Changing Times for Web Advertising
Yahoo's ad rates used to be ironclad. Demand was so strong that Yahoo's salespeople could hold up advertisers for $20 million contracts to get access to space on its home page.
But times have changed. Yahoo is having trouble demanding these fat deals from advertisers. Advertisers question the value of the space. They are asking why they should pay top dollar, among the highest cost per thousand rates in the business, when they are seeing better results from other media. Ah, results.
Yahoo, the shining example of how the ad-based business model on the Web can work, has enjoyed not only top CPMs, but also a market capitalization of more than $70 billion. When the value of Yahoo's key product is questioned by its customers, the ad model is in trouble.
But it is not only the business model that is threatened. The whole arena of general advertising is in trouble. Remember the adage attributed to John Wanamaker, that half of advertising is wasted, but we just can't tell which half?
The Internet is forcing the migration of general advertising toward the direct response model.
Yahoo's sales representatives may be trying to sell space based on impressions. But banner advertisers are measuring click-through rates. The savvy ones are graduating to measuring buy-through rates, which means an approximation of a cost per order, and eventually return on investment.
They no longer can justify basing media-buying decisions on reach, frequency, CPM, impressions and other activity-based measurements that have sustained general advertising. Whether they like it or not, and many don't, they are evaluating Web media on performance-based measurements.
And, as click-through rates have fallen off the cliff, advertisers are pressuring the Yahoos of the world to adjust their rates -- the same way direct response advertisers have negotiated rates for years. All in the name of profitable results.
These developments have spawned a few interesting side effects.
o Advertisers, and especially their agencies, are confused about traditional roles and responsibilities. General advertising used to be "above the line," driven by creative considerations, and somehow superior to other functions. Down "below the line," a term I have always found slightly insulting, were sales promotions and direct marketing.
But on the Internet, the distinction is meaningless. Internet advertising technology inherently allows a response, whether a click through to another site or a drop-down "daughter window," where information can be gathered or transactions completed. Agencies are unsure whether to create messages to promote awareness or drive an action. The Internet is reminding them that the purpose of advertising is to sell.
o General advertising usually has so-called branding as its main objective. In this context, branding really means awareness, but it also means creating a perception about the product or service in the mind of the customer. Television, with its sound and motion, is superb at evoking feelings and emotional associations around a product. Banner ads have not been so effective, and general advertisers have concluded "branding can't be done on the Web." Or they are lining up to await the arrival of broadband.
At another level, this issue isn't about awareness vs. response. It boils down to disagreement about how a brand is created. A direct response marketer would question the assumption that a brand can be created through associations and awareness. We would argue that a brand is built from a series of customer experiences with the product or service, and awareness advertising is only one small part of that experience.
o Another implication of Web-based advertising is its spillover to other media. General advertisers are asking the same questions about the effectiveness of their schedules in network television and print. They are asking more loudly for accountability, for measurable results. All of this blurs the distinction between general and direct response advertising.
If the Internet is forcing general advertising to be more accountable, this means a healthier environment for everyone. So never mind feeling sorry for Yahoo. I am feeling grateful.
•Ruth P. Stevens consults with companies on customer acquisition and retention, and teaches at NYU's graduate program in direct marketing. Reach her at email@example.com.