Online Ad Execs See Supply, Demand Divergence

The advertising market is dividing, with top sites in short supply of ad inventory and able to charge high rates while second-and lower-tier sites have excess supply and low rates, said Internet advertising industry executives gathered at DoubleClick’s Insight conference.

“If this is a bad economy, I love it,” said Eric Koefoot, vice president of sales at Washingtonpost.Newsweek Interactive, where ad revenues grew 60 percent last year and are on pace to do the same in 2003.

Koefoot said his experience at the Post was probably not out of the ordinary, in that many top-line publishers were dealing with shortages of ad inventory in their popular sections. Recently, the New York Times Digital introduced “wide-angle targeting,” which allows it to serve targeted ads to readers while they are in unrelated sections. In this way, NYTimes.com can expand its inventory for popular, and often sold-out, categories like travel to run in less popular sections.

“We’re all up dramatically, year after year,” he said of the top publishers represented in the Online Publishers Association (OPA). “Ten years from now, we’re going to laugh that we had this discussion.”

OPA members and the Internet units of other publishers reported robust revenue growth last year, joined by other notable strong performers like Yahoo.

Doug Knopper, DoubleClick’s vice president and general manager for online solutions, said the overhang of supply would likely cause further consolidation of publishers.

Danny Oh, itraffic’s media director, pointed to this excess supply as an opportunity for both publishers and marketers. While washingtonpost.com and NYTimes.com might command enviable CPMs, Oh said marketers could easily spread media buys among the smaller publishers to extend their reach for less money. In the same way, small publishers can compete with the established players by offering attractive deals based on cost-per-click.

However, Mark Redetzke, vice president of online media at Zentropy Partners, struck a note of caution. Redetzke disagreed with Knopper’s suggestion that demand had stabilized. Taking a broader view, he suggested the online advertising industry would continue to face second-class status until agencies found a way that made it worthwhile for them to pursue online initiatives. As it is now, Redetzke said, the enormous amount of money flowing through large ad agencies rarely touches online.

“For the most part, they are not able to find a way to make money off online advertising, so it doesn’t become part of their media plans,” he said.

Stuart Bogaty, a senior partner at OglivyOne, echoed his point about the structural hurdles the industry faces at agencies. Even now, with online growing faster than the overall ad industry, interactive usually has its own budget, instead of a place in the regular media mix.