Aspects of Web Advertising

first published February 2000, minor update May 2003

article by Zsolt Kerekes - publisher of STORAGEsearch.com

• Does web advertising work?
• Why you should use banner technology on your own web site
• Classified advertising
• What will happen to web ad pricing?
• Why you should sponsor articles
• Some tips about banner ad design
• Everything else which I forgot to mention earlier

Does web advertising work?

Some quite distinguished experts have said "No, it doesn't." They include:- Philip Kotler who wrote Principles of Marketing, and is one of the world's leading marketing gurus.

OK, you could disregard his opinion by cynically saying "what does this guy know about the web anyway? And maybe he's just inserting controversial quotes about the web into his 1999 press interviews to help sell his latest book."

Fair enough, but Jakob Nielsen, whose Useit.com/alertbox is one of my own recommended web marketing bookmarks said in September 1977 that Advertising Doesn't Work on the Web, a view he reaffirmed in his July 1999 article Web Research: Believe the Data. In my opinion, Jakob Nielsen is one of the world's leading experts about the web and successful web site design. Nevertheless, I disagree with both of them, on this question, as you would naturally expect, because if I didn't, there would be no point in discussing web advertising any further, and this would be a very short article indeed.

...Later... actually - in an April 2003 article Jakob Nielsen changed his mind about this and started writing about the virtues and possibilities of the "new" style of classified advertising, that we started running back in 1996...

My own experience is that I have seen web advertising work very well for the last five years, in my own neck of the computer market (the Sun Microsystems compatible server market). At this point, you the reader, might get cynical, and say "Maybe it works OK for publishers selling web advertising, sure I can believe they make money, but what about the companies who are buying the advertising space?"

Anecdotal feedback from many of my advertisers is:- "Web advertising is now our biggest source of new leads, and the leads we get from your site spend more, on average, than the leads we get from other sources." In fact the customer renewal rates on my site have been over 95% for a couple of years now, and as most of my advertisers typically seem willing to spend much larger sums year on year, there is enough evidence to convince me that web advertising can work very well.

So how does this correllate with Kotler and Nielsen who both say web advertising doesn't work. Some people are saying one thing, while others are saying another. My answer is simple.

• Well executed web advertising, on well targeted media works very well.

• Poorly conceived web advertising, on unfocused and untargeted media works very badly (or not at all).

My guess is that these two esteemed marketers are talking about the web advertising market as a whole, and not the potential of the concept itself.

This is very similar to the experience of traditional direct marketing, and you only have to look in your mail at home and at work to see that the vast majority of companies which use direct mail as a selling medium are actually incompetent in their execution of it. They survive this incompetence because another part of their organization is, in effect subsidising this activity. Maybe it's their direct sales force, or maybe it's their reseller channels... However, it is important to make web advertising work for your organization because it can result in new customer acquisition costs 50 to 100 times lower cost that traditional forms of direct marketing, and advertising in other media. That's a difference which can't be ignored. It means that even a puny competitor which executes web advertising effectively can outperform a competitor which is more than 10 times its size. Alternatively, a web focused competitor can destroy a similar sized competitor by using its web marketing advantages to acquire and retain customers at lower cost, while also reducing its product pricing.

We all know companies which are poor at marketing, however, that doesn't mean that marketing planning, market research and other marketing activities should be ignored. In the same way, the concept and potential of web advertising should not be dismissed, just because most companies are doing it badly.

Classified advertising

In most markets, classified advertising offers you the best targeted advertising opportunities on the web. It's something which many of the marketing people I speak to, don't clearly understand. In my own web publications, we offer both classified advertising and banner ads. Advertisers can use either method on its own, or a mixture of both. Some examples of classified advertising in the computer market include:-

• the promotion packages offered to members of most industry trade associations. Many of these trade associations don't necessarily see these membership schemes as "advertising". But that's a perfectly valid way of looking at them. If you pay your membership fee, you get a certain amount of visibility on these web sites.
• any logo, company profile or product description on the SPARC Product Directory is actually part of a classified advertising package.

The main aspects of classified ads are:-

• they contain useful information (unlike most banner ads). The information is usually a company profile or a product description

• the classified ad is bought on a time basis for example "1 year" instead of a number of views or clicks basis such as a banner ad.

• the content of classified ads is regarded by most viewers in the same way as editorial. That's because they correctly assume that every company pays the same dollar amount for the same quantity of visibility. The "ads" are usually information that the viewer is actively looking for. That's why they came to the web site in the first place.

