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Advertisers aren't very interested in the web these days, and yet the Internet is playing an increasing role in the lives of millions. With the imbalance between online usage and online ad spending in mind, it seemed time to discuss the future of online with some digital media executives. Ad Age Interactive Editor Catharine P. Taylor sat with Sarah Chubb of CondeNet, Riley McDonough of ESPN.com and Chris Schroeder of Washington Post.Newsweek Interactive-all officers of the Online Publishers Association-and Joe Barone of FCB Worldwide, Carla Hendra of OgilvyOne and of Larry Everling Nextel Communications. Below is an edited transcript.

Most of the shakeout is behind us, so it's probably time to start looking forward. What's working now on the Internet, and where does it go from here?

Joe Barone: We're doing a lot of business-to-business, enterprise-targeted advertising. Clients respond better to advertising programs that are presented to them from respected online brands, as opposed to the dot-com world.

And the other thing, in terms of enterprise activity that we're doing, is focusing a lot on doing things other media can't do. The biggest there is reaching our target audience at work. By offering them something that really can't be delivered in another part of the media mix, you find a niche, and it might be a niche that's never going to be 30%, or 50% or 75% of the total budget. But it's a valuable element that nobody else can deliver.

Chris Schroeder: Branding is absolutely a no-brainer for the reasons that you just described right now. There is no medium that has the kind of growth that this medium has, at the speed it does, reaching an audience at a time of day that no other medium reaches them.

The second thing is the targeting ability. You can do things in the medium. The most fundamental question we have to ask ourselves is, "What does this medium allow you to do, that you can't do before?"

AA: What else is important in terms of industry-wide initiatives? Is there much going on in terms of, for instance, developing better measurement standards?

Riley McDonough: For us, it's becoming almost a requirement that with every media buy, we build research into that process. Last year there were 60 or so companies in the Fortune 100 who were spending online. This year, it's somewhere in the neighborhood of 85 to 90 companies, and those companies who are spending online are actually making bigger commitments. We are definitely making significant progress. But we will have that issue of standards in establishing the terminology, the dialogue.

Mr. Barone: Part of the problem with this medium is that it's too measurable. How many times has somebody said to you, "Well, yeah this is a brand effort, but our click rate is only .05." Well, if it's a brand effort--well, the only number you put in front of them is the click rates, so people want to make decisions based on it. But it's not really relevant.

Mr. Schroeder: Some of the best Internet advertising effectively becomes direct marketing. But there are some very effective measures right now that other [media] use, and quite frankly I would just like to have our say in them. I would just like to have our opportunity to be measured similarly. We're certainly finding locally that we're very comparable [on a research basis] with a lot of radio and a lot of television.

Carla Hendra: For me, in the future the definitions of advertising, interactive and direct will just go out the window. They don't make any sense anymore. And I always ask people in our agency where we have, for instance, creative people who do all those things: What's interactive TV? Is that interactive or is that TV? What's e-mail? Is that direct mail, or is it interactive marketing? Well, it doesn't matter. Because it's going to be all new stuff.

AA: That potentially creates a real problem for the publishers here. What kind of balance are you trying to provide to your readership so ads don't become too intrusive?

Mr. McDonough: We only take a very small portion of our total inventory and convert it over to rich media applications.

Sarah Chubb: We sort of tiptoed into it. We were one of the later ones to get into interstitials, for example, and we've had really good results with clients, being happy with the kind of interaction they got with those ads. But we're still really careful. If [the ad] doesn't have to do with food and cooking, it has to be really well done. Because our audience feels like this is their time to get information about food and cooking.

Larry Everling: There are certain sites that we've run on where we have done our media research and did all our programming, and have found that the content is actually too strong, and too compelling, and too tough to pull people away from.

And we found that our message, in certain aspects, actually plays better in sites where people are looking for a bit more of a diversion. Hence, we do a lot of sports.

AA: Are you seeing any indication from advertisers that they feel they will lose connection with their consumers if they don't market on the Internet?

