Net advertising ‘blip’ masks future growth

The first signs of a possible slowdown in Internet advertising on the world’s most popular Websites are emerging (MW De-cember 6). A survey by leading Net advertising consultancy Jupiter Communications revealed a halving of growth rates in the third quarter of the year.

But talk of the bubble bursting in the Web advertising market is certainly premature. Total ad spend reached an estimated $66m (41m) for the quarter, up over 40 per cent on the previous period. But this was a far cry from the near doubling of ad revenue by the leading Website publishers in both of the first two quarters of 1996.

So is the exponential growth in Web advertising levelling off?

Not according to Jupiter, despite the evidence of their own third quarter figures. Peter Storck, group manager for online advertising at Jupiter, describes the slowdown as a blip.

“The leading US-based Web publishers have very tight availability in the fourth quarter,” says Stork. “Many of them are sold out to the end of the year. And it is these top 25 sites which handle 85 per cent of revenue. Their rates are going up. They are selling out and are under no price pressure.”

Web advertising is likely to soar by up to 80 per cent in the fourth quarter, according to Storck. “As revenues get bigger, it will be hard to double every quarter,” he says. “But we predict total online advertising will reach over $300m (200m) this year, and that it will be $1bn (650m) next year, before growing to $5bn (3.4bn) by 2000.”

But where exactly is this growth coming from? A look at Jupiter’s figures show how narrow and fragile the buoyancy of Internet advertising is. Only four mainstream advertisers – the car makers Toyota, Ford and Saturn, plus Procter & Gamble – feature in Jupiter’s top 25-ranking Net advertisers. The list is still dominated by hi-tech brands and the promotional spends of the Internet’s own Web browser software companies and search engines.

“A lot of Net advertising in ’94, ’95 and ’96 has been very self referential,” says Danny Meadows-Klue, product manager at the Electronic Telegraph.

But he adds that 1996 has seen a wave of major UK companies outside the IT sector pumping substantial spends into developing their own corporate Websites. And they are now realising the best way to push traffic onto these sites is to advertise online on Britain’s busiest Websites.

“Next year will be the real breakthrough in Internet advertising by the big consumer brands,” he predicts. “At the ET, we have already seen advertisers coming through in the motor and travel sectors. And demand will increase as we and other publishers are able to target ads more effectively.”

It is a view echoed by Jupiter’s Storck: “Consumer brands will come on board significantly in 1997. Although we see a slight slowdown in the growth of hi-tech advertisers as the pie gets bigger,” he adds.

“That share has gone down from a 63 per cent in the first quarter to 54 per cent in the third quarter.”

But not all consumer brand categories are poised to switch ad spend online, concedes Storck, despite the appearance of P&G at number 20 on his list of top advertisers. “We see the car companies, financial services and travel-related firms coming on significantly in the first quarter of ’97. Many of these are big names in areas of big ticket spends, in other words complicated products requiring lots of information before purchase,” he says.

“The packaged goods sector will come a little later. P&G is the biggest advertiser in the US, and it is a trendsetter. But it will be a little while before P&G rivals really commit to the Net,” adds Storck.

The US dominates online advertising, and often sets the trend for Europe. But that does not mean that UK consumer brands will be drawn into Web advertising after their US counterparts, according to Ivan Pope, director of WebMedia.

“We foresee a dramatic increase in the number of other advertisers with Web publishers, as advertising staff become more professional,” says Storck.

But Kate Allen, new product development manager at Yell, the Yellow Pages’ UK-based Website, identifies a continuing reluctance on the part of many advertisers and blames Web publishers themselves.

“There are two barriers to business in the UK. One is that when Net advertising is compared with traditional media, it is expensive. The second is that many Website owners are not willing to provide sufficient breakdown of audiences,” she says.

According to Allen, the key to getting mainstream UK businesses to advertise on the Net is developing ratecards comparable with other media. But even if Web publishers manage to tap into growing demand for online advertising, few will survive on display ad revenue alone, she suggests.

“The real money will come though other forms of communication and transaction with customers,” she says. A clear acceptance that even if we are just seeing a blip in Net advertising, Website publishers regard it as one of a number of means to an end.