Companies Say It's Worth It to Advertise on the Web

Click on that link and the Durham software company pays Google $6.50.

The advertising fees quickly add up. Bronto spends up to $1,200 daily on Google ads -- a lot for a company that expects to generate $1.5 million in revenue this year. But Bronto executives say it's a worthwhile investment.

Advertising has been the unfulfilled potential of the Internet. Early on, the Web was the mass medium that couldn't figure out how to turn a profit.

That's changing. Giant advertisers such as Ford, as well as smaller businesses like Bronto, are fueling a surge benefitting Internet companies such as Google and Yahoo.

Even traditional media, which saw advertising revenue droop after some larger advertisers turned to the Web, are benefiting from online advertising. Online ads are the fastest-growing segment of advertising for newspaper companies, according to the Newspaper Association of America.

Several factors are leading more advertisers to the Web:

--More eyes. "We are starting to see people who say they spend more time on the Web than with any other media," said Sri Kalyanaraman, a professor at UNC-Chapel Hill's School of Journalism and Mass Communications. Consumers with online access spend 34 percent of their total media time on the Web, according to Forrester Research.

--Better ads. Advertisers and ad agencies are becoming more adept at exploiting the medium. "Finally, there are enough proven examples of Internet marketing success stories," said analyst Shar VonBoskirk of Forrester Research.

--Accountability. Advertisers like to know what they're getting for their money, and the Internet lets them know. Many ads, like Google's search ads, don't cost a dime until someone clicks them. And the Web enables companies to track how much time someone spends with an ad and how many viewers make a purchase.

By using Google's tracking system and its own software, Bronto knows that 5 percent of Google searchers who click on a Bronto link seek more information about the company. And 5 percent of those folks become customers.

"It's all measurable," said Joe Colopy, Bronto's co-founder and president.

--Greater flexibility. More than half of the households with Internet connections now have broadband, according to eMarketer, a market research firm. That has attracted deep-pocket advertisers who are interested in providing "more compelling content to users," said Peter Petrusky, director of advisory services at PricewaterhouseCoopers.

Last year, Internet advertising revenue rose nearly 33 percent to $9.6 billion, according to data collected by PricewaterhouseCoopers for the Interactive Advertising Bureau, Revenue in the first quarter of this year rose 26 percent compared with the same period a year prior, for the ninth consecutive quarter of growth.

While growing quickly, online ads are still a small portion of the market. The Interactive Advertising Bureau estimates online ad spending represents 3.7 percent of total advertising expenditures.

That is true at newspaper companies, too. For the second quarter, online newspaper ad revenue jumped 28.6 percent, over the same period in the year prior. The increase is 10 times the growth rate of print ads, according to the Newspaper Association of America. But online ads were still only 4.1 percent of total ad revenue.

The McClatchy Co., the California-based owner of The News & Observer, posted a 37 percent increase in online ads for the second quarter, primarily due to growth in online classified ads. Online ads had 5.6 percent of the chain's total ad revenue.

Internet advertising also boomed during the dot-com craze. But when many of those advertisers went out of business, ad revenue plummeted. This time around, household names are leading the charge online.

For instance, Ford is expanding its Internet advertising and announced last fall it would generate "more than 1 billion consumer impressions" on the Web in a single quarter.

"We have a lot more tools available to reach potential customers," said a statement by Marty Collins, general marketing manager of the Ford division.

At the Triangle's largest ad firm, McKinney (which has shortened its name from McKinney & Silver), CEO Brad Brinegar is a big believer in Internet ads. So are his clients.

"I have to sell traditional advertising more than I have to sell online advertising, in some cases," Brinegar said. McKinney attracted national media attention this year for creating an "alternate reality game," centered around the Internet, for the introduction of the new Audi A3 luxury car.

The growth in online ad revenue cuts across categories, according to the data from PricewaterhouseCoopers and the Interactive Advertising Bureau.

But the fastest area of growth, as well as the No. 1 category, is search ads. They accounted for 40 percent of online ads and generated 51 percent more revenue in 2004 than they did a year earlier.

Search ads include the key word search ads used by Bronto, but the category extends beyond them. Other types include "contextual search" ads, such as those offered by Google, that place a company's ads on different Web sites featuring material relevant to the product or service the advertiser is selling. Google shares the ad revenue with the Web sites.

The explosion in search ads is reflected in the financials of the leading search companies.

Google, which generates all but 1 percent of its revenue from search ads and is the No. 1 search site, nearly doubled its revenue for the second quarter. Yahoo's second-quarter profit rose more than sixfold, thanks to a 51 percent jump in sales. Search ads are Yahoo's largest revenue source.

One reason search ads are so popular is that the Web is increasingly used to research purchases. Such ads can reach people while they're in a buying mood.

Also attractive to advertisers is that they can set their own price. Multiple companies can choose to run ads tied to the same key words. The more they pay, the higher they appear among the sponsored links.

"Each advertiser pays what it's worth to them," said Greg Stuart, CEO of the Interactive Advertising Bureau. Bronto, for example, has bids in on 800 key words and phrases -- from a high of $6.50 per click to as low as $1.75 for "law firm marketing products."

Search ads may be hot, but they aren't sexy. They're text only, and not much text at that.

But, elsewhere, advertisers are flexing their creative muscles.

"Ad agencies have finally learned how to use this medium," said Natalie Perkins, a Raleigh-based ad consultant.

She cites as a prime example Burger King's "subservient chicken" at www.subservientchicken.com. It's a simple idea -- a video of a guy in a chicken suit (with garters, no less) who will follow typewritten commands. Type "moonwalk" and the chicken does just that.

It reinforces the idea that, at Burger King, you "get chicken just the way you like it." It's an idea that could be executed only on the Internet. And the Web site has attracted 17 million visitors -- plus boatloads of positive buzz -- for half the cost of what it would have taken to produce and buy time for a 30-second TV commercial, according to company spokeswoman Adrienne Hayes.

"The Web has become a very powerful creative medium [and a] very popular consumer medium," said McKinney's Brinegar. "Where the two meet, opportunity explodes."

Display ads

Typically banner ads that stretch across the page or tall skyscraper ads that run down the side. They made $1.8 billion and were 19 percent of all Internet ad revenue in 2004.

SEARCH ADS: Type in a key word on Google or Yahoo, and up pop links from sponsors. Click on one of those and the sites make money. Such ads brought in $3.85 billion in 2004, representing 40 percent of all Internet ad revenue.

CLASSIFIED ADS: Job and real estate listings, typically text-heavy. Saw $1.7 billion in sales in 2004, or 18 percent of all Internet ad revenue.

RICH-MEDIA ADS: Ads that offer enhancements beyond text and static photos; includes ads that use streaming video or streaming audio that can be seen and heard without downloading. McKinney's interactive reality game for Audi fits this category. Such ads brought in $963 million in 2004 or 10 percent of all Internet ad revenue.

Sources: Interactive Advertising Bureau and PricewaterhouseCoopers

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