• the company profile or product info, is on the same web site as the link to it. That means the publisher gets the branding benefits of the viewer seeing this info. The publisher can also choose to run banner ads on these classified pages. That's quite different to banner ads or "pay per click" search-engine listings (such as GOTO.com) in which the information is on the advertiser's site

Classified ads are good for advertisers, because typically the pricing models, which originate in the pre-web era, are usually unrelated to banner ad pricing. For example if you want a qualified reader to see your new product info on the SPARC Product Directory, the classified ad will typically cost 10 times less than achieving the same objective with a banner ad.

Classified ads are also good for publishers, because they contain rich content which helps to attract more viewers.

There are, however, 2 main advantages that banner ads have compared with classified ads:-

• Control. You can buy more impressions of banner advertising, limited only by your advertising budget. Whereas once you have set up your classified ad, you are totally dependent on how successful the target publication is at attracting more viewers, and, just as important, the total number of advertisers in your own product category.

• Portability. Once it has been designed, the same banner ad can be run on multiple web sites with little or no need for customization. In contrast, classified ads are, by definition unique to the web site on which they are running. Therefore more marketing inputs are usually required to set up classified ads. (On my own sites, we offer customers the free option of creating the classified ads from the content we see on their own main web site. But that's a service level to which most other sites do not yet aspire.)

In conclusion, your company will get a lower cost per lead from classified advertising, but a larger reach into your target markets from banner advertising. You need to use both. In the long term, new types of classified advertising products will be developed by publishers, specifically for the mature web advertising market. These include sponsored news, and sponsored articles, some of which we look at below.

What will happen to web ad pricing?

When I updated my business plan in the early part of 1999, which was disclosed to current and potential advertisers, the question of what would happen to web ad pricing, and in particular, banner ad pricing was of great interest. My concern at the time was to provide early warning to my customers of the trends they would see, and help them include these factors in their marketing budgets for the year or so ahead. my analysis and conclusions haven't changed. When I first started selling web advertising in January 1997, the market was new, and the price was basically whatever you thought you could get. Early web publications were mainly cushioned from making adverse pricing decisons either because they funded by venture capital, or they had alternative income streams from print advertising or mailing list rental.

The factors which affect banner ad pricing are no different to any other commodity:-

• supply versus demand

• factors in the external market - such as competing products

• market expectations

If we look at specifics:-

• The number of new web advertisers will grow at a faster rate than the number of web viewers (or readers). The most mature segment of the web advertising market is the computer segment focused on Sun Microsystems and associated SPARC technology. But even in this market, in Q1 2000 less than 5% of resellers actually spend money on web advertising. By 2002 it will be 100% (of those which are still in business). If we look at the number of advertisers that translates to a 450% annual increase. But if we measure by dollar value, the trend I have been seeing is that web advertisers start to switch more money into web advertising after they have had a year or so of good experiences with it. If we take the 2 factors together, the demand for web advertising (in this market which is much further down the learning curve than any other web advertising market segment) could easily be greater than 5,000% per annum.

• If we look at the supply side. The rate of reader growth, in this market segment, even assuming that the market grows at a healthy rate, is unlikely to be above 50% per annum.

• In a mature business to business market, the trend on the web seems to be that a greater percentage of readers get channelled through a smaller number of major web sites (or portals) than would be the case with physical media such as print. So the number of targeted publications which a potential advertiser can use to reach a critical mass in their market, is actually reducing.

What does this mean? - In the business to business world, demand for advertising so greatly exceeds supply that most publications do not need to work at getting new business. It will come to them anyway. What happens next depends on the strategy of each publisher. In the long term it makes sense for publications to retain customers by providing a good channel to their market. Also, the introduction of high added value and customised advertising products (described in other parts of this article) can create unique opportunities for synergy in which the publication actually becomes an integral part of the advertiser's sales and marketing force.

In the consumer world, the critical factors in my view are:-

• huge growth in sites which carry consumer ads - everyone wants to be the next Yahoo

• very poor results from consumer advertising - due to poor targeting and lack of synergy (most of the time) between advertiser, publication and reader

The result in the consumer world will be that banner ad pricing will drop to a fraction of what it is today, because there's a lot of unsold inventory on consumer sites, and the results advertisers get are so poor. In Q1 2000, there is already a 10 to 1 difference in published banner ad rates between high end BtoB and consumer publications. The real difference, if you're actually spending money is more like 20 to 1. These 2 markets are quite different today, and likely to remain so until the venture capital which props up many of these consumer sites starts to run out.

