THE NET EFFECT: What's it worth? Online adspend overtook spend on cinema last year. So how much more is it destined to grow, and which brands are the biggest spenders?

Despite the pessimism this year, online advertising is still

expected to claim a greater share of ad budgets over the next 12 months.

But how can this be when ad budgets are being cut and the initial

excitement around new media has dampened?



Well, although the growth rate in online advertising revenue is slowing

- to be expected for an industry that displayed such rocket rates of

growth in its infancy - the revenue rates are still increasing, just at

a less dramatic pace. This doesn't just include banner advertising

spend.



Online sponsorship, e-mail marketing and partnership deals are becoming

increasingly popular and are the final destination for a lot of the big

money in online advertising. Improvements in technology are also

allowing creatives to produce sexier executions.



So what's it worth? Ewan Darby, the strategic planning manager at AC

Nielsen MMS, expects online advertising to account for at least 5 per

cent of all ad budgets this time next year. What is holding back

investment, he thinks, is its lack of transparency.



"If you're an advertiser and 45 per cent of your budget goes on TV, the

next day you know what has been delivered. You can't measure online in

the same way - accountability is presented using so many different

measures. Everybody should be getting on board with ABC//electronic and

creating one industry standard," Darby says.



Figures for online advertising spend are still hard to come by because

of the immaturity of the market. Official figures that are published

regularly are those by PricewaterhouseCoopers, on behalf of the Internet

Advertising Bureau. According to last year's figures, online ad revenue

accounted for £154.7 million, £26 million more than cinema

adspend for the same year. Forrester Research estimates that total

online ad revenue will rise to more than £210 million during the

first two quarters of 2001.



So who are the big spenders at the moment? According to Forrester, the

financial services companies have invested the most in online

advertising in 2001, spending more than £16 million on the medium

since January. Consumer goods were the second biggest investors,

ploughing £12 million into their online promotions, closely

followed by media and entertainment, computing, and business products

and services brands.



In January, NetCrawling's LemonAd service found that Dell, Thomas Cook

and Ladbrokes were the top online advertisers. Over the past few months

these brands have been overtaken by Amazon and BOL. However, the facts

can often differ between research houses. For instance, Forrester's

estimates suggest that the current biggest online spenders are Hewlett

Packard, Amazon and Casino-On-Net.



Interactive advertising is not yet included in ACNielsen MMS's quarterly

advertising revenue figures, so there is no official word on what

proportion of advertising budgets go into interactive media, and whether

traditional advertising channels are suffering as a result.



However, what does seem certain is that the chunk of marketing budgets

that is dedicated to online advertising seems to vary dramatically from

client to client. According to a number of prominent media buyers, on

average between 1 and 15 per cent of marketing budgets are set aside for

digital media advertising in the current market. Colin Mills, the

managing director of media agency Carat, says that its clients dedicate

an average of 2 per cent of their ad budgets to online media.



Jason Dooris, the chief executive of MediaCom's online advertising

agency, Beyond Interactive, is more optimistic, putting the proportion

of budget dedicated to online at between 5 and 10 per cent. He comments:

"We haven't noticed online media budgets denting traditional ad budgets

to any significant degree so far, but the internet is an accepted media

channel and we believe that it offers a new audience in a new way."



However, how much brands choose to put into online advertising depends

totally on their objectives. Chris Mitchell, the marketing director at

Virgin Wines, says: "When we first launched, we concentrated on offline

advertising as it was an awareness issue." Now, he estimates, the

company spends more than 50 per cent of its ad budget online.



He says: "This year we're more focused on sales. We want to track which

ads are having the best direct sales effect and the best way to do this

is online. Its overwhelming strength is that people are just a click

away from purchase, whereas if people see your ad offline they could be

anywhere."



Michael Court, the media director at ehsrealtime, goes one step further

adding: "New media enables brands to strike up relationships with their

customers that require virtually no cost to maintain."



Although pundits can't agree on the proportional budget split for online

- it varies dramatically from brand to brand - the general agreement is

that however much companies are spending online, it's not enough. Mark

Cridge, the managing director of Gluemedia, says: "It's not as much as

it should be. There's a general perception that if a client is faced

with a budget cut they'll look at online first, but online is much more

cost-effective because of its accountability. The problem lies in

encouraging companies to invest in that accountability."



Some industry watchers think that the level of accountability synonymous

with internet advertising puts off some marketers. Lindsay Biggart, the

head of marketing at Yahoo! UK & Ireland, comments: "One of the key

considerations when evaluating the true worth of online advertising is

that the online audience is not calculated on an opportunity to see or

hear. Instead you are buying a guaranteed engagement or interaction.

Advertisers, therefore, know exactly how many people have been exposed

to their message and can easily measure how they have reacted through an

array of research tools including click rates, conversion tracking,

online questionnaires and our recently launched Buzz IndexTM."



She adds: "Many advertisers recognise the full value of online

advertising as a direct response, brand building, customer acquisition

and sales tool. The challenge going forward is to truly integrate online

advertising into the traditional media mix. One of the best

demonstrations of this was BT's recent Big Brother 2 campaign, where

they fully integrated online and mobile components with their TV

sponsorship deal."



