The Great Flameout
By Terry Lefton
Ted Sann remembers the first time he went on the Internet, back in 1996. He was helping his 12-year-old daughter do research for a school paper. Yes, the AOL interface was clumsy and slow, but it occurred to Sann that this online thing could be a powerful way to deliver advertising. And he knew a thing or two about pitching products. Sann was (and still is) co-CEO and chief creative officer of BBDO, one of the stalwarts of Madison Avenue. His agency creates more Super Bowl spots than anyone else; clients include FedEx, Pepsi and Visa. But for Sann, steeped as he was in television, here was something fresh and intriguing.
THE GENESIS OF THE ONLINE AD
In the beginning was the banner ad. And advertisers said it was good because it was online and that was hot. But lo, users grew bored with clicking, and response rates fell. Advertisers rent their garments and tore their hair and said, "Woe unto us, we need some new online ad formats." So the banner begot the interstitial, the superstitial, the skyscraper and the Flash-enabled large rectangle, and the advertisers hoped that they, too, would be good.
1994 The first banner ads, for Zima and AT&T, appear on Hotwired.com.
1997 Berkeley Systems introduces the first so-called interstitial ads on its online game show, You Don't Know Jack. The ads pop up for before the requested page downloads.
2000 CNET begins running large, Flash-enabled rectangular banners for Sun and Oracle embedded in stories.
2001 The Internet Advertising Bureau endorses a new set of ad formats, including the large rectangle and the skyscraper. "I said to myself, 'OK, this is a new medium we'll have to learn how to advertise on,'" Sann says. "The thing is, I still feel that way."
In the five years since Sann first logged on to the Internet, customers have flocked to the medium. Thousands of companies have been founded, and billions of dollars have been spent marketing them - much of that on the Web itself. Indeed, it's been the tide of advertising dollars - that powerful swell that over the years launched and supported newspapers, magazines, radio and most of all television - that's presumed to be one of the primary forces behind the growth and development of the Internet.
This was supposed to be the greatest advertising medium ever: uniquely interactive and capable of targeting consumers with devastating precision. And more than any other medium, this was the one that would realize the ultimate marketer's dream: It would serve up young people just as they were making buying decisions they'd stick with for life.
So why is Ted Sann, one of the big dogs on Madison Avenue, down on online advertising? The people in his business who can make it work just aren't paying attention. Call them the unbelievers. Some of them don't want to be named, as if admitting their lack of faith in new-economy tenets would seem blasphemous - or, worse yet, unsophisticated. But deep down, they acknowledge a crisis of confidence.
Boosters of Internet advertising give a host of reasons why the medium is experiencing fits and starts: There's a general ad recession. Thousands of dot-coms failed, taking with them their oversize ad budgets. The first Internet advertising vehicle, banner ads, floundered as click-through rates sank close to zero. These things take a long time, goes the mantra. Just wait for broadband. We're only in the first inning.
Maybe so, but much of corporate America hasn't even bought a ticket to the game. With the dot-coms in smithereens, deep-pocketed traditional advertisers were expected to step in and pick up the slack. Their 50-year-old love affair with television, the greatest advertising medium of all time, had to be fading. People are zapping ads with TiVo, interactive TV is invading more and more homes, viewership has been dwindling on television networks for 20 years. And kids are flocking to the Web.
But many advertisers aren't budging. In the third quarter of 2000, the last period for which information is available, Internet ad revenue sank 6.5 percent, or $138 million, to just under $2 billion. This trend undermines the hoariest conventional wisdom in the business: Advertising always follows eyeballs. If you build a medium that attracts people, the thinking goes, advertisers will come. That hasn't happened. About 12 percent of media consumption is on the Internet, yet it accounts for 3 percent or less of overall U.S. ad dollars.
