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Online ads win over the brand leaders

By February 1, 2005No Comments

Online advertising has come of age with major brands like American Express and Nike now firmly embracing the internet as an equal to more traditional promotional outlets.

Yahoo has said a boom in online advertising helped it to more than double fourth-quarter profits to $187m (£143.2m) in the last three months of 2004.

Newspaper groups, meanwhile, seeing a loss of revenue from print advertisements, are expanding their own internet operations as they bid to keep up with demand from marketers in a sector which is growing.

“We saw a complete change of philosophy last year,” says Jeff Lanctot, vice president of media at AvenueA/Razorfish, the largest independent online ad agency in the US.

Faced with a multi-channel media landscape and corporate belt tightening, marketing departments began to see online advertising as a cost-effective medium. With its mass reach, it can now rival other entertainment outlets for audience size, says Mr Lanctot.

“Brand advertisers once considered online an emerging technology they should test but in 2004 they considered it an essential part of their campaigns.”

Total online spend grew by about 27% last year but still only accounted for 3-4% of US and European company marketing budgets, according to JupiterResearch.

By 2009, JupiterResearch forecasts revenues will have more than doubled to about $16.1bn (£8.5bn) in the US and 4.7bn euros (£3.2bn) in Europe.

Although growth will slow and overall revenues will remain far below TV and newspapers, online advertising is the only area expected to significantly increase its market share over the next five years.

Financial and travel companies were among the first to start selling products and services on the internet and now spend up to 20% of their advertising budgets online.

Sponsored searches – where firms pay to have links to their websites displayed in response to internet searches – and the bright spot in the years after the crash for the likes of Google – continues to grow.

And sales of online display or banner advertisements – the largest earner in the sector – generated their first increase in revenue last year since 2000.

It was the major brands advertising on specialist sport sites and the portals like Yahoo, MSN and AOL – where the cost of space can cost $400,000 for a 24-hour placing in the US – that is behind the recent boost.

A survey carried out for the European Interactive Advertising Association, a trade organisation for sellers of interactive media, found 83% of online users felt that TV has too much advertising but less than half felt the same about the internet.

A third of those surveyed said that online advertising was relevant to them.

“There was a confidence as the industry re-established itself on a much more stable footing after the crash,” says Julian Smith, European online advertising analyst at JupiterResearch.

But Mr Smith envisages challenges ahead as faster internet connections see advertisers vying to create even more creative campaigns.

“As more [advertisers] come online in 2005 and competition intensifies to attract the attention of ever more experienced and wary online consumers, so the costs of online marketing will increase.”

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