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Net Prophet - by Dylan Tweney

September 7, 1998

Market pressures will change the shape of online advertising

If you're buying or selling online advertising, it's time to wake up and smell the coffee. Although the amount of money being spent on Web advertising continues to grow, advertisers are increasingly disgruntled with the ads' lack of results. That's forcing Web site publishers to start cutting ad rates -- but the real shake-up is yet to come.

A recent report from research company Jupiter Communications points to a dire warning sign: falling click-through rates. Currently, viewers click on banner ads approximately 1 percent of the time the ads are displayed.

That irks advertisers, which expect results from the high-priced ads they are placing on such highly trafficked sites as Netscape's home page, Yahoo, and Geocities. (InfoWorld's Web site also sells banner ad space at the top of each page.)

It's not that growth is stagnant. According to Forrester Research, $1.3 billion will be spent on Web advertising in 1998, and Forrester predicts that number will grow to more than $15 billion in 2003. That's a decent increase, but spread over five years, it looks fairly tepid -- especially when you compare it to the aggressive growth rates projected for online sales of goods and services. (Most surveys predict a jump from a few billion dollars in Internet sales this year to hundreds of billions, if not a trillion or more, during the next five years.)

All this data has convinced a lot of industry experts that banner ads will soon be extinct, and with them, all forms of online advertising.

Writer, industry analyst, and advertising veteran Doc Searls points out that there is simply no demand for advertising among online users.

Not only that, but according to Searls, the Web isn't suited for advertising at all.

"The whole banner business is like the absent surface on which Wile E. Coyote stands after he's run off a cliff, just before he rediscovers gravity the hard way," Searls told me in an e-mail message.

According to Searls, the Internet is ideally suited to making sales but is very poorly suited for advertising. In this respect, the Net is much like the telephone.

Traditional advertising is made for mass media. But the Internet is not a mass medium, no matter how many people are using it. The Internet demands one-to-one communication and transactions, not indiscriminate blanketing of marketing messages.

Searls is right. But online ads won't disappear entirely -- they'll just change shape.

They'll change shape literally at first. In the next year, ads will appear in various shapes and sizes, in boxes to the left or right of Web content, or interspersed between paragraphs.

For the companies that seek nothing more than branding, these new ads will be a dream come true. For readers, they'll be increasingly obtrusive and annoying, like television commercials.

But the cleverest online advertisers will change their business more profoundly. These insightful companies will produce increasingly useful advertising and will provide content that site visitors are actually interested in.

These kinds of ads will start to be indistinguishable from the content itself. In fact, content-sharing agreements and revenue-sharing retail partnerships show exactly how this kind of "advertising" will work. Rather than simply buying ad space on another site, companies will use these spaces -- purchased or traded for a share of the revenue -- to deliver information, collect customer leads, and close sales. A good example is Amazon.com's Associates program, which has put points of sale on hundreds of independent Web sites.

When this shift happens, bankable revenues from online sales will be far more important than questionable results from online advertising.

Dylan Tweney (dylan@infoworld.com) has been covering the Internet since 1993. He edits InfoWorld's intranet and Internet-commerce product reviews.

Previous columns by Dylan Tweney

Keeping up with the Joneses is tough for Net directories
August 31, 1998

Real estate site aims to make a home sweet home on the Internet
August 24, 1998

Comparison shopping takes the punch out of online branding game
August 17, 1998

Every column since August, 1997

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