May17, 2007 | Sponsored By | view on web

Internet Advertising Analysis

A 64-page report from an international online advertising agency analyzed how the Internet has changed advertising and how to exploit these changes.

Online advertising is growing at six times the rate of traditional media and is expected to increase another 12 percent this year domestically, according to the report, Interaction -- All Change: marketing in addressable media, published by London-based GroupM -- a company that claims to have managed more than 200 billion impressions last year and projects it will manage over $2 billion in online spending for its clients this year. However, the growth in Internet advertising appears to somewhat disconnected to the number of connected homes or regular Internet users.

Even companies that don't operate online need to manage the online channel, according to the report -- the third version of the This Next Year series. For instance, directory listings, good and bad press and Internet citings need to be monitored and contained or exploited.

While search advertising accounts for half of all online advertising -- this is not the case for FORTUNE 1000 companies. The absence of such companies from this type of advertising leaves less competition for smaller advertisers.

Gaining preference loyalty on the Internet requires that users become engaged, GroupM said.

"Almost all advertiser Web sites lack reach and stickiness, suggesting they are at best only part-answers to the question," GroupM said -- noting that partnership with the right brands will help lengthen the amount of time prospective customers engage.

The report highlighted the value of "Partnership with professional publishers or content owners, whose business it is to sustain the interest of their constituencies."

The shift from the purchase of advertising audience to purchasing conversions or actions such as clicks was discussed in the report.

"This represents a radical departure with profound implications which stretch far beyond the world of direct response advertising," GroupM wrote. "The purchase of actions is the very stuff of Internet search advertising as built by Yahoo and dominated by Google, but in the world of display advertising this is uncharted territory."

Tracking of actions or conversions are enabled by cookies -- which also enable tracking of other user behaviors.

"Online's strength is cookies, which grow more abundant as the IP universe expands," according to the report.

Advertisers need to be more open minded about what news content they associate with, the authors wrote.

Among questions to ask when designing an interactive destination are:
  • What should happen when a prospective customer visits?
  • How does the value of the action compare to the cost of the investment?
  • Are prospective customers engaging or just being given a speech?

The report described a three-screen world of advertising that includes television, personal computers and mobile devices -- though advertising on wireless devices is still in its infancy.

GroupM surveyed respondents who account for about 96 percent of international online marketing. Among the drivers for online advertising were growth in digital media consumption, increased consumer confidence in the medium and growth in online purchases.

In just the United States, financial services only spend 5 percent of their ad budget online, the report said. Business-to-business advertisers across all industries are spending between $8-$10 to get their ads displayed in front of 1,000 people.

The typical U.S. Internet user spends 1.55 hours online at work and 1.34 hours at home, the analysis indicated. News and information sites are visited about 18 times daily by 77 percent of these users.

Search Engine Secrets

Spending on search engine sponsorships will reach $7 billion this year and $16.2 billion by 2011, according to Search Marketing: Counting Dollars and Clicks, a report from eMarketer. The medium represented 43 percent of all online advertising last year.

More than 90 percent of this year's revenues will go to Google and Yahoo, Senior Analyst David Hallerman wrote. One
benefit derived from this oligopoly is the better value of second tier search engine advertising while another is less competition for keywords.

The single biggest factor in this growth is the compelling connection created when an advertiser's message is displayed at the moment the prospective customer is interested, the analysis indicated. But a 69 percent return on investment -- higher than any other advertising medium, also plays a role.

Nearly half of the current search engine advertisers started the campaigns during the past two years, eMarketer reported. And the group has yet to spend much of their marketing budgets online.

"These companies are new to the game, and many are still likely to boost budgets as they measure the effects of search ads on their marketing," the report said.

The report noted keyword prices at Google were nearly 30 percent higher than Yahoo and MSN. But, "Google monetizes user clicks better than most other search engines, with its page ranking formulas based on elements that go beyond the amount bid by the advertisers."

Average prices were reportedly far higher for popular terms in five industries, including financial services -- though the reliability of these figures is somewhat hard to determine.

While more advertisers use paid search than search engine optimization, SEO grants the best return on investment, appeals more to prospective customers and leads to 10 percent more conversions, according to eMarketer. But paid search is immediate whereas SEO can take months to implement.

The authors wrote that 59 percent of search engine advertisers use the medium for direct sales, while 53 percent are looking to boost brand awareness and 48 percent are looking to generate sales leads.

But search engine advertising has its drawbacks.

First, competition continues to increase for search rankings -- especially for large marketers, eMarketer said. Next, the effectiveness of search engine marketing is difficult to track. Click fraud, to a lesser degree, also inhibits the medium -- with around 14 percent of search marketing clicks attributed to fraud last year. For high-priced search terms, fraud exceeded 20 percent.

Nearly all of paid search advertisers used Google's search ads, while 88 percent used Google's search network, the author said. Yahoo sponsored search was used by 86 percent, Google's content network was used by 77 percent, and MSN was used by 68 percent.

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Based on analysis of traffic during past 30 days.
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