Internet Advertising Analysis Part 4; Media and Internet Use
One would expect Internet (and generally increased media) consumption to hurt other activities. Below is a list of activities that consumers say have been most affected by their Internet use, according to a study by Yahoo! It is our expectation that Internet usage will start to gain at the expense of traditional media and that advertising spending will follow.
Forrester Research concurs, predicting that by 2004, roughly half of all Internet ad spending will come from the pockets of traditional media. Newspapers have probably the most to lose as a result of increased Internet usage and ad spending. The high power ratio of newspapers makes us worry that time spent with newspapers is not high enough to justify the current level of ad spending on newspapers. Of course, this high power ratio has existed for some time, so it is not clear what “straw” would break the camel’s back.
Figure 4 Percent of Internet Users Who Do Less of Other Things as a Result of Their Web Use
Newspaper revenues and earnings have never been higher thanks in part to dot-com advertising. But, as dot-coms move more of their advertising online and as usage / penetration of the Web increases, newspapers’ ad pricing is likely to be hurt. Classifieds, in particular, appear vulnerable to Internet cannibalization. Magazines are slightly more targeted than newspapers, and thus, should be less affected. We expect magazines to be cannibalized for the same reasons as newspapers (an unsustainably high power ratio), but to a lesser extent. Television is in a unique position relative to the Internet. For now, television occupies a special position in most people’s homes (where the fireplace used to be), and its overall power ratio is similar to the Internet’s. While television usage has been minimally impacted by the Internet to date, the future is certain to be different. Traditional (i.e., passive) television is certain to see at least a small shift in usage and ad dollars toward an interactive alternative. The question is, will this be interactive television, the Internet, or a combination thereof. We are already seeing the beginnings of this interactivity in companies like Wink. Wink allows broadcasters to add interactivity to their programming and commercials. Wink users see a small “i” in the corner of their screens when a program or commercial contains interactive features. They may then access this functionality to learn more about a product, statistics on players (Monday Night Football), or participate in game shows (Wheel of Fortune and Jeopardy, currently) via multiple choice menus.
While Wink is only a baby step into interactivity, much larger steps are sure to follow given the range of new technologies just coming to market at TiVo, Replay, WebTV, and OpenTV, among others. We expect television of this sort to eventually dominate the television advertising landscape. However, television will be held to higher levels of performance in the future due to its interactivity. For instance, advertisers will be able to calculate the click-through rate on their television advertising. Instead of simply chalking up massive television budgets to branding, advertisers will be forced to defend their television budgets by the performance achieved.
Figure 5 U.S. Media’s Share of Total Advertising (1999E and 2005E)
“New” vs. “Old”: Performance and Pricing
Using the effective CPM pricing of about $4, Internet advertising compares favorably with traditional media. Its average CPM is below that of all other media. We expect that eventually its superior targeting ability may lead to premium pricing. Banners and direct e-mail offer attractive cost-per-order performance when compared to the direct marketing performance of traditional media the problem is that traditional media has never been measured as closely. The click-through rate is declining, but so is its importance. ROI-driven cost-per-action (i.e., order, registration) metrics are driving pricing and budget allocations. Recently, all traditional advertising revenues have been strong due to pricing growth. New dot-com brands and pharmaceuticals have helped drive demand and pricing across the board a trend we believe will boost effective Internet CPMs, as well.
The most popular online advertising success measurement is the clickthrough rate (CTR). It is ironic, however, that in the offline world a low response rate the equivalent of a CTR is chalked up to branding, but in the Web advertising world, low CTRs are enough for a campaign to be considered a failure. Of course, it is unclear how many clicks add up to brand awareness or how many clicks add up to a sale. Therefore, the cost-per-1,000 impressions (CPM) or clicks are considered less important than the cost-per-order. This is a direct marketing validation that acts as a floor to support certain pricing levels.
Table 2 Direct Marketing Campaign Comparisons
Nearly 50% of Internet users claim never to look at banners. Further, most banners do not get clicked on for “more information,” and clicks convert into orders at only a 2–10% look-to-book ratio. This would seem worrisome, until one becomes aware of the comparable effectiveness measures for other media, and the information to do these comparisons is hard to come by. Banner Successes Internet advertising has many advantages over offline media.
Figure 6 Pricing Models Used (3Q99)
Going forward, we expect to see more pay-forperformance contracts. Advertisers’ push for more accountability will be the major reason for this shift. However, we don’t believe that pure pay-for-performance contracts will ever completely triumph over impression-based contracts, largely because performance measurement does not take branding into account. It is our belief that branding will play a larger role on the Internet going forward.
Continue with:
Part 5; Impression Measurement, Internet Advertising Metrics,
Part 6 ; Calculating CPM and CPM Pricing , Part 7; Effective CPM is currently the only statistic on which comparisons can realistically be based ,
Part 8; New Vs. Old Media: A Big Market from Which to Gain Share , Part 9; Internet Advertising; Right type of Medium and Targeting ,
Part 10; Broadband brings Rich Media , Part 11, Rich Media Studies , 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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