advertising

4. Advertising

This existence of the advertising model on the Internet is apparent to all web-surfers. Whenever we use a browser, or a search engine, more often that not, we are bombarded by advertising banners. With more than 58 million adults using the Internet in the U.S. and Canada alone (http://www.zdnewsletters.com/eca/news.htm/), the potential reach of advertising on the Internet is therefore very huge and it is no wonder that the web as an advertising media is catching on fast (The actual reach will however have to depend largely on where the site is located and how it is promoted).

A research study commissioned by the The Internet Advertising Bureau (IAB) in 1997, online advertising using banners (which presently accounts for 54% of online placements) has tremendous communications power. One exposure to an advertisement banner has a positive impact on advertisement awareness, brand awareness and brand perceptions and has the potential for increased sales. This study, which was the largest and most comprehensive research of advertising effectiveness ever undertaken in any medium also showed that consumer acceptance of online advertising is comparable to that of traditional media.

Thus, any advertiser looking to build their brand and increase their sales would want to utilize online advertising alongside traditional media to ensure their future success. Advertising as a revenue-generating model on the Internet is therefore viable and is here to stay. In fact, a number of web businesses are attempting to generate revenues solely through advertising while a larger set of firms are attempting to leverage the notoriety of their web sites to generate some additional revenue through the sale of advertising.

Yahoo is perhaps the most well known case of a firm supporting itself through advertising revenues. Although the company has moved to a mixed revenue model, it existed solely on advertising revenue for some time—one of the only businesses that managed to do so.

Advertising on the Internet

The Internet advertising business is growing exponentially. In 1995, total North American revenues were $25 million, and this reached $300 million in 1996, according to Hambrecht & Quist, a San Francisco-based investment bank. The Internet Advertising Bureau (IAB) reported that advertisement revenues reached $571 million for the first nine months of 1997, an increased of $413.6 million (263 %) over the comparable period in 1996. Third quarter revenues for 1997 reached $227.1 million, up six percent over the second quarter and a 200 percent increase over the comparable year-ago quarter. As a percentage of overall advertising budgets, Internet advertisement spending in the US in 1997 is still less than 0.2 percent though. Overall, the Internet advertising industry is projected to grow to $5.0 billion by the year 2000 (see http://www.uwannawhat.com/Vancouver/index.html/).

In terms of advertising spending on the internet by categories, consumer-related advertisers accounted for 32 percent of the total for the third quarter of 1997 (a record), with the other leading categories being: computing products (22 percent), financial services (20 percent), new media (7 percent) and telecommunications (6 percent).

Based on data submitted by leading Internet and consumer online companies and sales organizations, national advertisers accounted for 88 percent of the total with local advertisers contributing 12 percent. In terms of the form of advertisements used, banner advertising account for 54 percent, content sponsorship 41 percent, two percent interstitial and three percent other forms including microsites.

The percentage of commercial web sites attracting advertising revenues in 1996 is about 16%. According to Jupiter Communications Netscape remained the number one site for advertising revenue ($27.7 million), followed by Yahoo! ($20.6 million), Infoseek ($18.1 million) and Excite ($12.2 million).

Advertising Models and Rates

Advertisement rates on the Web are like "laws in the wild west--they're tough to enforce, every town's different, and it helps if you're packing a big gun". It used to cost a lot to advertise on the web, and no doubt, there are still many services charging exorbitant rates. However, prices have dropped significantly and a reasonable price is about $20 - $50 per month. At such low prices, it is within easy reach of advertisers.

There are a number of models used to charge for advertising. The most common model is to base it on the "number of impressions", and the cost is between $20 and $50 per thousand impressions. However, this varies according to the type of buy (billboard, keyword, fixed page, etc.), targeting, duration, and number of impressions per month. It could also depend on where the advertisement is being placed. A more popular site that attracts a large number of visitors is likely to charge more than a site that has fewer visitors. Examples are search engines like Yahoo or well promoted Internet Mall sites that offer free things, cool things and other neat stuff to attract new visitors and keep previous visitors returning.

Another model charges on the number of "click-through". The typical "click-through" rate--the percentage of ad viewers who click on a banner to go to the advertiser's site--is between one and four percent. This is close to what we can expect even from direct marketing. Some well-designed banners on very targeted sites have however been able to garner response rates approaching 30 percent.

Yet another model being proposed is the Pay-Per-Sale model. By definition, payment is based solely on the product or service sales that occur as a direct result of that particular banner placement. However, there are some issues that still have to be worked through before we see this model becoming more popular.

Of course, there is also the business web-hosting model, which could either be regarded as an advertising model or a website selling services. In any case, the typical cost is between $200-$300 for a year. There are many Internet Advertising Services providing this service(it should be noted that some websites are even providing this service for free, relying on one of the earlier mentioned advertising models to generate revenues). In additional to the flat fee for hosting the web site, there could be additional charges on maintenance, add-ons, changes/edits and upgrades. The company may also offer services that "professionalize" and "dress up" the Home Page for between $30 to $100 and Home Page copywriting for between $80 to $125. Customized graphic design service may also be available for $80 and up depending on the work and time involved.

Conclusion

Online advertising is very different from offline advertising. With online advertising, using present day technology such as cookies and PERL scripts, we now have the ability to track in real time where responses and sales are coming from and how effective the advertisement is. Other technological improvements that increase bandwidth and access speed will increase the flexibility with which advertisers can effectively advertise their products on the web, with a consequent effect on the advertising model being used. Indeed, as technology advances, we're are likely to see even more creative and different types of advertising models emerge on the Internet. Whether a particular model will succeed or fail will be anyone's guess, but it is clear that Internet advertising will be here to stay.

One unique feature of the internet that makes it so promising is that the small player or a business person has as much clout as corporate giants in the internet. The mega companies with the huge advertising budgets do not have the same marketing clout on the Internet as they do in the print media. In addition, the advertiser doesn't even need to own a computer to advertise on the web as he can rely on the ubiquitous Internet Advertising Services to handle all his advertising needs.

News about companies increasing their use of online advertising also shows the increasing acceptance of the Internet as an effective advertising media. Unilever, which spends about $2 billion worldwide on advertising, is planning more web ads this year. The company has earmarked 10% of the total budget for alternative forms of advertising including the Internet. They plan to purchase banner ads on established, popular web sites rather than rely solely on their own site for advertising. According to another article in the New York Times, online music retailer CDnow will be spending $10 million on a campaign promoting itself as the "the world's largest music store" through both online and traditional outlets.