THE NET EFFECT: Diverting adspend - Internet users have a dream demographic for many advertisers trying to reach ABC1 media-savvy folk. So just how effective is online?

The internet is everywhere, garnering a good chunk of consumers'

attention. That automatically means that marketers should sit up and

take notice; but the real test for many will be whether the internet is

diverting consumer attention away from other media. If it is, then

adspend is sure to follow.



According to figures produced on behalf of Yahoo! by BMRB's TGI and

BMRB's Internet Monitor, the average internet user now spends eight

hours per week using the medium. The same average internet user spends

15.7 hours watching television, 11.7 hours listening to the radio, four

hours reading newspapers and 3.3 hours reading magazines - more than

their non-internet using counterparts. The research also indicates that

Yahoo!'s UK site has a bigger and more upmarket audience than any

broadsheet newspaper; nearly 30 per cent of ABC1s in the UK access

Yahoo! sites at least once a week.



And the upmarket bias among internet users in general is still there,

according to BMRB: 69 per cent are ABC1s, compared with 50 per cent of

the population as a whole.



"Television, newspaper, cinema and radio consumption are all higher

among internet users," says BMRB's senior associate director, Paul

Milsom. "That's partly to do with demographics - internet users are

still younger, more upmarket and better educated than non-internet

users, and that's likely to make them bigger media consumers."



And while the gender bias may be disappearing, with women now making up

44 per cent of British internet users, the age profile is still heavily

biased towards youth: 73 per cent of users are under-45, compared with

52 per cent of the whole population. The profile of internet users is

getting closer to the profile of the whole population, but it's

happening gradually, and there's still a long way to go.



Those demographics mean that internet users are bigger media consumers

on a macro level. But on an individual basis, according to BMRB's

Internet Monitor, people that use the internet more tend to use other

media less; as internet use rises, consumption of other media, and in

particular TV, falls.



Research from Jupiter MMXI reaches the same conclusion. In the UK, 20

per cent of internet users said they watched less TV, 12 per cent said

they read magazines less, and 11 per cent said they read newspapers

less.



In the US, cannibalisation of TV viewing leaps to a startling 44 per

cent.



Radio has tended to suffer less than other media up to now because it

has been largely a complementary medium. However, in the post-Napster

era, that's likely to change, especially as broadband proliferates;

there will simply be far more music options on the internet and on PCs

than on radio, and possibilities that radio doesn't have, such as

personalisation and video.



You'd expect use of traditional media to fall as use of the internet

grows. But that would be to assume that overall media consumption levels

remain roughly the same, and history shows us that isn't true. As media

choices proliferate, consumption rises. TV didn't kill off radio, for

example, and the availability of home videos had the perverse effect of

increasing cinema consumption. The issue then becomes whether the

internet increases overall media consumption enough for traditional

media use to hold steady, or whether it eats into it.



In the US, Viacom recently produced statistics claiming to show that in

the youth sector, the average person consumes 27 hours of media in a

given 24- hour period; there's always room for more media to be

consumed.



Manning Gottlieb's head of new media, Jean-Paul Edwards, believes that

the internet is the least of traditional media's worries. "My feeling is

that it's probably complementary," he says. "There are far bigger

factors cannibalising traditional media such as ambient media. The

internet is an information-based medium and it's less interruptive, so

it cannibalises other media a lot less."



Yet evidence exists showing that adspend is following consumer eyeballs

on to the internet. Zenith Media Worldwide puts it at just under 3 per

cent of total adspend globally. The company's chairman and chief

executive, John Perriss, comments: "It's still growing faster than any

other medium year-on-year. There's a quite a lot of money being spent,

but it's still a small percentage of total adspend."



Jupiter MMXI agrees with Zenith's figures as far as the US is concerned,

putting internet adspend there in 2000 at 2.9 per cent of the total. But

in the UK, the research group puts the figure at just 1.1 per cent.

Across Europe, it puts it at 1.2 per cent, with Sweden the highest

spender - 5.4 per cent of the country's adspend last year was on the

internet. Jupiter predicts that the UK figure will rise to 1.4 per cent

in 2001.



"In terms of adspend, there has been cannibalisation," Manning

Gottlieb's Edwards comments. "It's only really a two- to three-year-old

market. To take 2 to 3 per cent of advertising spend in that time is

quite impressive.



"But the internet has been taking a share of a growing market, and we'll

have to see how it does now that we're in a recessionary market. People

know about TV, and they'll always do it - no one ever got sacked for

making a TV ad. They're happy to experiment with the internet in a

growing market, but now they're worried about their jobs.



