Why Online Ads Are Weathering the Recession

(page 2 of 2)

Third, it's an iron law of marketing that word of mouth is the most powerful medium that money can't buy. Online environments are, of course, rapidly becoming social media, where word-of-mouth communications travel at lightning speed and exert ever more influence on consumer behavior. No one, including social networking giants Facebook and MySpace (NWS), has cracked the code on word of mouth—or its monetization. But that doesn't mean they're not trying. Thanks to the huge numbers of business people who use it, Facebook has overtaken LinkedIn as a top business networking site. It's testing B2B marketing concepts like the recently introduced "VISA Business Network," which enables small business owners to interact with one another and advertise efficiently on the site. Last summer, MySpace also began targeting small businesses with a self-service model for advertising placement. (Only 1 million of 23 million small businesses in the U.S. advertise in any way online.)

Fourth, marketers are spending digital dollars to create "earned" rather than "paid" ad placements. Paid placements occur when brands buy ad space from existing online publishers. Earned placements often require that brand marketers create media vehicles of their own. Sometimes, earned media can take shape as the online equivalent of guerrilla marketing, in which brands create engaging online experiences—such as Pedigree's Dogs Rule Web site, which, with its agency TBWA\Chiat\Day, created a multifaceted online hub of services, community, and videos for owners and lovers of dogs. Others are less playful and more sobering, like Chevron's (CVX) partnership with the Economist Group to create Energyville, an online game designed to educate consumers about trade-offs between global energy resources and demands and their environmental implications.

Pinpoint Accuracy

Finally, there's the capacity of online to reach consumers with precision at specific points in the buying process (from awareness to interest to purchase) through theme-based or algorithm-driven targeting. Whether it's "vertical" ad networks (such as the CBS College Sports Network (CBS) of sites and blogs for online users obsessed with collegiate competition, including March Madness) or behavioral targeting (such as Tacoda and Specific Media, which analyze users' click streams to predict what they're likely to want or to buy), the results are similar: The online medium can provide marketers with unprecedented capacities to target specific users and usage occasions. Mobile advertising, which pinpoints a consumer's physical location, only adds to the expanding possibilities.

In short, Madison Avenue won't come out of this ad recession the way it came in.

Why would advertisers budget on faith when they could invest in measurable returns? Why would brands lavish dollars on mass media when they could target only those consumers who matter most? Why would marketers continue to allocate less than 10% of their budgets to interactive (in measured media), when consumers are spending more than 35% of their time with interactive platforms even today?

It's not that online advertising will supplant traditional media. It won't. But a new and different ad equilibrium will emerge from the coming economic recovery—and it will represent a radical shift from anything we've known before.

Jeffrey F. Rayport is founder and chairman of Marketspace, a digital strategy and customer experience practice affiliated with Monitor Group. Rayport was previously a faculty member at Harvard Business School.