Marketing Online: What's ahead on the Net

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Marketers' heady rush to the Internet seems like a distant memory even if the vacuum left in its wake lingers like a bad hangover. Budgets will be tauter than ever this year, but marketers will slowly wade back into the digital waters to try new forms of online media and marketing. They can't afford to ignore Net marketing as consumers' time spent online escalates and as more internal corporate functions migrate online.

The challenge for marketers is how to implement direct marketing and brand initiatives on the Internet and achieve measurable results. Industry analysts, for the most part, say all but the most sophisticated online marketers-automotive, financial services, technology and mass-merchandising companies-will deploy online strategies very cautiously in 2002.

fiscal conservatism

Fiscal conservatism among marketers will greatly affect online ad revenue growth. To be sure, analysts' numbers are all over the map. Forrester Research reported that $6 billion was spent on 2001 U.S. online advertising, excluding classified advertising, down from $7.4 billion in 2000. Forrester projects that 2002 will see $6.3 billion spent in online advertising. Jupiter Media Metrix forecast online media spending at $5.9 billion for 2002, with online's share equal to 4.3% of offline media spending (see charts, below).

GartnerG2, a unit of tech researcher Gartner Inc., is more optimistic, projecting that Internet advertising in the U.S. will spiral from $7.9 billion in 2001 to $18.8 billion in 2005.

But for a notable uptick to occur in online marketing, the overall advertising climate must improve, analysts said. "Unless more revenue starts floating into the interactive space, it's going to be a challenge to get some of these new pay services [such as subscription music services] off the ground," said T.S. Kelley, principal media analyst for Nielsen/NetRatings. He noted that all three major Internet portals-AOL Time Warner's America Online, Yahoo! and Microsoft Corp.'s MSN-are trying to launch premium music services, while he said other pay news and entertainment subscription services such as RealNetworks' RealPlayer GoldPass, online multiplayer games and newspaper services will struggle and compete for subscribers. The subscription services will help wean Internet marketers from their dependence on advertising, to be sure, but the question is: How much are consumers willing to pay for such monthly services?

Internet marketing and media analysts call 2002 a transition year-a year in which marketers try to devise compelling strategies for their brands' online presence, such as marrying branding and lead generation, data gathering and customer retention/loyalty, while also entertaining the online user. It's a tall order.

"Entertainment is a powerful value, not just on the practical side but the emotional side," said Matt Freeman, CEO-North America of Omnicom Group's Tribal DDB Worldwide. "Online marketing has been boring and cold. It's a huge frustration."

Apart from the attempt to make digital marketing more like entertainment, there's another conundrum: "What is a ad [in the Internet space]?" said Tamara Gaffney, senior product marketing manager at Nielsen/NetRatings. In her discussions with agencies and clients, Ms. Gaffney has found that marketers, analysts and agencies alike are at a crossroads: "[They're asking] `How do we define an ad? Is it a quiz? Is it a promotion? Is it getting listed higher on the search engine? Is it a sponsorship?"'

full slate

Philosophical debates aside, among the issues confronting marketers and agencies in the interactive space are: the need for measurement standards; a deepening ad recession; strategies for finessing concrete business results from digital marketing programs; and meaningful integration of online marketing with offline programs.

"Rich media [and streaming] measurement is a big challenge," said NetRatings' Mr. Kelley. Ultimately, he and other analysts believe more evangelizing and opinion-gathering is necessary to determine what types of reach and frequency tools are needed.

The deployment of high-speed broadband Internet service to the home is a key to growing digital marketing. The thinking is it will facilitate a more cinematic experience in which consumers will be able to interact more effectively with promotions, contests and other forms of online branding. High-resolution streaming audio/video, faster downloads and eye-popping visuals also benefit. "Broadband seems to be that magic elixir that will make all of these products and services flourish," Mr. Kelley said.

But broadband has so far failed to materialize en masse. Deployments have been hampered by the sluggish economy and business issues among tech and telco giants; broadband innovator Excite-@Home filed for bankruptcy reorganization in September and plans to shut down after Feb. 28.

"Based on the challenging environment, maybe it's not [a question of] a killer app [application] but a killer menu of choices that you can offer consumers," Mr. Kelley said. Subscription content, gaming and music services, along with sponsorships and contests vis-a-vis personal video recorders, are examples of a smorgasboard of choices that could be offered by marketers via broadband.

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