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The Rise or Fall of Internet Advertising

Written By: D. Geller
Published On: October 29 1999

Event Summary

Two columnists have independently sounded the death knell for Internet advertising. Widely respected usability expert Jakob Nielsen believes that the strategy of building businesses based on getting revenues from selling ad space is no longer viable. Infoworld columnist Dylan Tweney goes further, and predicts the demise of the Internet advertising industry. Tweney cites declining clickthrough rates and the estimated spending for television ads to promote websites in 1999, which at $3.5 billion is larger than the total $3 billion estimated for all Internet advertising for the year. Nielsen suggests that users simply ignore ads, and says that branding on the Web comes from experience rather than banner ads.

Both are right, in that they identify real symptoms. But as the docs on ER will tell you, the jump from symptoms to diagnosis is never clear-cut, and you never pick the time of death ahead of time. We believe that the Internet advertising industry will save itself by reinventing itself, a process which has already started.

For example, in a study done for CBS SportsLine by AdKnowledge, as reported in The Industry Standard, clickthroughs turned out not to be as important as previously thought. While 12 percent of sales attributed to an advertising campaign were the result of clickthroughs, 49 percent came from people who had seen the ads but not clicked, and another 39% were from repeat visitors who had either clicked or viewed the ad on a previous visit. The British magazine The Economist points out that the amount of web inventory is so huge that most of the time visitors will necessarily see ads of no interest or ads that they had already viewed. Conclusion: don't look at the ads that people ignore, look instead at the few they attend to.

Some companies are doing exactly this. NetGravity (Nasdaq: NETG) has a product called Boomerang that lets advertisers target ads to people who have previously been receptive to them. Engage (Nasdaq: ENGA) accumulates detailed profiles of surfers that its AudienceNet product can use to serve ads based on their interests as revealed by previous surfing.

There will also be new technologies coming soon to make the transition from ad to sale smoother, including rich-media banners that can effect a sale without taking the surfer to the advertisers' site. And one web site has been launched, with more than $10 million in first round funding, to provide surfers with a new randomly chosen web site whenever they want. Priority positions in the lottery will be sold to "advertisers." A study by Quicken.com found that 84 percent of respondants have employed non-banner-advertising. Companies look at e-mail, new technology, and sponsorships. However banners, at 58% of all creative advertising, remain the most prominent category.

Finally, there are many vertical portals whose users actually want to see the ads. Just as professionals and specialists look at the ads in the magazines they get, they see the ads on specialized sites as a primary source of information about vendors and products.

Conclusion

Advertising on the Internet is not going away. A case can be made that banner ads will disappear, but we doubt it. They have a certain success rate both in branding and attracting clicks, and by their presence provide useful information to feed the more directed kinds of advertising like AudienceNet. Things will change, to be sure, but the continuing growth in revenues from selling "advertising" will remain the same.

 
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