October 12th, 2007
Ad dollars flood Web, but will they go far enough?
By Paul Thomasch
Companies will spend a record $31 billion this year to advertise everything from toothpaste to home loans on the Internet, supporting countless news sites, social networks, video exchanges and blogs.
But some media veterans worry that expectations for online advertising may be getting out-sized.
Increasingly, they say, too much media depends on advertising as the only source of revenue. With new players from software makers to cable operators also trying to cash in, the dollars simply may not stretch far enough.
“I’m getting to the point where I feel like every answer to every business development pitch is ‘We’re going to be advertiser supported’,” said Beth Comstock, president of Integrated Media at NBC Universal, which this year set up a fund to invest in media and digital companies.
“It’s just not going to be possible,” she said at a recent advertising conference. “There are not going to be enough advertising dollars in the marketplace. No matter how clever we are, no matter what the format is.”
NBC Universal’s television networks, cable channels and Web sites compete for advertising dollars with everything from niche blogs to big media peers like Time Warner Inc and Walt Disney Co. In addition fast-growing Internet companies like Google Inc are snatching up advertising budgets.
But new rivals are entering the market. Comcast Corp., the largest U.S. cable operator, expects at least $1 billion in online advertising in the next five to six years.
Verizon Communications and AT&T are looking at advertising opportunities on their video and wireless services, while startups like social network Facebook are seen as a new frontier for Web marketing.
Even Microsoft Corp has made a bold move into advertising with its purchase of Web marketing firm aQuantive.
THE MONEY FLOW
Until recently, the focus was squarely on how much money is moving into online advertising, rather than whether too many companies are making a grab for it.
There is little doubt today that a hefty portion of advertising dollars will shift to the Internet from TV, radio, print and elsewhere in the coming years. ZenithOptimedia forecasts that online ads worldwide will rise 28 percent in 2007, while the rest of the market grows at 3.7 percent.
Next year, ZenithOptimedia forecasts it to rise by 21 percent, and climb another 13 percent to $43 billion in 2009.
At that point, Web advertising would represent almost 10 percent of the $495 billion spent on advertising worldwide—yet would trail spending on newspapers, magazines, and TV.
“There are billion of dollars that can still move,” said Craig Lambert, Chief Digital Director of Colangelo, an integrated marketing agency based in Darien, Connecticut.
“Is there enough money flowing to support the businesses out there? I’d guess there is, just because there’s so much money that has always been spent on TV and print,” he added.
BIG SITES GET BIG DOLLARS
Others also take the position that there should be sufficient advertising money to spread around.
Jeff Brooks, Chief Executive of digital and direct marketing agency Euro RSCG 4D, sees a “huge gap” between the amount of time people spend on digital media and the amount of advertising money it attracts.
“The thrust of ad spending online, while dramatic in its growth quarter over quarter, still represents a disproportionately small percentage of total advertising dollars,” he said.
The catch, according to some, is that much of the money flowing toward the Internet is concentrated on a few dozen of the most popular sites. That has left smaller, less well-known sites at a severe disadvantage when it comes to attracting advertising money and surviving.
In the United States, the top 50 Web sites accounted for more than 90 percent of the revenue from online ads in the first half of 2007, according to the Interactive Advertising Bureau and PricewaterhouseCoopers. The top 10 sites accounted for 70 percent of the revenue.
All the while, the number of Web sites continues to grow, creating more competition for audiences—and advertisers—who can also choose among video games, movies, TV, portable music and every other type of media entertainment.
“It’s not like the old days, when it was ‘if you build it, they will come,’” said Jonathan Sackett, Chief Digital Officer at Arnold Worldwide, a Boston-based advertising agency. “Now if you build it, they probably won’t.”
One alternative for Web sites would be to bank on subscriptions rather than advertising revenue, but few existing outlets have been successful with that model.
The reason is that unless the site offers extraordinary content, people simply refuse to pay for it, said Mark Miller, president of RMG Connect, an advertising and marketing agency.
“If Warren Buffett wanted to put out his own subscription newsletter online, well, I’m sure he’d get a bucketful of people to subscribe to it,” Miller said.