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Advertising Continues to be Growth Business

Written By: D. Geller
Published On: June 5 2000

Advertising Continues to be Growth Business
D. Geller - June 5, 2000

Event Summary

AdKnowledge eAnalytics, the strategic analysis arm of Engage Technologies (NASDAQ: ENGA), has issued a quarterly review of online advertising. Engage is a subsidiary of CMGI (NASDAQ: CMGI). The report indicates that the trend toward stabilization of the CPM (cost per thousand impressions) rate, noticed in its annual report issued in February (see TEC article Advertising Makes It Up in Volume), continues. The average CPM dropped sixteen cents from $33.75 to $33.59; on a percentage basis that was about half the decrease of the previous quarter. Simultaneously, the number of sites seeking advertising rose from 3792 to 4070; this translates into adding one new site that accepts ads every eight hours.

An unexpected result came from examining the history of surfers who had gotten to an advertiser's web site and taken some action, such as doing a search or buying a product - such actions are called conversions. The study showed that fewer conversion events occur after a user clicks on an ad than occur at some time subsequent to a user viewing an ad (24% of total conversions vs. 32%). Most conversions, 44% of the total, come from repeat customers

Market Impact

If clickthroughs are not the most important source of conversions, there may be a decline in the number of advertisers willing to pay on a per clickthrough basis. This is not the dominant way that advertisers pay for exposures but is frequently touted as a more effective way to represent the value that advertisers get. This study suggests otherwise. Advertisers would ultimately like to pay only for conversions, but these results suggest that it would be difficult to implement such a scheme.

A related effect of this study (if, indeed, anyone reads studies) should be a slowdown in the move to develop rich media advertising - specifically the style in which customers can complete a transaction within an ad. With only a quarter of conversions deriving from clickthroughs, there may be better ways to spend money - most likely by enhancing brand awareness - than on doing more with the clickthrough experience.

User Recommendations

Users may want to rethink their advertising strategy in view of these results. The most important conclusions are: (1) the ROI of advertising is higher than previously assumed, and (2) customers tend to return. This supports the message provided by the leading edge CRM vendors, that the real value is in retaining customers with excellent service and personalization. Users may want to think of their advertising and CRM expenditures as coming from the same bucket, and look for ways to optimize across all user experiences.

 
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