Why you should sponsor articles

Your engineering team has just written a wonderful white paper which describes your latest technology. Or your marketing department has just written a market report which links together the disparate parts of your market and shows why your company is the logical lynch pin, or next leader. You want lots of people to read so what do you do?

Traditional approach - pre 2000

• Try to be nice to some editors in industry leading journals, in the hope that they will publish it (or a story about it).

• Put a copy on your web site and hope someone will read it

• Print thousands of copies and distrubute them in your mailshots and newsletters.

• Run the article as advertorial in a printed magazine. But how can you be sure that anyone reads it?

New approach - you don't have to be nice to editors any more

• Run an editorial banner ad on your own site, which promotes the article. This will show you how much interest there really is.

• Find a leading web publication in your industry which accepts sponsored articles. (If they don't understand the concept - refer them to this article.) Determine how many readers you want to read your article, and agree a price per article view, and a time period. Then place an order. That's how easy it should be, and that's how easy it will be.

Sponsored articles are a win-win situation for advertisers and publishers. Publishers which can run a mixture of articles on their sites which can be loosely classified as:-

• Public service articles:- these are ones which the publisher runs free, because they love publishing and it's good for reader retention and keeps potential advertisers looking at the web site

• Self interest articles:- these are the articles that are important to the publisher to establish branding, identity and loyalty. We do this to make our publication different from everywhere else, and because someone in the business still enjoys writing stuff.

• Better than selling banner ads articles:- if you look at the cost of acquiring qualified eyeballs, a street smart advertiser can save a huge sum of money by paying maybe 30 cents for each article viewed (Q1 2000 pricing). At the same time a publisher can be getting 5 times as much as they typically charge for a banner ad on a similar page, plus have the additional income from running banner advertising there as well. It's the publisher's responsibility to make sure that they use the right kind of signposting on their own site such as search-engine fixing, editorial banner ads and prioritised links so that the advertiser gets the quantity they need.

In my own publications I report on contributed article views (for advertisers who are running these articles) alongside the weekly banner ad, and classified page view reports that my customers already get. There's a learning curve associated with this concept. Advertisers have to be confident that it will work. Publishers have to be confident that they are getting material which is acceptable to their readers. In the longer term, web publishers will also offer to write these articles as part of a complete service package. This is a similar concept to the newsletter or house magazine concept in the printed world. The difference is that there is more immediate accountability.

Everything else which I forgot to mention earlier

If you've reached this far, you may be surprised that I haven't even mentioned subjects like:-

• search-engine listings:- are totally irrelevant in today's BtoB market. Whether you are #1 or #200 on general search-engines makes less difference to your web focused customer acquisition strategy than implementing successful advertising strategies as described above. For one explanation of this see the top 100 search terms on searchwords.com. If you look at the maths of a general search-engine with 10 million visitors a month, and divide that by the 10,000 words used by an average English speaker you get an average of 1,000 searches per word per month. Common (consumer) terms will get more, specialist (BtoB) terms will get less. So if the whole search engine is getting maybe 300 inquiries each month in your business segment, that's why you can safely ignore it unless your business is very small indeed.

• click-through ratios:- are a useful comparative guide between similar web sites. But is a 5% click rate on a kindergarten web site worth more to your company than a 0.5% click rate which focuses on high value buyers? Obviously not, if your main business is selling computers, or cars or high value services. See my article which analyzes costs etc - What's a Good Click Rate for a Banner Ad?

In the BtoB world establishing a direct relationship with the sites you advertise on is really important, and your business will suffer if you follow the traditional advertising practise of buying your advertising via intermediaries. The main reasons are:-

• when advertising capacity is oversubscribed and goes on allocation (which is continually happening on good sites) then you will be the last to know, and will probably not get your ideal advertising slots.

• when new advertising products are being test marketed, they will typically be tried out with advertisers who have enough of a good relationship for the publisher to risk this process. That's very unlikely to be with an advertising agency, because only a desperate publisher would try out their newest sexiest product on an agency which doesn't have a long term commitment to their client's market.

Where else can you look for good info about web advertising? My own personal web marketing resource bookmarks are not in any way exhaustive. They are just sites that I have found useful. If you know others, which are better, you should add them to the directory on this web site.

Good luck with your web advertising
Zsolt Kerekes