Web Advertising's Future

There is a sense of urgency among Web publishers to replace the revenue lost since dot-com advertisers started hitting hard times. And they are looking at an obvious source — traditional advertisers that thus far have devoted only a small share of their advertising budgets to the Internet.

Wall Street has even started to judge the strength of public Web companies that rely on advertising by the percentage of their revenue that comes from traditional advertisers. Consequently, Web sites have refocused their sales staff toward building relationships with these advertisers, and some have even formed SWAT teams devoted solely to this task.

But this new focus means that the way Web advertising is sold is changing. Instead of talking about the Internet primarily as a medium for direct response, publishers and agencies are learning the language of branding.

There’s a good reason why. Traditional advertisers spend most of their money trying to change or reinforce the way people think about their products, not trying to induce them to make immediate purchases. The folks at General Motors, Procter & Gamble, and Johnson & Johnson believe in brand advertising. It’s what built their companies.

Last week Morgan Stanley Dean Witter published an equity research report analyzing the Internet marketing and advertising industry. The report studies research from dozens of companies and calculates the cost and effectiveness of advertising across various media.

The analysts’ conclusions are good news for the industry and should sharpen its focus on providing branding solutions for traditional advertisers. Here is what the analysts reported:

• Branding on the Internet works. For existing brands, the Internet is more effective in driving recall than television, magazines, and newspapers and at least as good in generating product interest.
• When it comes to branding, the Internet is more cost-effective than television, radio, magazines, and newspapers. Even if banner pricing rose by 20 percent, it would still be the most cost-effective branding tool.
• The top six advertisers spend less than one percent of their advertising dollars on the Web. In the early 1950s, Procter & Gamble increased the share of its marketing investment in television from 5 to 50 percent in just five years. A similar opportunity exists for the Internet.
• Two unpublished studies show a direct correlation between Web branding and purchase. One, from Avenue A, shows that exposure to Web ads increases site visits and purchase, regardless of click-through. Another, from DoubleClick, shows that exposure to banner ads increases offline purchase 19 percent.

The report has been circulating through email lists and is sure to show up in the reception areas of most Web sites. But it should do more than provide another justification for online advertising. It should sharpen our focus on the needs of traditional advertisers; after all, they will be the ones that define the industry’s future.