Can Publishers Survive The Online Advertising Shake Out?

The Changing Market
During the glory days of the Internet boom, online ads became the must have addition to a marketers plan. The average advertising budget was more than generous and left plenty of room for advertisers to experiment with the promising but uncharted online world. In 1997 click through rates were as high as 10%. Even as they began to drop, click through rates outstripped the traditional direct marketing response rates of 1%. Demand was high and it appeared media owners could set their ratecards sky-high without raising too many eyebrows.

But as any online publisher knows, demand has plummeted with marketing budgets slashed. The legacy of the boom in site launches during the late 1990s is a flood of advertising inventory. This reversal in fortunes has raised new questions about determining the value of online advertising and the conversation between advertiser and publisher is proving to be a tough negotiation.

The balance of power has shifted dramatically, as Ray Taylor, Managing Director of media planning agency, Eyeconomy comments, "We never buy at ratecard prices. The prices offered by media owners are unrealistic. If media owners had begun to adjust their rates a year ago, they would not be under so much pressure now. What we agree to pay is the final word. It's a buyer's market"

Big demands are being placed on the media owners to respond with rate cuts. Joanna Bishop, Head of Agency Sales at Yahoo! UK mentions recent success stories from happy clients but admits that overall the market is tough, "TV is cheap at the moment, so there may be extra revenue picked up by more competition from other mediums. We tend to try much more sponsorship and promotional activity, to take on the traditional media."

Battling for Value
The calls from advertisers for sellers to justify their rates have led to several research projects. Bishop points to Yahoo! UK's recent study of an online campaign for Carphone Warehouse. The study demonstrated that 92% of sales were generated by non-click through site visits but that the banner advertising produced a spontaneous recall rate amongst viewers of 45%.

There has been a recent glut of similar studies looking at the value of banners in raising brand awareness. A study by 24/7 for a Coca-Cola campaign showed a 20% prompted recall rate amongst viewers. Another study by E-Brands/DLKW involved the creation of a fake brand (an online concierge service) for a campaign run exclusively online. 1.5 million banners were distributed across two target sites over six weeks and a survey of viewers showed brand awareness at 11%.

This type of pro-branding research has been going on as far back as 1997, when the Daily Telegraph commissioned Millward Brown to investigate the branding effect of banner advertising. It is perhaps no surprise that the rise in similar studies has been driven by the media owners, anxious to provide proof that there's more to banners than the odd click through. Anyone whose had a passing involvement with online media will remember the deluge of conferences a couple of years back entitled 'Beyond the Banner' or some variation.

Common sense dictates that banners do have a brand value. Ray Taylor has no big issue with this 'proof', "The value of a banner campaign is not just CTR (click-through rate). From a properly targeted audience, click through produces a high conversion. But also you get a branding effect - a delayed click."

New Metrics
Ultimately, many factors affect branding - positioning, creative, timing, etc. - so the overall impact will vary. Advertisers still need to account for their spend with a measurable response, particularly as marketing budgets come under more post-boom scrutiny. Hence the arrival of new metrics such as CPA (cost per acquisition) and CPC (cost per click). Some buyers have pushed to buy at CPA and CPC, reluctant to pay by the established CPM (cost per thousand) rate. Advertisers have asked why they should pay for the 99%+ of banner impressions that don't get clicked on. Why not pay just on response?

Yahoo!'s Joanna Bishop responds, "We steer away from CPC and CPA. The industry created the demand to deliver high return in a marketplace that's not hugely buoyant by selling banners as a direct response medium."

Bishop is right to be reluctant. The balance of power on a CPC/CPA model shifts entirely towards the advertisers. Media owners end up carrying the can for the advertiser's creative, offer, customer service and every other aspect of the 'sell' after the banner has been clicked. Whilst media owners argue for the risk to be shared, it appears the media planners and their clients have the upper hand while there is plenty of availability of CPC/CPA programs. Worse still for the media owner, these models may not reward the advertiser for delayed click-throughs.

A new metric is EPC (Earnings per Click), a rate established by Commission Junction for their affiliate network, Open Marketplace. EPC judges earnings per 100 clicks and is a pay-for-performance mechanism that doesn't leave the publisher at the mercy of the advertisers purse strings.

Through affiliate networks, the publisher can work out exactly what each affiliate is earning for them and can then work out which affiliates are worth chasing. The affiliate will pay the publisher according to how much that space is earning them. Rather than fixing the value of the advertising space, deciding the valuation of the space now lies in both courts. In addition, the publisher may gain that rarest of gems, content that pays. On top of this, affiliate networks also provide payment and tracking systems.

In a recent Forrester brief the success of these networks is singled out as part of the future consolidation of the advertising market. Forrester also predict the future dominance of certain publishers, "For Premium ad rep firms, only top-tier sites - those that deliver targeted, consistent, and differentiable audiences to marketers looking to build awareness - are worth representing."

Getting the Balance Right
The current situation is clearly having a detrimental effect on media owners, with a growing number of high-profile casualties. The inability to generate a sizeable revenue stream from advertising and sponsorship is leading publishers to look towards more diverse revenue streams particularly subscriptions. Clearly, the 'new' in new media is less new than we thought.

The ability of the Internet to deliver well-targeted niche audiences, backed by demographic information and well-tracked results is not in question. The interest in buying, renting and sponsoring targeted email newsletters has rocketed despite the general gloom across the industry. But before advertisers will take a CPM model seriously, the online publishing industry needs to present itself clearly and provide audiences in an environment where advertisers will be able to run campaigns that provide a return on investment.

The IAB (Interactive Advertising Bureau), the trade body for Internet publishers and media agencies, is trying to address this situation. Joanna Bishop comments, "They have a part to play as 'peace keeper'. A number of new, larger banner sizes have been proposed and case studies published to demonstrate the effectiveness of online advertising. Unfortunately for some publishers, it'll be too little, too late.

The responsibility doesn't lie entirely at the feet of the media owners; planners and buyers need to do their part in building successful online campaigns. As Ray Taylor notes, there are three key elements to this:

Getting the price right - something that will remain a contentious issue and will swing according to the rules of supply and demand

Targeting - the buyers need to ensure they're getting their message to the right audience and the publishers must provide closely measured, niche audiences

Creative - the advertiser must make sure they get this part of the bargain right. No matter how good the targeting or the price, poor quality creative will get a poor quality result.

Despite the difficult times faced by many across new media, all the trends look great. The number of people using the web is growing, the time they're spending online is longer, and more money is being spent on interactive advertising. Whilst the outlook may seem bleak for media owners, quality audiences will always draw advertising pounds. It's a question of making sure that the rest of the business model stacks up behind this and of course, advertising isn't the sole source of revenue.

Media planners and buyers also need to beware that whilst the going is good, as the number of sites dwindle, it's not just the bad ones that are biting the dust. A dearth of good online marketing opportunities is going to help no one other than competing media.

Related links:
Yahoo! UK
Eyeconomy
24/7 Europe
E-Brands research
Forrestor Brief
Commission Junction