"There'll be a small increase in the overall size of the market this

year. But for companies that spend a lot of money on advertising, spend

has been gradually increasing. They didn't boom in 1999 and 2000, but

neither is there a bust now.



"The big media owners will increasingly command more of the spend. In

the UK, I expect there will be a big ten or 12."



In line with Zenith, the research company eMarketer puts the internet

cut of overall adspend at 2.91 per cent in 2000. The company predicts

that this will grow to 8.14 per cent by 2005. Over-optimistic

predictions of online advertising's growth have been commonplace up to

now, but eMarketer's projected figure requires compound market growth of

less than 30 per cent each year - eminently possible at the current

rate.



eMarketer points to the youth of the online advertising market.

Advertisers are still in the experimental stage, the company argues; as

they become more experienced, growth will be fuelled by improvements in

targeting, creative and reporting, and by proper integration of online

and offline advertising.



But the days of 100 per cent year-on- year growth have passed. The

exponential growth curve has naturally slackened off; as the market

grows, it becomes difficult to sustain. But growth is still strong: for

2002, it has been variously predicted as being between 25 per cent

(Zenith Media) up to 59 per cent (Morgan Stanley). Even if it's at the

lower end of that range, it's still a sector growing faster than any

other.



As eMarketer suggests, however, a lot of that spending is

experimental.



And that frequently means that it doesn't come from marketing budgets;

it comes from a separate "digital" budget. According to the Yahoo! UK &

Ireland commercial director, Lee Thompson, that's a key reason why

advertising on the internet hasn't taken off to a greater extent.



"If you look at traditional, marketing-led companies, the digital budget

and the marketing budget are independent of each other. Some have

changed, but 60 to 80 per cent of major clients have a separate budget,"

he says.



"So there are structural problems that we face. We're not competing for

part of the marketing budget, but of a much smaller digital budget. I'd

much rather there was a single budget, and the internet was viewed as

just one channel among many.



"If it's not integrated, then there's no chance for the internet to

prove itself in parallel with other media. Unlike all other media, the

internet doesn't benefit from the synergies of integrated media.



"It's true at the agency level as well as the client level. You can't

compare them, because they're not planned together, and they're not

tracked together."



A Jupiter MMXI study carried out in July partly backs up the view that

internet budgets are generally separate from marketing budgets. It

looked at more than 100 of the UK's top traditional media advertisers,

and found that 40 per cent of them didn't advertise online at all. Of

those that did, 50 per cent had a separate digital budget; direct

marketing budgets were the next most popular source of digital spend,

with advertising budgets trailing behind.



"It reflects where that group of advertisers are," Jupiter MMXI's

European online advertising analyst, Staffan Engdegard, says. "More of

them are going online now, and over the next couple of years they'll

work out how to use it better. Procter & Gamble recently announced that

it was cutting its global adspend by more than 10 per cent because it

could find more efficiencies in direct marketing and the internet -

these companies know about spending efficiently. Clients are moving over

to proper budgets, rather than experimental ones."



As the Jupiter MMXI study found, where online advertising spend does

come from marketing budgets, it tends to be from direct marketing.

Zenith's Perriss comments: "Fundamentally, the internet has turned out

to be an addition to the menu of platforms available to clients. It's

found its place at the direct marketing end of things, because that's

how clients want to use it. In the US, we've folded our interactive

agency into our direct marketing agency."



The pigeon-holing of online advertising under DM may be a function of

its need to justify itself, according to Thompson. "People have

different aims, but it's easier to see it as a direct response use of

spend," he says. "People who want to prove that it works look to direct

response, because there are numbers you can use to try to prove it.



"It varies by marketing director. Some of them understand that the

internet works on a number of different levels, and it can fit anywhere

within the marketing mix."



Even when marketers have tried to apply traditional marketing principles

to the internet, the results haven't often been impressive. According to

Jupiter MMXI's Engdegard, that's because frequently, they're

inappropriate.



"There are problems when it comes to branding campaigns and people using

the mass-marketing model," he says. "You get fragmented reach - mass

reach isn't the same on the internet as other media.



"It will take a lot of time before we have benchmarks and best

practices. With other media, it's all there; you know the best practice

for a launch, a brand campaign, a relaunch or whatever. It will take

time for those benchmarks to be in place on the internet."



People measuring the wrong thing has led to a lack of faith in the

internet's ability to deliver results - another reason why online

adspend hasn't been higher. Thompson has several other theories why the

internet doesn't command a greater percentage of overall spend.



