Report: Net Ad-Dollar Pie More Like a Cupcake

No one disputes that the online ad-dollar pie is small, but a new report concluded that it's probably more minuscule than even the most jaded old-school marketer would guess.

Burst Media, LLC, a company that sells Web advertising for 1,800 niche sites, released a report this month saying 1997 Internet ad spending was a paltry $336 million. That's compared to the nearly $1 billion that organizations like the Internet Advertising Bureau (IAB) and New York-based online research firm Jupiter Communications claim.

Why the disparity? Other studies failed to fully account for rate-card bargaining and bartering, said Jarvis Coffin, CEO of Burst Media, Burlington, MA.

“We're not trying to set the record straight,” Coffin said. “The purpose of our report is to help our clients manage their businesses, manage the expectations of their interested parties and give them a real sense of what they can expect when they sit down to do their annual budgets.”

Rich Lefurgy, IAB's CEO, disputed Burst Media's conclusion. In an interview with MSNBC, he said a 1997 Internet ad-spending study by IAB and Coopers & Lybrand was done to “debunk naysayers that it's just a trade or barter business. We had direct reporting from the companies themselves.”

That's exactly what makes IAB's figures suspect, said Brad Aronson, president of i-frontier, Philadelphia, an online ad agency that executes Internet campaigns for the likes of Book-of-the-Month Club, IDG Publishing's Computerworld magazine and card-club marketer Atlas Editions.

“If Internet companies are reporting it themselves, it's definitely not accurate,” Aronson said. “Who wants to say that there's all this barter going on? No one in their right mind is paying rate card. We pay 25 percent of rate card even on the top sites.”

How did Burst Media arrive at $336 million? “The [ad spending] market is concentrated at the top and the portals are all public companies, so we looked it up,” Coffin said.

According to Forrester Research, Cambridge, MA, the Internet's top nine sites like Yahoo, Netscape and Infoseek accounted for 59 percent of the ad dollars spent online last year.

“If [1997's online ad spending] was a billion dollars, there would be a lot more food on the table,” Coffin said. “Take a look around the Internet space and you can see the stress lines.”

All this amid reports that cost per thousand impression (CPM) rates are plummeting and click-through (banner response) rates are averaging a measly 1 percent.

“The big picture here is that [online] publishers are screwed,” said Evan Neufeld, online advertising analyst for Jupiter Communications. “As agencies try to extract value and advertisers try to extract value, publishers work harder for razor-thin margins — and at the end of the day, it's a tough business.”

Case in point: Coffin said his firm currently negotiates an equal number of cost-per-inquiry (CPI) deals as it does CPM deals.

For online publishers who can hang on, the picture gets a little brighter, but not much. Forrester predicts that by 2002 the portals will grab just 30 percent of a projected $8 billion in online ad dollars as media buyers venture beyond the top sites and as more Internet ad dollars come from direct marketers buying on a performance basis.

While contending that Burst Media's figure is “way low,” Neufeld put the debate in perspective by pointing out that even if Internet ad spending reaches $8 billion by 2002, “it's still a pittance.”

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