Internet Advertising: Separating Hype from Fact

Internet Advertising: Separating Hype from Fact
by Jeff Hilton

It's okay, admit it. Sometimes business moves so fast, it's hard to keep up.Case in point. That online media rep sitting in your office is throwing outterms and acronyms as if he or she were an intelligence officer at the Pentagon.Your palms begin to sweat. You have this overwhelming feeling of panic. You'recertain that your company must advertise online or it will be left behind. Yourbrand will wither and die. Your customers are online. If you're not advertisingthere, you may never be able to effectively compete. Relax.

The truth is the Internet has some great advertising opportunities. But thedifficulty in separating the hype from the reality has led many people to makepoor decisions and waste valuable limited resources. In the end, Internetadvertising is just another tool in the marketing toolbox, albeit a newer tool.And one we are still figuring out how to use. So you're not alone.

When determining your company's marketing mix, the Internet should certainlybe considered along with other marketing vehicles you may be more comfortablewith such as advertising, merchandising, sales promotion and public relations.But there is no reason Internet advertising should not be subjected to the sameharsh scrutiny you give other media alternatives. The early Internet promise ofdelivering highly qualified customers for a fraction of the traditional cost haslargely not materialized. However, here are a few significant facts and figuresthat still indicate the Internet is a valuable way to reach consumers:

*Nielsen/NetRatings reports that as of October 2000 there are 150 millionInternet users in the United States and household Internet penetration is now at41.5 percent (Jupiter Research predicts that number to reach 74 percent by2005). The average U.S. Internet user participates in six online sessions perweek and views 38 pages per session, spending just over three hours online eachweek.

*Total retail online purchases each week are estimated by BizRate.com to be$4.2 million. Of those, entertainment goods and services account for 31% ofonline buys, computers and electronics take 21% and consumer goods grab 8% ofall purchases.

*According to Media Metrix, the top three Web sites based on the number ofunique visitors are yahoo.com with 9.6 million, msn.com with 9.4 million andhotmail.com with 5.1 million.

Because it is still a relatively new advertising medium, evaluating Internetopportunities can be difficult. More than ever before, Marketing 101 skillsshould be used to determine if your company is really going to get the most outof online advertising. But, the jargon alone can discourage even the mostearnest marketing manager. With that in mind, here are a few basic terms, whatthey mean, and why they're important.

Banner ads are the primary Internet advertising vehicle. You seebanners near the top of destination Web sites like yahoo.com, cnn.com or searchengines like excite.com. These ads create links to an advertiser's Web site or aspecially designed micro-site that provides Internet users with the advertiser'sinformation or branding message.

CPM: Although this is an "old" media term, it is stillimportant in today's online environment. Basically, it measures the cost perthousand impressions. So, if you're advertising on a site in which your bannerad receives a total of 10,000 impressions (meaning 10,000 people see the pagewith your banner ad) and it cost you $1,000 for the ad, then the CPM, or costper thousand, is $100. According to Engage, an online research company, nearly6,200 Web sites have advertising space and the average CPM is $33.64. However,the average CPM for health related sites is $22--the lowest online costs. It isimportant to look at a Web site's CPM because it provides a baseline from whichto measure how many people are seeing your ad.

Click-through rates provide more detail than the CPM. Simply put,click-through rates count how many times someone clicks on your banner ad. Thesefigures become valuable for setting ad rates and determining the value of asite's advertising opportunities. According to Nielsen/NetRatings the averageclick-through rate for banner ads is .0031 percent. This rate has droppeddramatically over the years. It used to be as high as 12 percent when theInternet and banner ads were more of a novelty. But, a Salomon Smith Barneyreport calculates that the typical Internet user is now averaging 1.74 banner adclicks per week, up from just .74 clicks per week in 1997. The problem is thatthat same user is seeing 300 online ads per week instead of 75. This translatesinto a lower overall average click-through rate. However, the value of aclick-through rate speaks for itself--it provides you with the actual number ofpeople interested enough in your ad to take the simple action of clicking on itwith the mouse pointer. The major flaw of a click-through rate is that it doesnot account for the image and brand building component that exists when someonesees your ad but does not necessarily take a directly measurable action at thattime.

Cost-per-click has become a popular method of payment for advertisers.A cost-per-click advertising arrangement allows you to pay for a banner ad basedon the actual number of people clicking on the ad.

Conversions are defined actions that an Internet user takes whenseeing and clicking on your ad. These actions can vary from making an onlineproduct purchase, registering to receive more information via email, or evenrequesting a brochure in the mail. While it is helpful to measure CPMs andclick-through rates, conversions provide a more thorough picture. They tell youhow many people actually took an action you as a marketer can use to directlysell products or services. Those who are "converted" are then referredto as Quality Users.

Unique visitors are those entering a particular Web site for the firsttime. When evaluating an online advertising opportunity, the number of uniquevisitors a site receives provides you with an idea of how many new consumerswill see your ad and receive your branding messages on a regular basis.

These are just a few very basic terms that should help get you started withevaluating online advertising opportunities. The medium is changing on a dailybasis, and keeping abreast of those changes is sort of like catching a"greased pig," if you know what I mean. But with a little perseveranceand marketing savvy you can determine where and even if you should beadvertising online.

Jeff Hilton is president of the Integrated Marketing Group, based in SaltLake City. He can be contacted at [email protected].