The flow of data on the state of Internet Advertising continues to be encouraging. In recent weeks, enough positive information has come to the surface that it might finally be time to think less about the rising tide lifting all boats, and more about seeing the cream rise to the top.
Two of our final analysts, eMarketer Senior Analyst David Hallerman and Jupiter Research Senior Analyst Gary Stein have been out in the press lately with some interesting data about the macro online advertising story, but also some drilled-down, category-specific data.
In this edition of avant|marketer, we take a closer look at some of the thinking behind the numbers produced by Hallerman and Stein, having the analysts themselves read the tea leaves for us to see what smart marketers might do with their research conclusions. First, a dialogue with eMarketer's David Hallerman.
avant|marketer: We saw analysis of yours in USA Today last month and were intrigued at a comparison you made between the growth of Internet Advertising in the last two years and the growth of Cable TV from 1988-1990; during each period each medium grew at least 20% year over year. Is there anything to be learned by Internet marketers from the rise and eventual maturation of the Cable market?
David Hallerman (eMarketer): When Cable TV advertising took off in the early 1990s, early-adopters jumped into it because Cable offered them targeting not available from traditional broadcast television. By running ads on the first niche Cable channels, such as ESPN and MTV, marketers had greater certainty that viewers would fit coveted demographics than they had with ads splashed on Big Three network shows.
Today, marketers demand advertising that delivers greater accountability, which makes fine-tuned audience targeting even more imperative. The Internet offers niche sites that afford similar demographic targeting to Cable networks. Contextual targeting is another way Internet marketers can make like their Cable cousins.
Unlike Cable, however, the Internet offers a unique and dynamic way to target advertising to an interested audience based on the individual's behavior, such as sections visited on a content or e-commerce site, or products bought in the past.
As the American Advertising Federation reported in November of last year 84% of advertising professionals believe one benefit of online advertising is its more precise targeting of fragmented audiences. Therefore, one key takeaway for Internet marketers from the Cable experience: You can steal ad budget share from broadcast TV budgets with niche capabilities. [Taken] one step further, online advertising can go farther than Cable with the targeting only possible online.
avant|marketer: Many Cable channels started as free-standing, independent brands but were eventually snapped up by the big media brands. Is there any reason to believe that the Internet media brands might follow the same path? Disney bought ESPN, is there any reason to believe they will end up with Yahoo or Google?
David Hallerman (eMarketer): As healthy as the gross profits might be at Mouse Central - up 42% in fiscal year 2004 - Disney would love to be increasing its ad revenues at the same pace as Yahoo! -an astounding 150% gain in 2004- or Google, with its 121% growth rate. And to be sure, some established media firms will buy online divisions, just as the Washington Post Company thought it wise to buy Slate from Microsoft - even though the online magazine had never become a major profit center for Redmond.
However, note one key difference between ESPN in the early 1990s and Google and Yahoo! today: The deep pockets of those Internet companies mean they're just as likely to buy a traditional media outlet than be snapped up by one.
As of February 9 of this year, Yahoo!'s market cap was $47.4 billion, while Google's was $55.0 billion. Even if partially reduced, those valuations make them competitive with the Comcast's $43.0 billion market cap, News Corp.'s $31.9 billion, and Vivendi Universal's $33.8 billion of the world. Disney, with its $61.0 billion market cap, might be larger than Yahoo! or Google [could pull off]. It's far more likely that Disney and Yahoo!, say, would partner in buying other companies than snap up each other.
However, when you look at a Dow Jones & Co., for example, with its relatively tiny market cap of $3.2 billion and its strong online presence with the Wall Street Journal, it becomes plausible that Yahoo! or Google could buy an established media company to expand its reach.
Deals will be made-but to believe that only the established big media brands will be the buyers is to base the future on the past.
avant|marketer: Jupiter has recently announced your forecast numbers, including the projection that overall online ad spending will nearly double by 2009 from 2004 numbers. What industries are the drivers of this growth? Will CPG or Pharma jump in the deep end?
Gary Stein (Jupiter Research): A few industries have really emerged in the last few years as the big contributors to overall online ad spend. These industries seem to have found their niche: they market their products in the way that consumers shop for them. So, the big forces in this Perfect Storm of Online Advertising are: Automotive, Retail, Telecommunications, Travel and Financial Services.
Picture [these] industries this way: they've - nearly - perfected the engine, they are just looking for fuel. These are the industries that will look toward pay-for-performance deals, as well as targeting technologies, which will open up more, valuable inventory for them.
avant|marketer: As you just suggested, you’re research shows search to be a big driver of this growth, while at the same time acknowledging that the rate of growth is slowing. What is the driver of future growth? A higher cost-per-click? More users using search? More searches per user?
Gary Stein (Jupiter Research): Search had to slow down; the last few years represented such astounding growth because it went from not-really-zero, but zero-to-sixty in no time at all. It had a lot of room to grow. Now, we're seeing a much more reasonable growth rate, characterized by its steadiness, rather than its velocity. Since search is a supply/demand business, we'll see stakeholders looking to increase both of these factors. The engines and the agencies are going to increase demand by working to bring more companies online. Those same groups will then work to increase supply, both to open up more opportunities to make money from a click, as well as find pockets of opportunities in the sea of synonyms.
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