- The Washington Times - Monday, August 6, 2001

They flash.
They move.
They use bold words like "free," "sex" and "now.
And they are all over your computer screen as you read the news or shop for the latest Mel Gibson flick, and pop up in your face as you chat online with your Aunt Maude.
They are online advertisements, and their ever-present existence is what keeps many of the Web's most popular features from shopping portals to free Internet service providers up and running.
But a slowing economy has meant lights-out for many businesses relying on ad revenue or ad sales, and consumers have become a bit jaded with the constant bombardment from online ads. What's more, there's mounting evidence suggesting these ads really don't work that well.
All this has left advertisers scrambling to determine the best way to market products online.

Persistent pop-ups

The most widely used online advertisement comes in banner or pop-up form, running across the top or along the side of Web pages, or jumping in front of them. Eighty percent of advertisers use these ad styles, and 97 percent of Web sites support them, according to Jupiter Media Metrix.
But there are indications that these ads are decreasing in effectiveness. Click-through rates, or the rates at which a consumer clicks on a particular ad, appear to be on the decline.
"We've done full-blown media programs where we included a lot of banner advertisements and seen them not work at all," says Deborah Tompkins, vice president of business development for JAM Communications, a D.C.-based direct marketing firm.
Ms. Tompkins says JAM Communications has managed to survive the advertising downfall by focusing less on banner ads and more on e-mail marketing, which has been proved to be more effective.
Average click-through rates, or rates at which Web users actually click on a banner ad, were as high as 7 percent in 1996. But recent analyst reports indicate those rates now sit at less than 1.5 percent or less, depending on the size of the ad. Bigger ads generally attract bigger click-through rates.
"The trend is definitely drifting downward," says Adam Sarner, an analyst with the Gartner Group in Stamford, Conn.
Analysts say that over time, banner ads have lost their effectiveness in attracting clicks because there's nothing new and exciting about them. While some newer ads contain animation and interactivity, overall ad designs have changed very little over the years, they say.
"What's really missing with banner ads is creativity," Mr. Sarner says. "The banner ad in itself is not that engaging."
The problem, some observers say, is that advertisers feel the pressure to create ads before determining if they work well.
"Unfortunately, I don't think we had enough time in the testing mode," says Jay Aber, vice president of marketing for 24/7 Media, a New York Internet ad agency. "We missed a lot of the fun part."
And with most computer users still poking around the Internet on common modems, advertisers are limited in what they can do.
"Bandwidth is the limiting factor right now," says Walter Jakowski, another analyst with Gartner.

The click-through myth

Advertisers have begun to realize that click-through rates are not necessarily the most important measure by which to judge an ad's effectiveness.
"As attractive as this feedback is, the metric has certain shortcomings," reads one report issued by Jupiter Media Metrix. "Primary reliance on click-through does not recognize that in most cases consumers who are exposed to advertising over the Internet may not currently have a need for the products or services being advertised to them."
In other words, a Web surfer might not click on an ad for a specific DVD player when he sees it, but he might purchase that DVD player later when he's actually looking to buy one.
Online advertisers are creating ads that may not always be effective in spurring immediate purchases, but when used correctly can create product awareness, or "branding."
Jupiter reports that only about 15 percent of marketers conduct formal online branding measurements; the majority of marketers still rely on click-through rates and similar metrics. But those who do have online branding measurements are finding a 25 percent to 35 percent higher return on their investment.
"Simply seeing an ad is a strong influence on user conversion," reads the most recent advertising report from Engage Inc., a Massachusetts-based marketing company. "Users are taking a branding message away from the [ad], not acting impulsively on it, but are finding their way to the advertiser's site and converting."
In some instances, advertisers are sacrificing a higher click-through rate for better branding. This can happen, for example, in ads that feature a company name. The company name often prevents consumers from clicking on the ad, but the name can remain imbedded in a consumer's mind and spur a possible purchase later.
The intrusiveness of banner and pop-up ads is a topic of debate among analysts observing the online advertising market. Some say the only way such ads can be effective is by being intrusive, while others argue that advertisers must find a way to make them noticeable without angering a potential consumer.
"For any type of ad to be effective, you have to intrude a little," says Shar VanBoskirk, an analyst with Forrester Research in Boston. "You have to find that delicate balance."
And the intrusiveness is often accepted if the ad is creative or engaging in some way, observers say.
"It's no different than watching a good ad on television and watching a bad ad on television," Mr. Aber says. "The more intrusive you are, the more you owe it to the viewer to put interesting creative in front of them."

