Online Growth Spurt Is Not Business as Usual

E-business is booming, and online marketing is back. US online retail sales are expected to reach US$65 billion this year and will continue to grow by a compound annual growth rate of 17% through 2008 to top US$117 billion, according to a report issued by Jupiter Research. Meanwhile, after taking a beating for much of 2001 and 2002, online advertising made an amazing comeback in 2003, fueled in part by the popularity of search, which accounted for almost 31% of all online activity in the first half of 2003, according to a joint report from the Internet Advertising Bureau (IAB) and PricewaterhouseCoopers. Piper Jaffray & Co. is predicting 20% compound growth for the next five years in online spending and calling for 21% growth in 2004, rising from US$6.7 billion to US$8.1 billion.

But other factors beyond the popularity of search engines are contributing to online marketing's resurgence, including the continuing fragmentation of audiences and media, a growing dissatisfaction with the accuracy of traditional bastions of marketing research, and the pressure on agencies and holding companies for more accountability for their marketing dollars.

This rebirth isn't accompanied by the click-based metrics of online marketing's heyday, before the dot-com bubble burst. Instead, a long list of new targeting and tracking capabilities is attracting marketers dissatisfied with traditional methods of measuring audience behavior. For example, advertisers now have the ability to optimize their campaigns by building sophisticated user-based response models that come very close to mimicking what database and CRM experts have been doing off-line.

Campaign improvements are no longer achieved by simply rotating out poor-performing media placements. Instead, marketers are able to build sophisticated, predictive models measuring variables such as ad placement, ZIP code and PRIZM data, exposure count, bandwidth, and viewers coming from work or home. These new tools can automatically improve targeting models on the fly. This approach to optimizing campaigns is like night and day for heavy data users accustomed to optimizing on only two variables.

Consider, for example, that analyzing day-part performance alone can improve performance by 20% to 30% just by understanding the subtle differences between targeting by time of day rather than by day of week. Combining deeper analysis of multiple variables with more effective graphic ad formats provides online advertisers with a truly efficient, metric-driven, ROI-based capability to combat the diffusion of their audiences.

Online Growth Spurt Is Not Business as Usual

Or take the case of pop-up ads. They proved very effective in 2003, but even though eMarketer reports that pop-ups represented less than 4% of the overall ad footprint in 2003, they seem to dominate the current "things I hate online" cocktail chat. What is the likely fallout? More experienced online advertisers will move to get more with less from pop-ups by combining their attention-getting capabilities with advanced targeting and analytic tools. Pop-ups will likely reach new levels of intrusiveness before they are reined in, but hopefully they will eventually annoy fewer people and be more relevant in their messaging.

Flash is another addition to online marketers' burgeoning tool kits. Flash is a terrific complement to new targeting and analytic tools because of its ability to enhance brand effectiveness with its rich interactivity, fast download times and quality animation. According to a 2001 study by DoubleClick, the use of flash resulted in a 71% increase in brand effectiveness compared with static online ads.

An even more significant development in the use of flash is the ability to track and report on as many as 30 unique interactions, such as ad exposure time, how much clicking was done, how much time was spent in the ad and where that time was spent, down to the pixel level.

Companies promoting the benefits of flash all offer tracking and reporting results on user interactions with flash, often referred to as exposure-duration metrics. The vast majority of online marketers still place more value on cost-per-sale, view-through conversion and optimization metrics than on interaction and duration reports, but an argument can be made for the brand-building effects that the longer exposure time of flash ads provides. Regardless, there appears to be a move toward balancing brand-building and response-based marketing in the online market.

The IAB recently released a study on optimal proportioning of online spending called the Cross Media Optimization Study. It stated that the optimal online ad spend was 10% of a media budget. While that may make sense in 2004, if online technology companies continue to aggressively evolve their targeting, measurement and graphic tool sets, we may see a dramatic shift in media spending.

Rich Person is the CEO of Poindexter Systems, a New York-based provider of technologies for maximizing the performance and profitability of Internet-based advertising and media campaigns.

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