Future looks solid for online advertising, but banner years still long way off

During the presidential elections, ComedyCentral.com gave a glimpse of the future of online advertising via content created for Unilever’s Wisk laundry detergent.

A banner on the site’s home page read “Wisk Away the Mud — Clean Candidates 2000,” and featured caricatures of Al Gore and George W. Bush.

Clicking through, users found a microsite that offered a game based loosely on that ’80s arcade staple “Wack-a-Mole.” By manipulating the mouse, users could conk the candidates’ craniums with a Wisk bottle when they popped out of washing machines.

Another button read: “Click here to win a free trip to Washington D.C.”

After giving up their name, email and laundry preferences to enter the contest, users could opt in for more product info or send the site’s URL to a friend.

Sure, the game was sub-par to “Pong,” the jokes weren’t funny and D.C. isn’t the sexiest vacation spot, but the campaign choreographed by ad solutions provider DoubleClick and agency Lowe Lintas for Unilever successfully employed strategies that are becoming standard in online advertising: integrated advertainment, viral email marketing and sponsorships.

Advertising has recently become a ray of sunshine in the online entertainment industry’s cloudy future. In a recent report, PricewaterhouseCoopers predicted that Internet advertising will increase from $4.6 billion to $20.3 billion over the 1999-2004 period.

The report says that by ’04, the Internet will make up 9.3% of all major media advertising, compared with 3.2% in 1999 and .01% in 1995.

This projected advertising increase mirrors an expected upswing in Internet consumer spending, which will grow from $14 billion to $37.2 billion over the same period.

However, increased spending won’t bring the Internet world back to the go-go days of yester-month.

Although ad profits will increase significantly in the future, Netcos are still pinching pennies in the present market. This is partially because the number of sites offering ad inventory have dropped cost per thousand (CPM) across the board.

Making the market even softer, many businesses that advertise online are Internet companies themselves. Unable to secure financing or go public, some have drastically reduced their marketing budgets and reallocated the money for operating costs.

“Inventory outpaced revenue,” says Mark Smelzer, entertainment vice president of L90 Advertising.

This comes at a time when dot-coms did not see quite the same seasonal pickup in advertising for the fourth quarter as early as they did last year. Many credit this slower business to the industry at large re-evaluating the correlation between viewing an online ad and purchasing products.

Wanting more bang for their ad buck, many companies are examining a “cost-per-action” or performance-based models in which ad rates are based on the number of times consumers click on an ad instead of counting impressions.

And why not? Via contests, sweepstakes, and other data collection methods, interested customers will readily give up marketing information about themselves, allowing online advertising to target willing buyers better than TV ever could for less cash.

Regardless if future ad rates are based on clicks or impressions, the Darwinian economics of the current shake-out is making the industry healthier by killing off hundreds of sites. Survivors will be able to charge more for their ad space as fewer sites share in the growing market.

And though dot-coms spend less money online advertising, traditional companies are picking up the slack.

“Companies such as Unilever, GM and Proctor and Gamble are just starting to get into the game in more substantial and meaningful ways,” says Justin McCarthy, publisher of DoubleClick’s entertainment and use network.

Although many analysts predict the advertising market to pick up in second-quarter 2001, a few Netcos are already feeling the upswing from traditional ad dollars, according to Seth Levenson, vice president of sales for AtomFilms, which recently closed more than 1 million dollars in advertising business.

More than 70% of Atom’s advertising comes from offline companies, with brands ranging from studios such as Warner Bros. and New Line to gaming folks like Sony to tech companies such as Intel, Microsoft and RealNetworks to consumer brands Volkswagen, Ford and Skyy Vodka.

According to Levenson, offline companies are courting well-trafficked Netcos (AtomFilms has 1.5 million registered users) for advertising opportunities because the conventional “banners on portals” strategy no longer connects with consumers.

“On the Internet, users don’t want normal, in-your-face advertising,” says Levenson. “Advertising has to be part of the entertainment experience, not some annoying flashing banner. It can’t be an interruption or an intrusion. And younger, tech-savvy users aren’t receptive to traditional marketing messages. In fact, they resent those companies.”

