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On Jan. 16, Internet media giant Yahoo! (YHOO
) reported its fifth-straight quarterly loss. It also reported the resignation of President and Chief Operating Officer Jeff Mallet, who joined Yahoo in 1995 as the company's 12th employee. The news reflects the mighty dot-com's continuing struggle to attract advertising and find new, diverse streams of revenue.
Mallet's departure is the latest casualty in what was a bruising 2001 for the ad industry. The scarcity of ad revenue may not have been the only reason he decided to leave, but it likely played a role -- and last year's disappointments have many fretting over the future of cyberads.
Total online ad spending dropped 5%, to $4.1 billion, in 2001, according to media buyer Universal McCann. Effective CPM, advertisers' cost per thousand impressions online, fell 14%, to $2.99 in the third quarter of 2001 from $3.48 for all of 2000, according to Jupiter Media Metrix. But the worst may be over: Internet ad spending should remain flat in 2002, while the industry as a whole is expected to bounce back.
RESULTS MATTER. And the online ad numbers -- along with Yahoo's continued struggle -- belie a subtler trend. Ad spending is skyrocketing in sectors such as technology, cars, pharmaceuticals, and travel -- and falling off in others such as consumer packaged goods. The reasons are clear: At a time when return on investment is more important than ever, marketers want to put their money where they see results. More important, advertisers are targeting specific audiences on Web sites of varying sizes and through the use of other devices such as handheld computers that connect to the Internet.
While large sites like Yahoo are still getting the lion's share of total ad dollars spent, a lot more money is going to targeted Web sites with small, focused audiences. It's pointless to reach 100 million Yahoo users who may not be in the mood to buy, some marketers reason. Instead, they want to interact one-on-one with a tightly targeted audience. "There's no correlation between impressions and value," says Jupiter Media Metrix's Rudy Grahn. "The Net doesn't have a mass-marketing dynamic. It's a targeted-marketing dynamic."
Yahoo is building up better profiles of visitors that take into account a consumer's state of mind and readiness to buy -- going beyond just age, gender, and income. So, if a consumer searches Honda car dealerships, Yahoo can display an ad for the new Civic on the search results page. And it can keep serving the ad on Yahoo pages that samee consumer visits for another hour or two afterward, when the prospect of buying a car is likely still in mind. However, because such targeted search-result pages make up only a fraction of Yahoo's total ad offering, many marketers are turning to smaller sites with very specifc audiences.
GETTING SPECIFIC. Witness high-tech middleware vendor Iona's advertising success. Ed Gaudet, vice-president for worldwide marketing, last year signed on with TechTarget, an online publisher of business-to-business information. He wanted to increase attendance at a series of Iona sales seminars and Webcasts, which are crucial for the company because its products are so complex and expensive (a single one can cost up to $1 million).
TechTarget sent e-mail messages to registered members of its searchbusiness.com and searchmiddleware.com sites. It also provided online banners and a sponsorship slot in its daily e-newsletters. The campaign produced "the best response we've ever seen," Gaudet says. For $46,000, three campaigns produced more than 900 registered attendees. Compare that with the $120,000 Iona had spent to produce and market a single Webcast that attracted only 700 visitors. "Now, more than ever, marketers are demanding [return on investment]. An online dialogue helps us connect with our customers," Gaudet says.
Those kinds of results are helping build TechTarget's business -- at the expense of more well-known sites such as Yahoo and CNET. And unlike its big-name competitors, TechTarget has been able raise its prices. The result? The company has seen business balloon. In 2000, it had about $7 million in revenues. In 2001, revenues nearly tripled, to $20 million, and 2002 should be even better. Not bad for a startup in a disastrous year for advertising.
BREAKING TRADITION. Evidence that online advertising is growing is still anecdotal, but it's mounting. Iona expects to double its online ad spending in 2002, which will now make up about 25% to 28% of its total marketing budget. Information-storage company EMC plans to boost Internet ad spending by 30%. Travel site Orbitz says online advertising is the centerpiece of its growth strategy. And Rowin Group pharmaceutical consultant Dilpin Phadnis says his clients plan to boost spending on Internet ads by 25%, a move that will take dollars away from traditional media.
One area of growth is advertising on handheld personal digital assistants (PDAs), such as Palms. According to Phadnis, about 70% of physicians carry PDAs, a number he expects to rise to 85% by yearend. That makes them a prime target for pharmaceutical companies that want to beam ads directly to doctors' most trusted gadget. "2001 was the year of experimentation. 2002 will be the year of implementation," says Phadnis.
Drug companies also are putting increased resources into "product portals," giant marketing and information Web sites that help doctors understand how new medications work. "The Internet offers high-quality pictures and an immense amount of information that even a sales rep couldn't offer," says Phadnis. It also saves money. The average pharmaceutical sales visit costs $175. Using the Internet can help bring that price down to $100.
NET-SHY. Consumer packaged goods and consumer-services companies, however, are steering clear. Unlike strong brand-building offline media, such as TV and radio, the Internet isn't delivered at a single time to a single audience aggregated around a single event. As a result, online advertising fails to create a unified perception of a brand.
Take AT&T, the 14th-largest advertiser in the U.S. in 2000. The telecom giant won't increase online spending in 2002, according to David Berlin, director of sponsorships. Instead, it plans to continue to experiment in areas that specifically target an online audience, such as incentives to sign up for online billing.
In time, as marketers begin to understand how to use the Internet, it may become a bigger slice of the advertising pie. "In any new market, people need to learn how to buy. We have a couple of years of experience under our belt. Now we can make smarter choices," says Brian Fitzgerald, director of promotional programs at EMC. In the meantime, look for online ad growth to hold its own. That may not be enough to celebrate, but it sure is an improvement over an ugly 2001.
Black writes about the Internet for BusinessWeek Online in New York Edited by Beth Belton
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Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
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