Big bucks

While the ad-supported model is one of the most popular business strategies, some analysts now question its effectiveness, as many dot-coms have struggled to make money or have gone under completely.
"It's valid, but it's probably not valid as the only way" to make money, Mr. Jakowski says. Once-plentiful free Internet service providers, which rely on ad dollars, are now nearly all gone.
Even NetZero and Juno, the two remaining big free ISP players, merged earlier this year and have been dedicating much of their energies toward attracting consumers to premium pay services.
Analysts say many users of free ISPs became tired of putting up with extra banner ads, which were often intrusive and slowed download speeds.
Analysts say the ad-supported model will work, but not for everything.
"Ads will support content sites," Miss VanBoskirk insists. "But advertisers are spending extra money on portals and specialty sites. Sites in the middle are going away."
There is also a shift in the way advertisers are being charged. Originally, advertisers were being charged a fee per click, or were charged only when a consumer actually made a purchase after clicking on the ad. Now, however, there are more sites charging a flat fee for every thousand banners shown, regardless of sales or clicks, and some are using a system that combines both models.
"Ad models are becoming hybrid," Miss VanBoskirk says.
Meanwhile, companies that create advertisements and work with companies on Internet marketing plans have been feeling the crunch. Doubleclick Inc., one of the largest Internet marketing firms, continues to lose money and has watched its stock price dip from over $125 per share in 1999 to less than $15 per share now.
L90, another public Internet marketing firm, has yet to turn a profit after a reasonably successful initial public offering last year. Its stock price, once as high as $27, hit an all-time low of $1.98 last week.

More than just banners

Banner ads do represent a huge chunk of advertisers' online marketing efforts, but it appears that other methods of product promotion are growing. E-mail marketing, in particular, is expected to take off. Forrester Research reports that by 2004, e-mail marketing services will triple and represent $4.8 billion. The main source of e-mail marketing's widespread usage is clear: it's inexpensive.
"E-mail is becoming more and more popular because it's extremely cheap and easy to use," Miss VanBoskirk says. "It's also very easy to track."
This tracking ability makes it easier for e-commerce sites in particular to target their consumer base more specifically. A person with an interest in horror novels, for instance, will receive ads for the latest Stephen King book, while an action-movie buff might get a special sale price on videos starring Arnold Schwarzenegger. The most prominent e-commerce sites, including Amazon.com and Buy.com, can create user profiles based on the products a person buys, and some sites ask that customers fill out surveys during or after purchases.
The result, Jupiter Media Metrix reports, is that e-mail ads receive a 5 percent to 15 percent response rate, or more than 10 times that of banner ads.
E-mail is deemed effective also because of its widespread use. By 2003, 72 percent of the population will use it, according to Jupiter.
"Part of the reason [e-mail marketing] is so effective is that it's less different as a medium," says 24/7 Media's Mr. Aber.
And recent polls have also shown that those who use e-mail the most tend to have the most money to spend, making marketer's return much higher.
Analysts say that e-mail marketing works now because people generally enjoy getting messages. Over time, however, people may become tired of their inboxes being filled with ads.
"It's almost like they're abusing the gift," Miss VanBoskirk says. "Consumers are starting to get jaded."

The future

While Internet ad firms like Doubleclick and L90 say they hope to rebound along with the ad market by next year, analysts and advertisers agree that the greater adoption of high-speed Internet connections will bring changes to the Internet marketing industry. Greater bandwidth will lead to ads with more movement, graphics and interactivity.
"When the Web becomes a much more accessible appliance, you are going to see more ads look like television commercials," Mr. Aber says.
The Yankee Group, another research firm in Boston, says streaming media-enabled advertising will grow to $3.1 billion by 2005. Just $44 million was spent on such marketing last year.

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