"It's partly a function of time - it hasn't been around long enough -

and of a misperception that it's a fringe medium," he says. "Also,

people think that it's unproven, and it is in part, but there's a

growing body of research which shows that it's effective. There's also a

misperception about the level of targeting that's possible.



"What that adds up to is a view that the internet doesn't have its own

value proposition. We haven't been able to determine the value

proposition because we have had problems evaluating its real

effectiveness. Clickthrough has been a treacherous metric for the

industry. People forget that it's a medium of influence, and that it

drives a lot of offline sales. When you include those, the cost per sale

per lead reduces significantly."



He identifies several things that online media owners and the internet

industry need to do in order to command more spend. "We quickly need to

ramp up the number of case studies that show it being successful," he

says.



"If 98 per cent of media is planned according to a reasonably comparable

set of metrics, which broadly speaking are reach and frequency, then we

need to come up with a single trading currency that allows the internet

to be bought in a more comparable way. We need to fall in line with the

way other media is being planned. Media research should be a key engine

driving industry growth. Every other medium has a single means of

measurement, and the frightening thing is that we don't.



"We need to abolish the myth of clickthrough, we need a more forceful

industry body with better representation, marketing departments need to

bring it all under a single budget, and agencies need to integrate.



"The onus is as much on advertisers as media owners to prove it works.

It's about efficient use of media - if it works, then it makes sense for

people to divert more spend online. What we all need to do now is focus

less on the issues and more on the solutions. Over the coming months,

Yahoo! will take the lead on this."



David Patton, the vice-president of marketing for Sony Computer

Entertainment Europe, says he's doing precisely that. "What we're seeing

is a massive fragmentation of media, which ultimately is causing a

dilution of TV spend," he says. "The impact of the internet is

significant. Eventually, something like PlayStation will be delivering

most of its content online. Increasingly, it's the way we seek to

educate and entertain our consumers.



"If you look at TV audiences, they're reducing on a month-by-month

basis. TV and the internet complement each other, but the balance is

shifting significantly in favour of the internet."



But Patton doesn't see the internet cannibalising traditional media in

the sense that spend moves from offline to online advertising. Instead,

the company is allocating budgets to making playstation.com and its

other sites destinations in their own right.



Not everyone has properties that they can turn into destinations. But

marketers with high-information, high-involvement products could move

away from advertising on third-party media, and towards a situation

where the brand's web site is like a media property in its own right.

Patton claims that people visiting the company's sites are happy to

consume marketing messages and they end up seeing the company's ads more

often than they would on TV.



"People are going to a site such as iamthewolfman.com, downloading our

commercial and sending it on. There's no better endorsement than that.

Also, it's a more personal type of communication, so it means that one

ad does not serve all," Patton says. "Traditionally, we did one brand

commercial in the run-up to Christmas; this year, we're producing seven.

We'll put them all on the internet, but not all of them will go onto

TV."



Cannibalisation will cease to be on the agenda if the long-vaunted

convergence of interactive services, such as the internet with TV,

finally happens.



Zenith's Perriss believes that the internet won't command more spend

until it's more TV-like. "The single largest reason it hasn't taken off

more is because it's so slow," he says. "Until the infrastructure is

there to make the internet faster, it won't happen.



"The PC's not a user-friendly medium for entertainment. There's got to

be a quantum leap: the PC has to be in the living room, and there has to

be a merging of the PC and the TV. The consumer benefit isn't so great

that people will put up with boxes stacked on top of each other."



The converse argument is that the internet is capable of being so much

more than an ersatz version of TV.



Its promise is, and always has been, more about interactivity and

engagement with target consumers at critical times than about bombarding

people with messages. The internet is the experience itself, rather than

traditional media advertising's invitation to an experience.



But if the two do become more similar, says Manning Gottlieb's Edwards,

it may not be the internet that suffers: "Online won't kill TV, but TV

will become a lot more like online advertising - you won't be able to

tell the difference between them. And the lessons we've learnt in the

online space will have more value in the networked, multi-channel world

than the lessons TV buyers have learned.



"Once online spend starts getting big enough to hit other media, things

will be bruising. We're quite bad at doing what they do, but they're

very bad at doing what we do."



This could be the greatest hope for the internet boosting its share of

adspend: that it comes out of its ghetto and is integrated with

traditional media at a technology level. Then it will integrate at a

planning level, meaning that audience cannibalisation will no longer be

an issue.



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