Ms. Hendra: It depends on the category. Certainly when we're doing something for IBM, for the software group, where there are 15,000 people all together who we really want to get the brand image across [to]. To capture their interest, we will use Internet advertising heavily, or interactive advertising as opposed to other kinds of advertising.

Mr. Everling: But when clients look at the cost of being able to do business, if you do it correctly online, that's what's going to spur them, "Ah, my cost per sale is X. My cost per lead is Y, and it's much less than my other channels."

Again, it's tough not to come back to the direct-marketing model, even if it's a branding message. It's very tough not to put those metrics underneath the hood, which would then generate more big spending across the board. Especially in the media climate that exists now.

AA: What are your opinions of cross-platform deals?

Mr. Barone: From an advertising perspective, as a buyer, I can understand why you would want to do that. But from a marketing perspective, it's not something that interactive professionals should be in favor of. It goes back to the first couple of years when everybody wanted it free. If we're buying CNN/SI as part of a Sports Illustrated deal, why should I pay for it?

So again, I don't think that's something that we should be lauding as an opportunity. It's something that we need to be careful of, as a potential risk, in terms of growing spending in this medium. You're better off positioning the medium as a strong secondary medium like print. Because a lot of the value of interactive is traditionally the value that print has served in the medium mix.

Mr. Schroeder: Larry? How do you react to the up-sell? If a print person comes in, or the TV person comes in and effectively just says, "And, by the way, there's the Internet." Is that to your advantage because it's cheaper for you?

Mr. Everling: It's the Internet guy who's trying to sell you, so he can sell a combined deal. There's not a lot of TV reps going around saying, "We'll also throw in the Internet." They're not even talking about it. They don't care.

Ms. Hendra: We've had to, because of client interest, really pursue that aggressively--the cross media deals.

AA: Which do you prefer to do, cross-media deals or Internet-only deals?

Mr. Barone: Selling the franchise is what's important. Because getting back to what we started from, clients are more comfortable with media recommendations from many companies they've heard of before. So, if you call and say, "I've got a great $3 million online idea," they might get a little nervous. But if I have a great $3 million online idea that I want to execute with Disney, or with ESPN, or with AOL Time Warner, then there's a little credibility built in to start the conversation.

Getting back to, "What are you using the Web advertising for? Is it a channel to drive to your Web site, or is it purely promotional?": The more purely promotional it is, probably the more valuable it is to link it with other elements of the franchise.

But one thing we definitely have learned is nothing drives Web traffic like television. So if you want to drive people to your Web site, putting it on TV is going to drive more people there anyway. But selling the franchise--and if that means coming to the table with multi-media opportunities, which obviously it does--makes sense. Especially with the more reluctant categories.

AA: Well then, if I'm Coca-Cola, and I'm trying to do a big deal with AOL Time Warner, what role do you give the Internet in that deal?

Mr. Everling: We actually dipped our toe into AOL Time Warner, with Nextel as a sponsor of the movie "Driven," and I'll wait for you all to snicker at that. But it actually proved to be a very, very solid Internet promotion, with the Web site, as well as integrating into HBO, as well as putting it on AOL's Instant Messenger. It was a bit of a chore, kind of wrestling all the different bodies of AOL Time Warner into it. But it worked out tremendously well.

We had pushed it to a contest, to go to a driving school. And then it helped tie into our regional reps who were in the region, who were going to be there with the people. We have the drivers that we have for car racing there. So, it was much more--I'd say, a holistic branding experience--than it was driving people to sales, driving people to a Nextel store. So, it was a nice branding experience. It was obviously part of the bigger picture of our product placement in the movie.

Mr. Barone: It's interesting, Larry. Because when you talk about relevance, you're able, in a program like that, to extend the brand associations.

Mr. Everling: And, we've taken it a step further with a couple of deals. In fact, some stuff that we've done with ESPN and CBS and NHL where we're tying in more closely to sales. We have packages, much like all our competitors. Now we're kind of branding packages with our strong media partners. So there will be an ESPN package, there is an NHL package where it's similar to buying an airline [frequent flyer] program.