Carat's Mills says: "The involvement that a client has to have is bigger

per pound. New-media advertising is high maintenance and the depth to

which you can analyse feedback is dynamic. There are advertisers who

enjoy its accountability, but others see it as too high maintenance. It

depends who you are and what you are trying to do."



Yet Mitchell believes that it has become over-complicated: "Everyone

makes such a big deal about online but it really isn't that difficult.

You just have to track it properly."



And brands are not just investing in banner advertising. Sponsorship

deals and online partnerships are also becoming more significant.

Technology is becoming increasingly innovative and allowing more

adventurous creative executions to be used. For example, in a campaign

to promote the new Ford Mondeo model, Mdigital used a hijacking strategy

to catch people's eye online. If users typed in the name of a competitor

car marque into a search engine, before the search engine had found and

listed the relevant sites a full-page transition ad for the Ford Mondeo

would run for three seconds.



A listing on a portal such as Yahoo! and pay-per-performance models are

increasingly being used as a route to market. Brands that place

themselves in pay-per-performance directories, such as Espotting and

Goto, pay only for the traffic that is delivered to their sites as a

result of their listings on those directories - brands bid for search

engine positions that are linked to keywords.



Seb Bishop, the co-founder of Espotting, says: "The amount that brands

are spending is growing. For example, Norwich Union has increased its

spend by 140 per cent in the past three months."



So what about the big sexy brands with the big bucks? Well, tellingly,

several major car brands are investing heavily in web advertising and

branding initiatives. Online car sales are still small fry, but

manufacturers are recognising the value of the channel in creating brand

awareness for their models.



BMW, for example, created an elaborate online ad campaign this year by

producing a series of short films purely for web distribution. Created

by high-profile directors, such as Guy Ritchie, what BMW spent on

production costs, it saved on media as the promotion was distributed

virally online and watched only by those who wanted to see it.



Nick Hart, the brand communications director at BMW UK, says: "We view

interactive media as playing an important role in branding. It's an

innovative, technologically-led environment and the values associated

with the web are also associated with our brand and our customers. We're

not targeting click-throughs, we're building the brand online."



The first phase of the launch campaign for Volvo's new S60 model was

entirely online - a first for any major product launch. The S60 put the

manufacturer in competition with more sporty models, such as the BMW 3

series and the Audi A4, and Volvo also wanted to drive down its cost per

sale. The online campaign used games, pop-up ads with sound, transition

ads and dhtml (dynamic html which creates animations over a page).



Michele May, the advertising manager for Volvo, says: "The young,

affluent target audience for the S60 means that the internet is a great

medium to use. Results in terms of level of impressions, site visits and

brochure requests were high."



Yahoo!'s Biggart concurs: "Increasingly, advertisers are taking

advantage of the rich profile of the online audience; TGI confirms 70

per cent of the online audience are ABC1 adults compared with 50 per

cent for ITV and 55 per cent for Channel 4. Yahoo! reaches more ABC1

adults every day than most quality daily newspapers, so for advertisers

from financial, motors and travel sectors, online now delivers mass

audiences for traditionally expensive and elusive groups of people.

Maximising saliency and minimising wastage.



"It has become a medium that offers advertisers exposure to notoriously

hard-to-reach audiences and at times of the day where commercial

opportunities on other media are limited. The internet allows people to

research which car or holiday they are going to buy from their desks at

lunchtime. The key for advertisers is to get their message to this

audience when they are doing their research."



- Apart from exceptional campaigns, online advertising is usually one

element of an integrated ad campaign including other traditional

channels. This is being encouraged by the advertising industry - the

temptation to see it as a separate channel perpetuates the existence of

a "new-media ghetto" for agencies and creatives who work in the field. A

good example of the use of the web as part of an integrated campaign was

the latest French Connection work by TBWA, which generated interest in a

website labelled too risque for TV, www.fcukinkybugger.com, built by the

late creative agency Deepend.



Danny Meadows-Klue, the chairman of the Interactive Advertising Bureau,

says: "Although the advertising industry is currently undergoing a lot

of change, advertisers must put interactive media in as a line on their

media schedules."



Judging by the growing number of online advertisers that are achieving a

good return on investment, this is no tall order.



A MINI ADVENTURE ON YAHOO! UK & IRELAND



By inviting instant feedback through e-mail, any brands which choose to

go online have the ability to lock into how their ads are being received

and change the creative treatment if necessary. One instance where

online advertising triggered positive feedback was Mini.



Yahoo! UK &Ireland was the first internet site in the UK to broadcast a

streaming media placement of the new Mini when it launched on 13

July.



The teaser for the world premiere appeared on Yahoo!UK & Ireland's

homepage.



Once into the teaser, viewers were treated with a full frontal of the

new Mini as well as the chance to find out more, including where their

local dealers were located. The new Mini ad reached half a million ABC1

adults within 24 hours of the home page activity.



Teamed with more traditional media placements, including vertical strips

in broadsheet newspapers and ambient activity, the new-look Mini enjoyed

a high-profile launch, as did its slogan "It's a Mini adventure".



The activity on Yahoo! UK & Ireland prompted users to respond: "Great ad

and top looking car ... I like the preview on Yahoo! Cool idea." And

"excellent ad! Excellent use of the modern technology! Keep it up!"



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