Net advertising isn’t dead, it’s just faded away

Online advertising has been hit hard by the recession in advertising. This is an unsurprising, and entirely temporary phenomenon, believes Nick Rosen.

Advertisers are now paying 30 per cent less than they did last year for online advertising space. And I doubt if those figures portray the true misery that is being felt in the sector.

It’s easy to knock the online advertising market, much as pundits are knocking the online economy in general. It’s true that online media owners have done the sector no favours. An over-reliance on ad revenues, coupled with unreasonable expectations of rates, led to a huge oversupply of space. This, along with a lack of information about who is actually viewing a particular ad or pop-up, means that ad rates have plummeted in the recent advertising climate.

Click around to many popular sites these days, and you’ll find them filled with either “house ads” or buyers of “remnant space,” such as Internet casinos. Remnant space doesn’t draw the &£10 to &£20 cost-per-1,000-views rates Internet publishers were used to during the boom. Now it is more like 50p to &£1 per 100 impressions. Paradoxically, this is good news for the industry as it will force it to take a fresh hard look at the way to buy and sell ad space, as well as the sort of content that works online.

The decline should be viewed in the context of the general economic climate. Industry expectations are that the cost per 1,000 adults for the ITV network will decline by eight per cent this year. Similarly, the recent profit warning from Capital Radio was partly blamed on the advertising recession (MW last week). Online advertising may have been the worst affected but then it is also the least-understood, least-developed and least-established medium. It’s only natural that it should face the most severe backlash as buyers stick to the media they understand best.

The Internet Advertising Bureau (IAB) released figures in April showing that revenues for the medium grew until the end of 2000, with IAB members taking &£154m in 2000, up from &£51m in 1999 and &£19.4m in 1998. It accounted for one per cent of advertising in the UK and looked set to grow further. Since then there has been a decline, but I am sure it is only temporary.

In the future the cost-per-1000-views model will be eradicated in favour of click-throughs, enquiries or sales.

Internet advertising is unjustly maligned and will bounce back. The decline in rates witnessed this year is in the context of an advertising recession affecting all media, the least-established media being hardest hit. A starting point for the development of the medium might be the establishment of a recognised supplier of verifiable audience information in the UK. Only then will new media owners be able to compete on the same playing field as other media.

Nick Rosen is chairman of the Online Research Agency

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