Atom has brought offline brands into the fold before. In July, it pacted with Paramount and apparel maker Lugz for Claude Brooks’ animated show “Forty and Shorty,” which reportedly earned Atom around $200,000.

AtomFilms also recently inked a deal with Skyy Vodka.

“We matched up our content with their ad message,” says Levenson. “Skyy is a big supporter of independent films, so we’ve created a microsite on Atom called ‘Cocktail Moments.’ “

Levenson says the site was built to “reflect the look and feel of Skyy by creating an immerse brand environment.”

Entertainment Netco iFilm also has capitalized on new sources of ad income via its iStream, a streaming audio and video advertising product that places a client’s 15-second message at the beginning of its films and follows that up with a link or more info at the pic’s end.

iFilm has found several takers looking to promote products during December’s shopping season. The site has developed the “Altoids Big Tin Holiday Showcase,” in which targeted iStreams guide customers to the Altoids Web site to purchase holiday-themed gifts. Energizer and Volkswagen also advertise with iFilm.

However, not all traditional companies are in a hurry to advertise online. Wal-Mart, ranked No. 2 on the Fortune 500 list, spent exactly nada on Internet advertising in September, but wrote checks for more than $30 million offline in August. Similarly, Boeing, ranked No. 10, didn’t part with a thin dime online, but paid $697,000 offline.

The slow move to the Web for many traditional companies may have to do with perceptions of banner ads, the effectiveness of which is questionable at best. Banners offer an average click through rate of .2% or .4%. In the mid-1990s, the click-through rates were around 6%. But despite their performance, banners still make up the bulk of online advertising.

“Banner ads are like the 30-second spot on TV,” says McCarthy. “They’re not going away any time soon. Companies want to spend more money on media than production. And that’s why banners will always be popular. As a reach component carefully placed for a target audience, banners can be very effective.”

“We are still selling tons of banner ads,” says Smelzer. “The CPMs have just been driven down. And when you are a stand-alone site and your business model is based on a certain CPM rate, that’s when it really starts to hurt.”

According to Smelzer, banner ads work best with straightforward branding on high-traffic sites. “We recently did a campaign for CBS that simply said: ‘CBS, Friday Night, ‘The Fugitive.’ “

The banner ads worked, says Smelzer, because “users know what CBS is, what Friday night is and that ‘The Fugitive’ is a show.’ When the message isn’t completely new or foreign, then banners work.”

However, as many dot-coms have learned, revenues from banner sales alone will not pay the bills. Therefore, companies are capitalizing on several ad vehicles to tap into the growing dollars.

Sponsorship

Much ballyhoo has been made about the 1950s TV sponsorship model time-warping to the present to pay for online content creation. Shockwave has been leading the charge with this new version of an antiquated advertising model.

“We have had a phenomenal amount of success over the past six months with major household consumer brands aligning themselves with our content,” says David Steinberger, vice president of sales.

Most Netcos have been focusing their ad sales on other dot-coms instead of traditional companies, says Steinberger. “But now that many dot-coms are going out of business or losing their budget, everyone wants to go after the big consumer brands because they are here to stay.”

Moving ahead of the pack, Shockwave has inked deals with Compaq, IBM, Visa, Jack Daniels, Altoids, Nike, Sony, and Hewlett-Packard. Deals range from 3 months to 2 years and cost between $85,000 and $3 million, putting ads in front of millions of monthly unique users.

Aside from sponsorship, Shockwave also makes money from banners.

“We have more than 200 million banner ads a month,” says Steinberger. “Our inventory is 99.3% sold-out. Even at the most minimum of CPM levels, that’s a nice bottom line.”

According to Steinberger, by advertising with Shockwave, companies receive the same benefits they’ve been getting from advertisers for generations. “They get massive audience exposure and great brand association.”

The numbers speak for themselves: Compaq-sponsored “Stainboy,” by Tim Burton, received 1 million page views in six days.

“With ‘Stainboy,’ we offered Compaq exposure similar to what they would get from a cable network,” says Steinberger.

