develop the campaign, the IAB hired Luntz, Maslansky Strategic Research, owned by The Omnicom Group, to conduct qualitative and quantitative research to understand how marketers view interactive advertising. The research firm, founded by former political pollster Frank Luntz, interviewed marketing executives at nearly 500 brand marketers to find out what they found most compelling and distinctive about the interactive medium.

“The idea is that there is a great place for interactive in the media mix,” said Michael Maslansky. “It’s not intended to be the only element, but it’s supposed to play an important role.” He explained that while corporate leaders may talk big on interactive marketing, large organizations are slow to embrace newer forms of advertising.

“Regardless of how big and bold you hear marketing professionals talk about interactive, the reality is that it’s a lot more methodical, step-by-step approach in new directions,” said Maslansky. But he said he believes Internet ad spending has reached a “tipping point” as marketers have gradually become convinced of its effectiveness.

They’ve launched a flashy “microsite“:

IAB Ad

And, in a deeply ironic turn, the campaign uses the same concept of “engagement” that newspaper and magazines have used to promote their shrinking mediums (via MediaPost):

AT A TIME WHEN PRINT publishing trade associations representing newspapers, consumer magazines and trade magazines have embarked on big advertising campaigns to promote the vitality of their medium, a group representing online publishers is about to do the same. And like its print counterparts, the online group is leveraging the media theme du jour on Madison Avenue: engagement. Interestingly, that group, the Interactive Advertising Bureau, will be using a combination of print and online advertising buys to get its message out. The message: “Media More Engaging.” The theme, which was crafted by Brand New World, is based on an extensive research study conducted among senior marketing and ad agency executives on how to best position interactive media, but its findings appear to be the same ones that could be applied to any medium.

Isn’t “engagement” supposed to be old media’s euphamism for dancing around the issue of ROI? Isn’t online advertising supposed to be the wave of the future because it’s so measurable? And didn’t Google wash away all of the hyped up over-promising on measurability from the 90s? Well…

According to a study conducted by the interactive agency Brulant, even some retailers with millions of dollars of online revenues do not know the ROI of their Web sites.

In fact, in a survey of more than 100 senior managers across industries — with retailers making up about two-thirds of the total — 56% said they could not confidently demonstrate the ROI of their online channels.

“It’s not that the online channel doesn’t generate more ROI,” Len Pagon, CEO of Brulant, told Internet Retailer, “it’s that companies haven’t figured out how to measure it, even ten years along the Internet adoption curve.”

via eMarkter

and

Online marketers have taken to pay-per-click (PPC), and many use it, but apparently not everyone understands it very well.

Although online marketers have been investing in PPC search marketing for a number of years, a new survey of marketers — all of whom have been using PPC for at least two years — conducted by the e-tailing group found that managing PPC programs poses a challenge.

The fact that marketers use PPC was clear from the survey. In fact, with 44% of e-commerce executives surveyed saying they allocate 20% of their entire advertising budgets to PPC search ads, it constitutes a significant portion of online marketing budgets.

via eMarketer

Then you have the discussion today about the imminent demise of page views as a metric — as Steve Rubel sums it up:

The page view does not offer a suitable way to measure the next generation of web sites. These sites will be built with Ajax, Flash and other interactive technologies that allow the user to conduct affairs all within a single web page – like Gmail or the Google Reader. This eliminates the need to click from one page to another. The widgetization of the web will only accelerate this.

This is a dirty little secret in the advertising business that no one wants to talk about. Media companies love to promote how many page views their properties get. They’ve used the data to build equity. They will fight it tooth and nail to protect it, perhaps by not embracing interactive technologies as quickly as they shuld. But that’s not going to stop the revolution from coming.

Lastly, there’s now data that confirms my theory that online ad revenue is a long tail phenomenon, with all but the large players receiving very little (via AdAge):

TV’s Big Four environment has turned into the Big Four online, with Google, Yahoo, MSN and AOL dwarfing other online players. Consider the Interactive Advertising Bureau’s analysis of revenue by company size — the top 10 companies online accounted for 72% of all interactive ad revenue last year, up from 71% in 2004. The top five? They account for more than half of all spending, and that figure has likely been boosted in ’06 by the rapid growth of News Corp.’s MySpace. (And the IAB figures exclude Google and Yahoo’s ad networks, which monetize the tiniest sites on the internet through text and simple graphical ads.)

I do think these are growing pains, and they’re bad because change is happening so fast. Online advertising will likely outgrow this phase and deliver a prosperous future — but we should have no illusions about how much pain there’s liable to be along the way.

Comments (6 Responses so far)

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  4. The Deeply Painful Growing Pains of Online Advertising » Publishing 2.0

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  6. Where does the efficiencies in online advertising factor in? Don’t you see the price of reaching per-person will only go down as online becomes even more efficient?

  7. Will online advertsing pay web 2.0 content creators remains to be seen.

  8. [...] Scott Karp takes an in depth look at the state of online advertising. He sees irony in a recent IAB campaign to convince advertisers to embrace the online medium: [...]

  9. [...] “The Deeply Painful Growing Pains of Online Advertising” [...]

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