It's nearly impossible to watch prime-time TV and not see an ad for an online brokerage. Or thumb through a women's fashion magazine without coming across an ad for a cosmetics site.
Industry executives say, ironically, dot-coms spend roughly 70% of their ad budgets on traditional media. Some, such as priceline.com, have up until now spent all their money on offline advertising.
So the very medium upon which dot-coms are built--the Internet--is getting short shrift when it comes to advertising. Or is it?
"It's not really an irony that these guys are going offline to do a lot of advertising," says Jim Nail, senior analyst at Internet consultancy Forrester Research. "Any new company has to establish its credibility and trust with consumers." Consumers consider online ads to be the least trustworthy next to direct mail, according to a 1998 Forrester study.
This year, the typical dot-com will spend $8.2 million in all advertising, according to Forrester. About $3 million of that will be spent online, $1.9 million on TV, $1 million on radio, $830,000 in newspapers, $570,000 in magazines, $334,000 in outdoor, $475,000 in direct mail and $160,000 in other media.
In 2004, a typical dot-com is expected to spend $10.7 million on all advertising, about $2.8 million online. Another $3.8 million will be spent on TV, $1.4 million on radio, $1.1 million in newspapers, $600,000 in magazines, $300,000 in outdoor, $580,000 in direct mail and $35,000 in other media, Forrester forecasts.
So while online advertising will continue to constitute a portion of the media mix, according to industry data, traditional media still will collect the majority.
Online is considered by many dot-coms to be a different medium than TV, radio, print or outdoor, with a different purpose and effect.
"Online is a direct-response medium," says David Seuss, CEO of search engine Northern Light. "It's not good at presenting a whole new brand message. That's where the intrusion of traditional media works much better."
Northern Light launched a $6 million fall campaign and could spend nearly $30 million next year, depending on results of the fall effort via Mullen, Wenham, Mass. (AA, Sept. 11). It won't use online this time, having run 300 million banners earlier with little success.
'EVERYWHERE THEY TURN'
"It's really important to understand why people are spending off-
line to the degree that they are," says Wenda Harris Millard, exec VP-general manager of the DoubleClick Network at New York-based DoubleClick. "A consumer is . . . used to a number of media to get messages." Ms. Millard says she encourages dot-coms to advertise off-
line because "this is going to drive a lot of traffic to the sites. If you hit people everywhere they turn, you are going to do a lot of good for the online industry. And much of those dollars will shift over to online once there are more people online."
Priceline, the No. 9 dot-com off-line advertiser in the first half of '99 based on Ad Age's review of Competitive Media Reporting data, only recently started advertising online in affiliate deals. Prior to that, priceline advertised solely via traditional media with campaigns created in-house and, for the most part, that remains its mantra. Priceline's ad budget is about $50 million.
"Priceline builds its brand through radio and print," says Paul Breitenbach, priceline's senior VP-marketing, who adds that "99.9% of our advertising focus is still on off-line advertising."
When priceline launched in 1998, only 41% of U.S. households had Internet access and the company realized it would be advertising to people who couldn't yet use its service. But its goal at the time was building its brand, and traditional media was the best way to do that, Mr. Breitenbach says.
"Priceline was a broad-appeal proposition for people. When we launched, such a huge percentage of our customers were not online. But with our customers, it was about creating excitement." Besides, Mr. Breitenbach says, times have already changed: "Now 54% of households have access to the Internet. We believe our strategy's been absolutely right," he says, adding that targeted online ads that recently launched will hit consumer segments the company can't reach offline.
Salon, a network of news, culture and entertainment Web sites, launched in 1995; virtually all advertising was online until 1998.
"We spent a total of $20,000 in offline advertising over three years," says Salon VP-marketing Patrick Hurley.
Things are different now, however: The online marketer will have spent $5 million on traditional media by yearend. Odiorne Wilde Narraway & Partners, San Francisco, is Salon's agency of record.
"We still do a lot of online advertising, but we just aren't paying for it. Any online we do now is via barter with sites including CNET, Snap and About.com," Mr. Hurley says. The company does plan to ramp up online ad efforts, however, and will begin paying again for additional online ad buys, he says.
"Dot-coms don't see [offline advertising] as heretical; they see it as part of a bigger media mix, a complement to online advertising," Mr. Hurley says. "They've realized they have to cast a wider net than just online advertising and use all media tools available, including print, broadcast and outdoor."
Still, some marketers acknowledge that online advertising can be crucial to brand development, too, especially if the ads are presented in the appropriate context.
Visa USA, for example, an association of 21,000 member financial institutions worldwide, spends $25 million to $30 million annually on advertising to support its e-commerce initiatives. About $10 million of that is devoted to online advertising. To promote its brand as a secure, efficient payment option--and with consumer e-commerce revenue growing from roughly $7 billion last year to $12 billion this year, according to Jupiter Communications--Visa expanded ads to the Web. That aids its efforts in establishing itself as the preferred method of payment on the Internet, says Joe Vause, VP-e-commerce for Visa.
WHY BEING ONLINE IS A MUST
CNET, a technology news and commerce company, will spend about $55 million on offline ads this year. But it considers its $5 million online budget a key component of its ad program. Leagas Delaney and Citron Haligman Bedecarre Euro RSCG, both San Francisco, work on CNET advertising.
"If we could spend more in online, we would," says Andrew Zeiger, regional VP-sales, West Coast for CNET. But CNET cannot buy banners on competitive sites, such as ZDNet. "There are a lot of companies that don't understand the benefit of advertising online. You must be online because that's where branding, product evaluation and purchasing take place."
On the flip side, as a Web site that sells banner space to advertisers, CNET "hasn't missed out on any dot-com dollars," says Mr. Zeiger. "In fact, we are getting more than ever."
The future looks bright for online advertising: Recent research from InterMedia Advertising Solutions, sister company to VNU's Competitive Media Reporting, found Internet advertising jumped 80% to an estimated $359.4 million in first quarter 1999 (AA, Oct. 18). Analysts confirm online spending should increase, but it likely will take the form of sponsorships and text links rather than banner buys.
"People are learning that the more in-context the advertising is, the better the response," Forrester's Mr. Nail says. "Banners are too physically disconnected."
"Banner click-through rates are about 0.5% average," adds Michele Slack, a Jupiter Communications analyst. "Some of the new alternatives, like e-mail marketing, rich-media ads and interstitials, are generating a much higher click-through."
CAPITAL, STOCK INFUSIONS
Dot-coms' total ad budgets, at least in the short term, should remain healthy as they benefit from an influx of venture-capital backing and initial public stock offerings.
"These companies have bigger budgets to work with now," Ms. Slack says.
The well will run dry someday, however, warns Mr. Nail.
"I hope [the online companies] are not lulled into thinking this is going to go on forever," he says. "Right now, they are carting the money from Wall Street right up to Madison Avenue. The market's weak and all it takes is some real shock and people are going to start to retrench a bit."
Copyright November 1999, Crain Communications Inc.