The folks who might actually buy advertising online remain largely unconverted. Traditional advertisers, it turns out, never really bought into this new medium. They were sold the Web on the basis of fear, convinced that if they didn't jump on the bandwagon, they would go the way of all dinosaurs. They were told that not only was it the greatest thing since sliced bread, but it was sliced bread - and it would replace traditional advertising. These extravagant promises are not easily forgotten - or forgiven. "The pendulum swung too far one way," says Mark Lazarus, who sells TV and Internet advertising as president of Turner Sports, "and now it's swinging too far the other way." Clients tell Lazarus that the Web may well be the future - but they're worried about the present. "People are saying that by the time they really have to deal with it, they won't be in the business anymore," he adds.
Clients, in other words, are acting like Internet advertising is some far-off possibility. "I've been in a lot of meetings with high-level people at [client] companies that are still wrestling with the basics, like what can this do for me?" says Roy Spence, president of GSD&M, an Austin, Texas, ad agency whose clients include Wal-Mart and Southwest Airlines.
In some quarters, it's worse than that. "I'm convinced this is a dynamic new medium," says Rishad Tobaccowala, president of the new-media division of Starcom, one of the country's largest media-buying agencies. "But I'm still spending a lot of time convincing clients that this is not going the way of CB radio."
What's troubling these ad people? One answer is that some corporate marketing executives worry that the Web is all about "leaning forward" and not enough about "leaning back." In fact, they say, the Internet's interactivity is what makes it a crummy ad medium. "You're not sitting on a couch with a beer saying, 'Entertain me!' You are on a mission," says marketing consultant Scott Bedbury, who's held top marketing positions at two brand icons: Nike and Starbucks. "Banner ads and pop-ups get in the way."
But the biggest problem may be the Web's presumed incompatibility with branding, which has been advertising's holy grail for several decades now. The goal isn't so much to inspire consumers to make a trip to the store, but to create a warm and emotional aura around your name. Witness the success of MasterCard's "Priceless" campaign, which links a credit card - certainly not a cuddly product - with the idea that "the best things in life are free."
As the world waits for broadband and various forms of "rich media" that promise to make Internet ads akin to TV commercials, many of the marketers holding the purse strings on big campaigns remain unconvinced. "Today, the Net is fine for a discount offer," says BBDO's Sann. "But nobody has figured out a way to build brands."
On TV, brand-building ads can move viewers to tears. In glossy magazines, good ads can also strike an emotional chord. But on the Web, advertising comes off as merely annoying. "It screams 'ugly blinking thing here,'" admits Tom Worcester, VP of sales at Quokka Sports. This leaves many important advertisers on the sidelines. "You need to see, feel, touch and experience our product, and the Internet doesn't [let you] do that," says Tim Mahoney, GM of marketing for Porsche Cars North America. "I'm limited by bandwidth. For a lot of people, I'm not even going to be able to get across the sound a Porsche makes. And a lot of our owners tell us they drive with their radios off just to hear the sound of the engine."
Such experiences - and the passionate feelings they can arouse - aren't exactly the kinds of things banner ads deliver. In fact, banners are a dirty word in Internet advertising, and the industry has come up with a host of alternatives, from "skyscrapers" to "rectangles" - all variations on a theme. Indeed, the Internet Advertising Bureau last month announced with great fanfare new standards for larger "antibanners."
The skepticism about online advertising comes as corporate ad budgets dwindle because of the faltering economy. That double whammy has pushed many marketers to rely on their own sites rather than pay others for eyeballs. "We know now that we have to have a Web presence for marketing," says Steve Goldstein, VP of event marketing at UDV, which markets brands like Jose Cuervo and Smirnoff. "But it's going to be via our own site, not someone else's."
The evidence of companies depending on their own sites is easy to find. Parmalat, one of the world's biggest dairy marketers, has a small deal with AOL, but for the recent marketing push behind its UHT milk - so shelf-stable it doesn't have to be refrigerated - it depended solely on buys in TV, radio and print. "Its just too complex a sale to be done with a banner ad," says marketing VP Matt Petronio. "Our own site will do most of the heavy lifting."
