Internet Advertising From CPMs to Results Professor Donna L Hoffman Co Director eLab Vanderbilt University United States Securities and Exchange Commission Portals Round by rdh18038


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									          Internet Advertising:
          From CPMs to Results
Professor Donna L. Hoffman
Co-Director, eLab
Vanderbilt University

United States Securities and Exchange Commission
Portals Roundtable: Relationships Between Broker-Dealers and Web Sites
May 23, 2001

Some Numbers
Types of Online Advertising
Web Advertising Pricing Models
Webwide Trends
Some Policy Considerations
                             Some Numbers
The Web is huge and growing rapidly

  10 million Websites globally by the end of this year (Alexa International)
  60% are publicly accessible (Online Computer Library Center, Inc.),
  Amounts to over 7 billion pages of publicly indexed information
  (NEC Research Institute)

  70% of those pages containing commercial content (eMarketer).
  Number of advertiser-supported Web sites anywhere between
  6,000 (Forrester) and 19,000 (Myers Group).
                            Some Numbers
Web Advertising Revenues

    Last year, Web ad spending topped $7 billion, representing
    nearly 3% of total ad spending in the US ($244 billion).

    Newspapers ($48.9 billion), broadcast TV ($45 billion) and
    direct mail ($42.5 billion) were the largest venues for

    But Web spending grew by 97%, while total advertising grew
    by 7% overall and papers grew by 5%, TV by 7% and direct
    mail by 3%.
Source: eMarketer, 2001.
                             Some Numbers
Web Advertising Revenues

    Triple-digit growth rates are over, but Web advertising is still
    strong and growing faster than traditional media. Should grow
    7% this year and around 40% on average annually through

    Media most likely affected in the long-run will be newspapers
    and direct mail, and also Yellow Pages, and local/regional

Source: eMarketer, 2001.
                  Some Numbers

A few key Web site categories grab most of the
Web ad spending (Internet Advertising Bureau Q2, 2000):

Search sites and portals         36%
Business/Finance                 15%
Classified                       12%
Technology                       11%
News/Info                        10%
                       Some Numbers

Biggest Web ad spenders: (Internet Advertising Bureau Q3, 2000
and eMarketer 2001):

 Consumer                           30%
 Computing                          18%
 Financial Services                 14%
 Media/New Media                    11%
 Business Services                  10%
              Types of Online Marketing Spending

    Banner Ads & Buttons (52%)
    Web Sponsorships (27%)
    Classifieds (7%)
    Referrals (4%)             Related Tools:
    Interstitials (3%)         Affiliate Programs & Networks
    eMail Marketing (2%)       Search Engine Optimization
    Rich media (2%)
    Keyword Search (1%)
(Internet Advertising Bureau, Q2 2000)
Top 5 Ad Banners Viewed in the US
         Week ending May 13, 2001
          Sponsored Content

Advertiser-supported links on a
publisher’s site take on many forms:

Direct link to sponsor’s site
Microsites & Co-Branded Pages
Featured Sponsorship
Editorial Sponsorship
Web Sponsorships
     Web Advertising Pricing Models
Flat Fee
original model (c. 1994/1995)

CPMs     (“cost per thousand” impressions)
Official average CPM per rate cards is $28.28 (9/2000).
Ranges from $1 to $100 or more.

Click-Throughs (CTR=Click-Through Rate)
Currently 0.3%
$2/click-through based on a $10CPM with a 0.5% CTR.
                        Webwide Trends
Significant unsold inventory in the online advertising industry.

CPMs are down dramatically (down from an average of $40 in 1997 to
below $30 this year).

Click through rates have plummeted (down from an average 2-3% to
0.24% in December 2000).

Online consumer lacks interest in banners (online “billboards”
represent a primitive form of new media advertising).
                  Webwide Trends

Meanwhile, industry trends favor more accountable forms of
online advertising.

Online managers are increasingly dissatisfied with banner
ads and flat fee portal deals:
    8Need a way to measure ROI!
                   Webwide Trends

Firms are increasingly looking for ways to integrate offline
with online.

Major advertisers increasingly compensating their agencies
based on results rather than fixed commissions (15% of

Direct marketers are now moving onto the Web and bringing
significant database and fulfillment experience online.
           Emerging Pricing Models
The Web belies John Wanamaker’s oft-quoted lament:
I know half the money I spend on advertising is wasted, but
   I can never find out which half.”

Enter Pay-for-Performance Pricing Models
(“Cost per Action”)
   Cost per click
   Cost per lead
   Cost per registration
   Cost per download
   Cost per purchase
   Cost per whatever
                          Webwide Trends

Pricing Models (Internet Advertising Bureau, Q3, 2000)
          Pure CPMs                            41%
          Hybrid Models                        48%
          Performance-Based                    11%

      By 2003, 83% of Web ad spending will be performance based
      or hybrid (Forrester).

      By 2002, 25% of online retail sales will be driven by affiliates
      Some Policy Considerations

Rights of consumer data ownership

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