But there are added benefits. With sponsored programs, users “look at advertising longer, but are looking at it with a different mindset,” says Steinberger. “It’s done in such a contextual way that advertising isn’t a necessary evil, it’s more just a fluid part of the content.”

But sponsorship may be tougher for other Netcos to secure.

“Most of our competitors don’t have the amount of traffic that we have,” says Steinberger (Shockwave received 5,235,000 uniques in September, according to Jupiter MediaMetrix). “For them, it will be sponsorship or nothing, because they don’t have enough banner inventory to make it worth their while.”

However, time will be the true test as to which companies will keep their feet during the shake-out.

“The Internet, because it moves so fast, it’s always riddled with hype,” says Steinberger. “Everyone is looking for the sky to fall. But with advertising, look at the macro fundamentals. For years, consumer brands have been paying a lot of money to companies that can aggregate a large audience, in radio, print, TV or the Internet. Those are the companies that can monetize a large audience and will make money.”

Interstitials

Interstitials, the Internet’s closest cousin to the TV ad, long have offered more comprehensive advertising than banners by allowing an amalgamation of motion, sound and graphics.

Traditional companies and studios alike prefer interstitials because the medium allows a story arc. With a small window of time to promote an entertainment property, translating trailers into interstitials has been the most successful strategy to lure audiences offline and into theaters.

The only problem with interstitials is that they load simultaneously with the content from a page, slowing down the process, sucking up bandwidth and annoying users, who often close the ad before it plays.

For this reason, many sites prefer Superstitials, a product from Unicast. Superstitials differ from interstitials by the way that they are delivered and loaded. With interstitials, a box pops up and fills with content as it streams over the Internet: how quickly it fills depends on traffic, connection and size of the file.

Superstitials, however, download in the background on the browser while the modem is idle. Once the ad is fully loaded, it pops up and plays when the user clicks on a new page.

“Superstitials are a great technology progression for ads,” says McCarthy.

Superstitials cost an average CPM of around $45-$50, three to 10 times banner CPM rates. Companies pay more for these kinds of pop-ups because sites have limited inventory for them.

But Superstitials offer more. With banners and interstitials, file size is severely limited because they load with a page. Superstitials can have a file sizes large as 100K and run about 20 seconds in length.

And this extra “wow” has attracted some of the big brick-and-mortar companies. More than 85% of Unicast’s advertisers are traditional businesses, according to Allie Shaw, Unicast’s vice president of global marketing.

“When you read all about the Internet ad industry, you always hear about traditional advertisers not stepping up to the Web,” says Shaw. “And we are seeing the opposite because of the creative opportunity we present.”

Unicast sold more than 300 superstitials in the past year to companies such as Proctor & Gamble, General Motors and AT&T. Entertainment clients include Fox, Universal, Warner Bros, Sony, ABC and NBC.

Media-rich Email

Emails and Superstitials now share similarities, thanks to companies such as Dynamics Direct, Net-mercial TMXinteractive and RadicalMail, which offer rich media in the body of an email capable of all interactive aspects available on a browser.

Business is keeping the electronic postmen busy. Since launching in 1999, RadicalMail has orchestrated more than 200 campaigns for 50 clients including Fox, Sony and NBC.

“RadicalMail works because it’s seamless and targeted,” says Jay Stevens, RadicalMail”s director of marketing. “In online advertising, you are going to see a skyrocket in email as a marketing vehicle. It’s the only ad medium that provides a 10% to 25% click-through rate.”

Fox Television’s promotions of “Freakylinks” and “Dark Angel” which was choreographed by L90, used opt-in mass emails that contained vid clips from the shows as well as schedule information. Users were asked to forward to friends the email, which contained a hyperlink to direct users back to the Web site. L90 also backed the campaign with traditional print and television campaigns to bring viewers to the site.

Since enriched email is a relatively recent marketing tool, it’s too new to have an established track record. With Fox, “Dark Angel” resonated with auds, while “Freakylinks” did not, making it tough to tell the exact effect of the email campaign.

But at 6¢ a piece, “it’s the most cost-effective way to advertise on the Internet,” says Stevens, with “ways to consummate an e-commerce transaction right through the message in the body of the email without connecting back to a browser.”

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