Thought to be dead, Internet advertising is back

Ridiculed by most ad agencies, the media and nearly every major company that doesn’t sell technology, Internet advertising has endured a tough couple of years. After actually decreasing by 24.8% from 2000 to 2002, total U.S. Internet advertising expenditures are anticipated to be $8.1 billion this year. It’s an increase of 6.3% over last year, and the first step in a recovery and expansion that will result in a $13.5 billion market by 2007, according to GartnerG2 projections.

What’s going on? How has Internet advertising, which until about five minutes ago ranked just below windshield flyers as a marketing tactic, recovered to the point that experts are predicting – with a straight face – a 67% revenue increase in the next four years?

Partially, it’s a result of the natural cycles of the Internet. Considering it’s only been around for eight years, the Internet ad industry has gone through more than its share of Oprah-ish expansions and contractions. Since I’ve had the fortune (or misfortune) of seeing this firsthand, here’s my brief recap:

1995-1996 The “What’s an Internet?” Phase

These were the nascent years of the Internet ad business. Very tough to sell advertising when you talk about the medium and most people (including your employees) look at you with the glazed, cocked head expression of a youthful schnauzer. The good news is you feel like Stephen Hawking. Bad news is that you don’t make any money.

1997-1998 The “Ummm, Okay” Phase

In this period, we were actually able to convince a few brave and trusting “early adopters” to spend actual money on Internet advertising. Trouble was, nobody knew what to charge or why. Clients would ask how much an ad package would cost, a nearly random amount would be mentioned, and deals would be closed with the client answering, “Ummm, Okay.”

1999-2000 The “Can I Buy More?” Phase

These were the “good old days” of the business. Fueled by accounts of day traders, IPOs, stock option millionaires and the like, advertising cost was less important than availability. Anything online was good, anything offline was thought to be old and vulnerable – like a grammy with a bad hip.

2001-2002 The “We Tried That” Phase

Ouch. During this period, you had an approximately equal chance of being hit by a falling piece of Mir as you did of having a company call about Internet advertising. Any time you could muster up the guile to actually get a meeting, the inevitable kill shot would be, “We tried that before. It didn’t work for us.”

2003 – ? The “Prove It” Phase

Now, you can actually have a meaningful conversation about Internet advertising without feeling like you have a scarlet I on your chest. Clients are pouring back in to online marketing, and GartnerG2 predicts that Internet’s share of overall marketing budgets will go from 5.5% in 2002 to 9.0% in 2004.

In addition to this natural evolution of the medium, and the American penchant for building something up, tearing it down, and then grudgingly giving back respect in small doses (sound familiar Russell Crowe?), there are other reasons why Internet ads have rallied.

Broadband is finally taking off, with Americans accessing the Web at high speeds increasing a staggering 49.2% from May, 2002 to May, 2003 (Nielsen/Netratings). All that bandwidth makes broadband users want to stay online longer, and thus the Internet is fully ingrained in the lives of most high speed users. As the marketing directors among this group spend more time online themselves, they awaken to the possibilities of Internet advertising for their companies.

In uncertain times, certainty becomes more attractive. As I’ve mentioned in this space before, the Internet offers measurability, accountability and real ROI assessment that other media types cannot. Given that the economic recovery is happening at geologic speeds, marketing professionals are increasingly intrigued by online advertising’s ability to definitively measure results.

A major component in the recovery of the Internet advertising business that is never mentioned within the industry itself is the precipitous decline in the cost of online ads in most cases. Nearly everything in marketing (and in life) can be pretty compelling at a certain price point. You may swear that you would not walk across the street to see that “Freddy vs. Jason” movie, but if you were carried across the street on a gilded platform and presented a sumptuous array of fine wines and premium beef jerky you might go for the deal. Same thing is happening in the Internet ad business. Faced with not selling any ads at all during the “We Tried That” phase, ad-supported Web sites have found a way to succeed by dropping prices and increasing volume.

Lastly, and most importantly, the Internet advertising resurgence is based on results. Clients, agencies, Web sites and consultants are all starting to figure out the formula for success for online advertising. Like a Rubik’s Cube, trial and error is finally revealing the solution. The major historical impediment to answering the “what works online” question has been the debate over whether the Internet was best used a branding medium (like TV) or a direct response medium (like direct mail). The answer it seems is both.

Without question, direct response tactics are stoking the fire of the Internet advertising recovery. Search engine positioning, cost-per-click ads, pop ups, and lead generating banner campaigns are reaching the “low hanging fruit” component of the populace. Whatever it is that you sell, every day thousands of people are using the Internet to find it. Once you determine how to get your proposition on their radar, the direct response aspect of the Internet will work. Today, every client wants an online direct response program, and if you pay attention to metrics and ROI, those programs will usually pay off.

If direct response tactics are the reliable, steady, blue collar aspect of the new Internet advertising success story, the brand-building tactics are the exotic, sexy, somewhat dangerous cousin that lives in a cool loft downtown.

The increasing availability of “rich media” ads (the ones that fly across the screen, play video clips, etc.), combined with extensive coverage of success stories by the business press is convincing ¿old economyî giants to dip a whole foot (rather than just a toe) in the online ad waters.

Earlier this year, McDonald’s – previously an adherent to the “if it’s not television, it sucks” school of media planning, announced that it would move a significant portion of its ad budget to the Internet. Subsequently, they used large rich media ads on national Web sites to launch their line of premium salads, the success of which has turned around the financials across the entire chain.

Myriad studies show that large numbers of Internet users are online while watching television. Thus, major corporations are reaching into their marketing quiver and pulling out the combination buy utilizing impactful TV commercials and TV-like Internet ads. Given its huge audience, television is counted on for reach, but the targetability and affordability of online ads make it the perfect complement to build frequency (and it’s hard to get more information about how many carbs are in the salad from a 30-second TV spot).

Whatever the marketing objective, from cost-effective lead generation to increase in top-of-mind consumer awareness, the new Internet has a tactic that could work. Combined with newfound affordability and unmatched measurability, these interactive opportunities may be worth consideration. But, it’s not a magic bullet. Like any advertising, bad online marketing doesn’t work. As they say on those radio commercials trying to convince you to buy whale blubber stock, “People can and do lose money. Past performance does not guarantee future results.”

The Internet industry itself is being cautious in touting its recovery, since the last online ad boom resulted in a market that was too hot, and the good times came to a sudden and violent halt. How long this recovery will last is uncertain, but the comeback has begun.

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