AA: How do you educate advertisers about the value of the Internet? The audience numbers are way ahead of the ad dollars.

Ms. Hendra: It's quite a big challenge just to get the motivating forces going inside of the client marketing organizations, who have operated for many, many years off of a marketing communications set of models. And what's their incentive to change? And to change quicker?

We have to speed that up because the proportion that is still spent on advertising is probably directly proportional to the number of people who are advertising-trained, who are evaluated on the advertising that they do. Not really on their ability for the future. It's sort of the innovator's dilemma.

A few years ago, you weren't a successful CEO unless you're standing and talking about that multi-year, multi-zillion dollar Internet deal. Well, that's not happening anymore, and in fact you can get fired for doing that now. So we've got quite a public relations problem here.

Mr. Schroeder: But here's the key thing. The hype is over and there are over 80 million people going to the Internet every day in this country alone. Pick your number; it is a staggering figure. So, you've got the fundamentals in your favor. The goal for us, as publishers and folks on the side, is that success breeds success.

AA: Carla, if you had to put a percentage on the number of clients that you think are structuring their interactive marketing staff correctly, what would it be?

Ms. Hendra: Structuring it correctly goes beyond having a senior leadership. Because a number of clients have gotten there. [But] as long as we have advertising and interactive and direct in different buckets--which has often helped the silos exist inside of a company--you're not going to get to the right structure. Because you're not going to understand, ever, what's really working and what's not across the media.

AA: How are agencies doing overall at integrating? Are they still led by people who really want to get big spots on the Super Bowl and don't care about interactive?

Ms. Hendra: Even in just the competitive set of OgilvyOne, I see companies that used to only do direct marketing that clearly have now expanded well into interactive marketing, and they have put it together as one set of capabilities. We certainly see more and more of the big agency networks coming to market and to the clients with the story that "We can give you the integrated solution." Because that's what clients want.

AA: Do you think it's necessary for people who are really involved in the industry to do a PR campaign, an ad campaign to address the credibility issue?

Ms. Hendra: Yeah. You could certainly make a case for doing something like that, where you would reach the CEO-level audience. But it seems like the messages have to be first, establishing credibility again.

Mr. Barone: I've got Jupiter charts showing 500% increase by the year 2005. No more of those. No more!

Ms. Hendra: Yeah. I think it's straight talk.

Mr. Barone: Exactly. But you have to be very careful with messaging. Because there's been so much over-promise, and people are expecting not to believe anything that we say at this point. And certainly it's important to win the approval of the senior decision-makers. But it's very important to get junior marketing communications people, junior advertising people, junior product people. Because when things show up on recommendations more, they get approved more, you know?

Ms. Hendra: Those guys, because they are junior and therefore younger, they're there already. [But] they're too junior to have a very big impact at this time.

It's the people up the ladder from there. So I think there should be a trade kind of approach, too. But probably to the more senior people; this is something that they have to learn and they have to figure out. And they already figured out a bunch of stuff, so, they're not so sure that this one needs to be done right now.

Mr. Schroeder: In my view there is no "Other white meat" ad campaign here. Because it's business. You speak with your bat. You literally speak not in hyperbole. We have organizations that talk about it on substance levels like the Online Publishers Association that we just formed; they can do things.

Mr. Barone: PR is better than advertising at this point. Patience is going to be an important element. You know? 2002 can be one of the worst years in the history of advertising.

Ms. Hendra: I thought this year was going to be.

Mr. Barone: Most CEOs don't pay attention to whether the agency's recommending Time versus Newsweek. Or, Glamour versus Cosmo. It's not what they do; they have people who do that. And, also this constant desire to get our message in front of the CEOs--that's part of the problem. Stop already! That's what leads to hyperbole because we want to have a story in part enough for them to pay attention to.

