A far wider reach for web advertising
Eighty percent of companies now use the web
February 13, 2006
For media people who’ve struggled for years to get clients to add online to a plan, here’s a consoling insight: The fight is about largely won. Eightly percent of advertisers now use some form of web advertising, according to Outsell, a Burlingame, Calif., research firm. In its annual ad spending study, released yesterday, Outsell found that among 1,200 advertisers surveyed with a collective ad budget of $2.4 billion, four fifths are using or will use online advertising this year, and it forecasts that will jump to 90 percent by 2008. Those adoption rates are much higher than the 40 to 70 percent various studies over the past three years have suggested. Outsell predicts that online ad spending will grow another 19 percent this year, which it says is eight times the pace of TV and radio and six times that for print. Chuck Richard, Outsell’s vice president and lead analyst, talks to Media Life about how widespread web advertising will get, why buyers now find it so attractive, and how much blog advertising will grow in the next year.
Your report says that 80 percent of advertisers now use online. Isn’t that higher than past studies have put it at? Why the big boom?
I think the 80 percent is reliable, though it’s higher than other studies. Some of the others slice the market differently.
We look at advertisers who serve the consumer, business and healthcare markets. We have a large sample that represents $2.4 billion of advertising. The figure may be a little bit lower, but not significantly.
We’re now doing the next round of this work, and we’re looking at those three segments separately. Advertisers targeting businesses turn out to be a little bit lower, but the overall numbers hold up.
The growth is very healthy. It was not too long ago that people were asking, “Should we advertise online?” Now they are saying, “Let me get into that.”
What do advertisers get online that they don’t get elsewhere?
Two things. The tracking is a huge plus, the ability to know what you’re getting for the money you’re spending. You don’t have to run a campaign and wonder if you’re getting what you want. You can count clicks and impressions.
The other thing I would say is the extreme of the reach, especially with search engines. You reach people that other methods like direct mail or outdoor just don’t reach because the audience is global.
How much will internet ad penetration increase over the next five years? What are the major factors driving it?
We see the momentum building. The small companies are the last to embrace it. We actually anticipate that by 2008 it will be 90 percent.
Then you’ll basically be left with those who’re trying to reach a niche audience that for whatever reason just isn’t online. There are just some markets where you’re just going to say, my clients aren’t online.
The study finds that advertisers with budgets under $1 million are especially taking greater advantage of the internet. Why is that so?
The people who find Google the most effective are the smaller advertisers. That’s from the ease of use. You don’t have to call somebody, you can arrange for search ads yourself. It’s low-cost and you can control it. The risk is totally controlled.
For $50 you can run a campaign and see if you like it or not. If you’re having a slow month, you can stop it for a while. The impact of Google, Yahoo and MSN have made smaller companies comfortable with online advertising.
Your study found that advertisers rank Google search ads more effective than MSN and Yahoo. Why do they have this perception? Is it true? Is it something MSN and Yahoo are addressing?
My sense is the sheer buzz. There’s never been a company that was in the press as much as Google. Ten stories a day is a slow day for them. The beauty of it for Google is that they themselves don’t advertise.
This rating is for effectiveness, as perceived by online advertisers. They’re spending money on Google and they know what they’re getting back. It’s a pretty hard, results-oriented rating.
Google has a good formula for ad positioning on a page and pricing. Yahoo and MSN only go by bid price, meaning the highest bidder will get the priority position. Google goes by both price and traffic. If you’re an advertiser and you’re offering $10 per click for a keyword, and no one clicks on it, Google’s not making any money. That ad will get a lesser position than the $8 ad that does get traffic. The effect is to favor ads that are the most effective for advertisers and Google.
You project that advertising on blogs will grow 43 percent, though that’s from a miniscule 2 percent share of online advertising. What’s spurring that growth? Which categories of advertisers are now gravitating toward blogs?
There are areas of media, not just online, that are saturated with advertising. What’s happened with blogs, and wireless too, is that there’s a lot of eyeballs looking at them without much advertising. It’s just a rule: Where there’s traffic, advertising will follow. It’s just not saturated yet, so there’s a lot of unclaimed inventory there.
Categories vary by types of blogs. On the business sites you see the standard range, but it’s all very targeted, following the subject of the blog. It’s a broad range, there’s no one category that dominates blog advertising.
Wireless is also projected to grow by 19 percent. What do advertisers find attractive about that medium?
It’s becoming a fast-growing medium, and same thing, it’s under-saturated with ads.
The other interesting thing is that wireless, by accident of history, has grown up with people expecting to pay. You expect to pay for your monthly service, extra feeds, etc. You expect to pay for ringtones.
Growth is a little slower there because the providers aren’t relying exclusively on advertising. So I’m not surprised that the growth rate is a little slower than blogs.
What medium did advertisers consider the most effective? Why?
What advertisers are realizing is that the user is in control of what they want to receive. The same way they watch only the cable channels they want, they pick what they want online. People design their own pages on Yahoo, MySpace, etc.
So as an advertiser you have to realize just one method isn’t going to get you where you want to go.
But all that said, trade magazines, trade shows and direct mail marketing were rated the top three methods in effectiveness.
The highest-rated online method was actually email. Next was search. For branding, search engines didn’t rank so highly. No. 5 for branding was general print magazines and newspapers.
You project that online will take money away from other media over the next few years. Which will be most affected and why?
The trends look pretty clear that it’s somewhat of a race between TV and print. Print and TV and radio are losing the most share right now. They still get the largest share, but in terms of growth rates they are slowing the most.
But in the coming years I think TV and radio will be the hardest hit. They all will survive, but online will become more of an equal partner.
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