Automobile companies, the biggest ad spenders out there, ought to love Web advertising. After all, customers might not use the Internet to decide to buy soap or potato chips, but making a big, discretionary purchase like a car is perfect for the Web. You can research every option, compare every feature. And, in fact, a high percentage of car buyers start by looking on the Web. But while the auto industry spent $10.5 billion on advertising last year, it spent less than $100 million, or 1 percent, on the Web, according to research firm CMR. Most car manufacturers are content to let their Web sites do their Internet marketing.
Where do companies get this idea? Often from their own ad agencies. When one senior marketer at a giant fast-food company recently wanted to determine if Internet advertising made sense for his wares, he asked his agency to put him in touch with a handful of interactive shops. Not one of them proposed that he buy any Internet advertising. Instead, they all pitched him a customized Web site that would cost in excess of $1 million to build. "I'm selling a $1.99 product and they're telling me that $1 million is the cost of entry to this medium?" asks the exec.
The truth is that, like their clients, agencies themselves often are uncomfortable with the Web. According to Scott Schiller, senior VP of strategic partnership marketing at Walt Disney Internet Group and a founder of the Internet Advertising Bureau, the top creative minds in advertising find the Internet confining. "They'd rather be shooting a TV commercial in Monte Carlo," he says. Innovation is difficult when the prevailing mindset is still inexorably wrapped around selling soap on a sitcom. "Our biggest problem is that ad agencies are still in love with 30-second TV ads, because they know how to make money that way," says Brian Quinn, VP of ad sales at Real Media, N.Y., which sells and serves Internet ads.
One of the great ironies of advertising on the Internet is that the very thing that was supposed to make it so great - accountability - has turned into a liability. The old aphorism is, "Half my advertising is wasted - I just don't know which half." The Web was supposed to be a place where advertisers knew exactly how their customers were responding.
Except that they're not responding. Click-through rates are minuscule (0.5 percent), and they are one of the few yardsticks out there. "I was expecting more-targeted, more-tangible and more-specific results," says Pizza Hut Chief Marketing Officer Randy Gier. "So far I've been disappointed. If you know anyone who can turn all those Internet eyeballs into orders, let me know, because I haven't seen it yet."
The problem, it seems, is a failure to communicate. "We aren't doing a good job of selling ourselves," says Richy Glassberg, chairman and co-founder of Phase2Media, a New York-based Internet ad sales agency, and vice-chairman of IAB. "We're way ahead of where cable was at this point in terms of reach and use, but we are 10 years behind where cable was at this point in terms of agencies and clients understanding its value."
Believers point to a few online ad campaigns that have paid off. Last fall Volvo launched its new sedan, the S60, exclusively on the Web, chiefly on America Online. The Swedish automaker splashed banners throughout the site and offered AOL subscribers $2,100 worth of free options. Compared to a full-scale publicity blitz, the campaign was cheap. (Ron Berger, CEO of Messner Vetere Berger McNamee Schmetterer/Euro RSCG, which orchestrated the effort, won't disclose exactly how much it cost.) It was also effective. About half a million consumers received CD-ROMs touting the new car. Still, even that campaign was shaped by chance. "If we would have had a traditionally sized ad budget for that launch, we probably wouldn't have done that," Berger says. "But we ended up turning a weakness into a strength."
Other advertisers have broken new ground by playing to the Web's interactive strengths. Lee Jeans, for example, rolled out an online game that required consumers to visit retailers to get game codes.
But before these successes can continue, Internet ad-sales people have to start getting in the door again, squeezing past the unbelievers. One obstacle is that agencies tend to be balkanized: Media spending is in one department; Internet marketing is in a whole different office - or even agency. Internet advertising, the industry is now learning, is more easily sold as one element in a campaign. Starcom's Tobaccowala says a client's marketing campaign is like a pizza - and the Internet ad industry is the Tabasco. "The online ad salesmen kept screaming, 'Look how red our Tabasco looks and how hot it is!'" he says. "They should have been saying, 'Look at how much better we can make your pizza taste.'" Web advertising still holds promise. But for now, it's mainstream marketing as usual - without the hot sauce.