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In addition to increased awareness and brand recall, 38% of respondents in a Millward-Brown Interactive study said that they came away with a positive reaction to the ad. Further, 26% said they were more likely to make a purchase after seeing the large, animated interstitial than if they had not seen it. Clearly, consumers enjoy more television-like animation in their ads, and this, we believe, will be critical in driving Internet advertising.
Excite@Home has conducted its own rich media studies in which broadband-enabled rich media generated 22% higher brand recall and a 35% higher propensity to click through. As both studies have shown, rich media will allow for greater branding on the Web. Branding requires more than a static banner to have its effect. The jingles that emanate from our televisions and radios, as well as the scenes that we see in magazines or on television, form our impressions of brands. With rich media, the Web will acquire the ability to use sound and animation to enhance the branding of products. Rich media will allow for greater branding on the Web. Television-like animation will be critical in driving Internet advertising precisely because it is TV-like. Advertisers are comfortable with television advertising, and they know how to use it to accomplish their goals. We believe that advertisers will view the broadband-enabled animation, audio, and video features of the Internet as an opportunity to expand their advertising on the Web.
To date, most advertisers have spent tiny portions of their advertising and marketing budgets on the Web, and many have completely shied away from it. However, as the Web comes to more closely resemble television and enters more advertisers’ “comfort zones,” we expect many more to establish a Web presence, and the early adopters to continue to shift more of their advertising online. Those companies that are best able to develop, serve, and track these new forms of advertising brought about by broadband will be best-positioned. As broadband enables a new form of Internet advertising to evolve, this will allow new players with specialties in this area to quickly make a name for themselves, while forcing more mature companies to re-invent themselves if they are to stay competitive. Another area that will benefit from broadband will be audio streaming. Studies by Arbitron New Media have found that 31 million Americans have listened to radio over the Web, while only 16 million have watched streaming video. Importantly for advertisers, 69% of those surveyed requested more information concerning the audio clip they heard while listening to Web radio or hearing a Web advertisement.
Technology: Broadband II Television and Internet Convergence
Broadband technology will allow the convergence of television and the Internet. Dubbed “interactive TV,” in its simplest form this consists of television with some interactive capabilities.
Basically, a user will see a television screen that is three-quarters traditional television, but with a frame that has Internet capabilities. This frame allows users to access up-to-the-minute sports scores or news on the Web, for example. More importantly for advertisers, it would allow viewers to immediately leap to the Web site of an advertiser whose ad was being shown. The user could find out more information or order the product right there: Impulse shoppers, beware! What we have just described is the most basic version of interactive TV. Going forward, we expect that more functions will be added that truly integrate the two mediums. Whatever the case, advertisers will have to spend to integrate and enhance the abilities of their Internet advertising campaigns. Those advertisers that are not already online will likely be forced to enter the game in a big way. Due to their familiarity with television, this may not seem to be such a big leap. Content providers are already developing channels and programs that combine interactivity and television viewing, including Microsoft’s WebTV and AOL TV. We believe that the advertising companies that are able to work with suppliers of integrated content and develop a seamless transition for their advertising clients will be best positioned to prosper in the future. Technology Outsourcing Outsourcing of Internet advertising will play an increasing role going forward.
Since the beginning of the computer age when instead of purchasing software, users would buy a share of it outsourcing has played an important role. Today, we see it in the Web hosting model, in customer relations management, and to a growing degree in the e-mail sphere. We believe that Internet ad serving and targeting are no different. Ad serving requires a huge technological investment in servers, back-up servers, a trained staff to man the servers, and real estate to house the server farms (not to mention the air conditioners to cool the servers). Likewise, the targeting/ tracking software requires large outlays to purchase and maintain. And if the company is trying to bridge the onand offline worlds, a database of behavioral history is required. This can be a huge investment DoubleClick spent nearly $2 billion to acquire Abacus Direct’s database. As more new entrants pop up on the Web, we believe they will look to outsource their ad serving and targeting, rather than making the investment to keep it inhouse. In fact, very few Web publishers still perform these functions in-house, with Excite@Home, Yahoo!, the Go Network, and, to some extent, America Online being the few holdouts.
Although these companies may continue to run their operations in-house, the number of Web sites is proliferating at an unbelievable pace. New entrants are not likely to make the huge investment to undertake ad serving and targeting on their own particularly when they are spending virtually all of their IPO proceeds on marketing. Thus, they will need to turn to outsiders for help. For this reason, we believe that those companies with the best networks, serving ability, and targeting ability will ultimately triumph.
Online and Offline Advertising Convergence
We expect advertisers will increasingly integrate their on- and offline campaigns in the future. As mentioned above, rich media will allow advertisers to develop more television-like ads on the Internet, and this will encourage them to unify their messages in the on- and offline worlds. There will always be some firms that specialize in certain mediums, particularly the Internet. However, ad companies that are able to bridge the gap between the on- and offline worlds should be best positioned to answer all of an advertiser’s needs. An agency able to purchase time on CNN’s Headline News and purchase space on the CNN Web site is the type of agency that we see flourishing in the converging world.