AA: What effect do you see factors such as the anthrax attacks and the increase in postal rates having on e-mail marketing?

Ms. Hendra: I don't think direct mail, paper mail is going away. Like every other medium, the dynamics are going to change. And that can include people allocating dollars to it in a different way, and using it in a different way. They're not interchangeable.

There are some things that--the tactical experience--that is different, just as the e-mail experience is different. And it has its uses both ways. The thing that we have to do with e-mail is just make it more interesting.

In terms of anthrax, it just is going to depend on how widespread and long-term it is. If this dies down and it turns out to be 100 cases, the public will have a response that's different, than if it turns out to be 5,000 cases. If there are other things, other terrorist attacks, it's going to take people's interest off of that.

Ms. Chubb: If you take the magazine industry as an example, a lot of magazine companies mail in December. So the stuff is being printed now. They rely on the December mailings for a portion of the rate base that is the underpinning of their business for the year to come. And they don't know whether people are going to open their mail or not. A huge percentage of the mail that does the best in that business is stuff that doesn't have a return address on it.

Mr. Everling: They're not going to mail anything out.

Ms. Chubb: No. And so then the economics change and the figuring out what to do about your rate base is paramount at the moment. We sell a lot of subscriptions off of our Web sites and we're trying to figure out how to use e-mail in the short-term very, very aggressively, because of all of the unknowns around that end.

AA: Where do you see the industry, or your own business, being a year from now?

Ms. Hendra: Well, I guess I would answer that a bit in what our goals are as an agency. I would like to end next year with 15 bulletproof client cases where we've either acquired customers more efficiently, launched a brand really effectively through the use of the Internet, really put CRM [customer relationship management] principals into action. And to have the client stories that support the medium. Because that's all it will take, really, when the economy recovers, for us to be able to really expand very rapidly.

Mr. Barone: I was really thinking of the question more in the way you asked, in terms of, "What do I see happening to the industry at large?" And, I do think that we're going to see a continued drawing of revenue to the major sites.

So we're going to continue to see clients and agencies feeling more comfortable working with a small number of sites. And the advantage of a big site like a Disney or a Yahoo! or an AOL that can offer you breadth, and also customization, is you can work with the same partners on a little bunch of "niched" different projects because they've got this database available to segment however you might need it at a particular agency. It's an easier, more economic way for the agencies to work as well, which is something we try not to talk about, especially when there's clients in the room.

Mr. McDonough: I would agree with Joe that I do think there will continue to be a migration to quality and to the bigger brand names. I also think that we will see further penetration in the wireless market. Taking the content that we develop and delivering it across other platforms is going to be very important.

Mr. Barone: Audiences will continue to grow significantly, and with that, conventional wisdom will shift substantially should 2002 still be a difficult year as you predict. I still think that you'll find other mediums down, where the Internet will be flat or possibly even up. You will actually start seeing winners emerge from this as consolidation takes place.

Mr. Everling: You're going to see, with consolidation in media and with larger players getting aboard, those two factors are going to be creative formats. And the sizes of the deals are going to be intrinsically linked. You're going to see, almost on a weekly or bi-weekly basis, such and such marketer cut a $20 million deal across all of Viacom's properties. Or across all of AOL's properties, and not just that, but from a real acceptance of the rich media format.

Ms. Chubb: If you look at what Chris is trying to do or what Riley is trying to do, we're also trying to do the same thing within our own world--own your own franchising and extend that franchise. One of the challenges for next year is to figure out how to make it real. How to bring things to clients that are not going to be re-inventing the wheel every time, which is why I was talking about standardization.

The entire world has changed. The interactive world has changed tremendously. Everyone keeps talking about, "Okay, now, the Internet bubble has burst and it's going to separate the men from the boys." And all the more so, it's going to be accelerated tremendously.

The bubble years were phenomenally exhausting. This is going to be just as exhausting. So we have a window of time to figure out how to make it really, really powerful. And a lot of people are going to fall by the wayside.

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