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Column: Microsoft Beats the Drum for Online Brand Spending

Those with a vested interest in online advertising are more feverishly than ever trying to convince brand managers that the Internet should account for more than the current 1 percent or 2 percent of their budgets.

And direct marketers better hope it takes them awhile to do so.

The latest effort in online ad vendors’ battle for a larger portion of branders’ budgets is a “best practices” initiative begun by Microsoft Corp. with the help of some agencies, researchers and vendors.

Dave Chase, managing director, interactive marketing, Microsoft, Redmond, WA, said the initiative aims to be “a comprehensive library of interactive best practices.” Under that goal, Microsoft is inviting marketers to share case studies at http://advantage.msn.com/services/BestPractices.asp. “We look at ourselves as a jump-start or catalyst,” Chase said.

The effort aims to include such a comprehensive library that any brand manager likely will find examples he will think applies to him.

“People want research about their specific brands and products. It is the only way they’ll believe it,” said Nick Nyhan, president of Dynamic Logic, a New York research firm instrumental in helping Microsoft launch the initiative.

For example, Nyhan said, he has discussed with brand managers in charge of marketing block cheese the results of research done for the shredded cheese brand manager down the hall, only to have the block cheese brand manager say, “but that’s shredded cheese. It’s totally different than my product. I sell block cheese.”

I have sat in enough conference sessions during which some bozo can be counted on to ask a question so specific as to be useless to others in the room like, “my company sells clothing made specifically for a tiny race of troll people living on an island off the coast of Argentina. Can you recommend South American media buys for me?” So I can believe Nyhan when he talks about brand manager myopia.

However, sooner or later, there will be enough success stories to convince even our cheese blockhead that the Internet warrants more of his budget.

And the day that cheese blockhead has an epiphany and finally realizes that one of the most effective ways to reach his target is online and at work, he will begin driving the price of online advertising back up.

Currently, Internet advertising is like the early days of cable when direct marketers owned the market, argues Jake Winebaum, CEO/founder of Business.com, a business-to-business paid search engine. Winebaum also is a former circulation direct marketer for the likes of Fortune and Time magazine.

“Initially, the direct marketers can measure the medium first. And that’s what happened with cable. Direct response owned the airways,” he said. “Then what happens is you start to have really strong syndicated research that people trust and can make buying decisions from. Then the branders come in and price out the direct response guys.”

With Microsoft backing this latest research effort, one might suspect that the type of research to which Winebaum referred is on the way.

Similar to consumer-oriented pay-for-performance search services such as pioneer Overture, Business.com lets companies bid on search keywords and phrases, in this case, say, “copywriter” or “accountant.” Business.com syndicates its results to other BTB Web sites, such as BusinessWeek.com. When Web searchers use those words on Business.com’s search partners’ sites, Business.com returns a segment of the search engine’s results in order from the highest bidder down.

Some DMers apparently are having a field day with this stuff, acquiring customers at a profit on the first purchase.

As a result, Winebaum said, many of these search engine marketers are not calculating lifetime value of their customers.

“It’s almost unheard of,” he said. “Imagine catalogers basically judging a catalog mailing based only on purchases to that mailing.”

But as more and more cheese blockhead brand managers throw their less-than-accountable budgets at the Internet, it stands to reason that the pioneering DMers who now are acquiring customers online at a profit will be increasingly less able to do so.

According to Winebaum, some online direct marketers are preparing for this by getting a better handle on the lifetime value of their customers so that when the day comes that they can acquire customers online only at a loss, they will know how much they can afford to lose on the first sale and still run a profitable business.

“As demand increases and the prices get pushed up, they’re going to have to start calculating lifetime value because the guys who actually figure out the future purchases will be able to bid more, whereas the guys who are just judging first-time purchases will only be able to bid a certain amount to get a positive ROI,” he said.

Also, campaign cycles online are so fast that direct marketers who are testing now are amassing volumes of information quickly.

“If you ain’t doing it now, you better start,” Winebaum said, “because the companies that get it are getting pretty far ahead of the companies that don’t.”

Though he clearly has a vested interest, it sounds like solid advice.

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