Historical Media Consolidation
In the traditional media world, consolidation has occurred over a long span of time. We expect online consolidation to happen at “Internet speed.” The top six television networks account for 84% of advertising revenues, while drawing 67% of the viewers.
The top 25 newspapers account for 88% of newspaper circulation. There are only 31 magazines with ad revenues over $200 million, and Time Inc. captures 30% of the magazine advertising market. Only 20 “real” cable brands exist, and only two of these generate in excess of $1 billion in revenue. Only five cable service companies have 3 million or more cable customers. We believe that this type of consolidation will occur in the Internet advertising space.
Brand Advertising and Direct Marketing Convergence
We feel that the Internet is much more of a direct marketing media than an advertising one. The ability to interact with consumers in real time is the Internet’s power. The successful agencies will understand and practice this. Rather than simply running a bunch of static banner ads, good advertising campaigns will encourage consumers to interact with the advertiser. The Internet is the first media with which an advertiser is able to directly interact with consumers. While this is a huge opportunity, it is also dangerous, as unwanted and irritating interaction will immediately turn off a consumer. The successful agencies will facilitate interaction between consumers and advertisers. To accomplish this, advertisers will generate interesting and pro-active campaigns that draw users’ attention. After getting their attention, it is important to ensure that a positive interaction occurs. This may entail entertaining games, more information, a chance to win a prize, or other appropriate means of encouraging and developing a positive relationship between an advertiser and a potential consumer.
Today, it is estimated that 30–40% of Internet traffic is internationally generated. This number will continue to grow. If Media Goes Global, So Do Brands Today, it is estimated that 30–40% of Internet traffic is internationally generated. This number will continue to grow. Currently, international users have a slightly lower response rate to ads than domestic users do. However, this too will change over time. According to Jupiter Communications, today approximately one in four U.S. Internet users shops online. In Europe, the next most-developed Internet market, one in five users shops online. We expect Europeans to spend more time online, but we are only just getting data on their average usage. More time online should result in more shopping, and more shopping will result in more advertising. We expect this pattern to be played out around the world. Currently, only 28% of U.S. Internet retail sites have foreign language pages for international shoppers (according to Jupiter Communications). Further, only 38% of U.S. retail sites will ship internationally. As these numbers increase, we expect that more advertisers will shift a greater share of their business online. Those companies that are best positioned to serve ads in local languages, with local customs/mannerisms in mind, will be able to capitalize on the internationalization of the Web. Agencies that are capable of developing and serving ads in a multitude of languages and cultures will be best positioned to compete on the global stage.
Here Come the Big Ad Spenders
All of the aforementioned factors will lead to greater advertising on the Internet. Those agencies that develop the best capabilities to handle rich media, the convergence of TV and the Internet, technology outsourcing, direct marketing, and the globalization of the Web will reap the greatest rewards.
Figure 16 Marketing Budgets of the Largest Companies
General Motors is the only advertiser to rank as one of the top ten offline and online advertisers. Even more important, GM spends less than 1% of its advertising budget online. The Association of National Advertisers reports that the average annual expenditure of an advertiser on the Internet was $714,00 in 1998, up from $250,000 in 1997. Internet ad budgets have nowhere to go but up as advertisers shift larger portions of their budgets online. We saw the beginning of this in 2Q99, as consumer brand advertisers (usually the ones with the big bucks) accounted for 29% of total Internet advertising revenues, according to the Internet Advertising Bureau. This makes consumer brand advertisers the leading industry category for online advertising. As more large advertisers advertise on the Internet and as the online share of marketing budgets increases, online advertising expenditures will take off. “Direct marketing online is a ‘sleeper’ waiting to explode. Major advertisers are still putting less than 1% of their ad budgets on the net; instead, two-thirds of their budgets are going into direct marketing, not impression-based advertising.” George Bell, CEO Excite The concentration of advertising expenditures on the Internet has been broadening. No longer do only a few firms venture to advertise online. Rather, the Internet is becoming more of an accepted and useful advertising medium. We expect this trend to continue for some time.
Part 12; What Could K.O. Internet Advertising? , Part 13; Email ,
Part 14; Advertising or Direct Marketing? , Part 15; What Does the Internet Advertising Market Consist of? , Part 16; Rich Media still has some drawbacks ,
Part 17 Inventory and Concentration , Part 18; Market Share and Concentration Data , Part 19; Global Impact, Part 20; Residential and Business Use ,
Part 21; Pageviews , Part 22; Advertising vs. Direct Marketing , Part 23; Investment Conclusion
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