The first-quarter drought is over.
After a sluggish first three months, Web ad spending picked up considerably in the second quarter, leading toward what advertisers expect to be a robust second half of the year.
Based on reported sales figures from Web sites, estimates from media buyers and analysis from industry watchers, Web ad revenues are expected to be up about 25% to 30% over the first quarter, which should put the industry figure at between roughly $162 million and $168 million, if not higher.
Web ad revenues for the first quarter of 1997 were $129.5 million, up 18% over 1996 fourth quarter revenues of $109.5 million, according to the Internet Advertising Bureau. The IAB's second-quarter report is due out in late August or early September.
While first-quarter ad revenues reflected continued growth in the still nascent Web industry, the numbers paled by comparison to the 45% jump in revenues between last year's third quarter ($75.6 million) and fourth quarter.
The first-quarter slowdown was attributed to many factors, including the traditional seasonal lag as well as decreased ad spending by some of the biggest Web advertisers, such as AT&T Corp., which cut spending by 50% in February on the top 20 Web sites, and showed only a slight 13.9% spending increase on these sites in March, according to researcher Jupiter Communications.
However, AT&T cut its Web spending considerably in at least the early part of the second quarter, with ad buys on the top 20 sites down 60% in April compared to March, according to preliminary analysis performed for Advertising Age by Jupiter. AT&T declined to disclose its Web ad budget or to comment.
SPENDING STILL SPORADIC
But other big Web advertisers with slow spending in the first quarter, such as Microsoft Corp. and IBM Corp., showed increases in the second quarter, according to Jupiter. IBM's Web ad spending on the top 20 sites was up 62.6% in April over March, and Microsoft's was up 17.9% in April over March, Jupiter found.
"These three leaders show the spread of what advertisers are doing," said Peter Storck, group director of online advertising at Jupiter. "The industry is immature, and spending is going to be sporadic. Budget cycles and buying cycles aren't hardened."
Overall, Jupiter expects second-quarter Web ad sales to be up 25% over the first quarter.
Meanwhile, media buyers say they're seeing increased spending by their clients. John Nardone, director of media and research for agency Modem Media, New York, said he expects Web ad spending to be up 30% to 40% in the second quarter.
WAITING FOR REVAMPED SITES
"Advertisers don't want to spend media money until sites execute enhancements," said Mr. Nardone, noting that many of the major site upgrades announced early in the year often are not implemented until at least the second quarter for budgeting reasons.
Added Scott Schiller, VP-advertising and partnership marketing for Sony Online Ventures, and vice chairman of IAB, "A more diverse group of advertisers is entering the Internet.
"Consumer-oriented companies that spent most of 1996 building Web sites and the early part of 1997 determining their business models and action plans are just now beginning to implement them," he added.
Rishad Tobaccowala, president of Leo Burnett Co.'s Giant Step Productions, Chicago, projects a more conservative 10% to 15% increase in second-quarter ad spending. He said spending won't really pick up until the third quarter and fourth quarters, for seasonal reasons.
Meridee Alter, VP-media director for Rubin Postaer & Associates, Santa Monica, Calif., said Web ad spending for the agency's more traditional clients, such as American Honda Motor Co. and American Century Investments, remains mostly even quarter to quarter as these clients try to measure effective Web campaigns.
SOME SITES DOUBLED REVENUE
While many industry sources project moderate growth based on Web business overall, some leading Web sites are reporting exceptional results, and at least one report, by business news service Cowles/Simba Information, estimates that Internet advertising revenues will inflate to 58.7% over first quarter revenues.
Rick Boyce, senior VP-advertising and commerce at Wired Digital, estimates that advertising revenue for its properties, which include HotWired, its search engine HotBot and Wired News, which also runs on PointCast, is up 50% or more over the first quarter.
"We're seeing full-year 1997 budgets squeezed into the rest of the year," Mr. Boyce said, adding that Wired Digital expects to see a profit in late 1998, and that it's also opening sales offices in Chicago, Los Angeles and Boston to handle the increase in business.
Richy Glassberg, senior VP-general manager at Turner Interactive Marketing Sales, which sells ad space on Turner properties CNN Interactive, CNNfn Interactive and AllPolitics, said ad sales for the second quarter are up about 64 % over the first quarter.
"We're attracting more mainstream advertising because of the CNN brand," said Mr. Glassberg, pointing to more traditional advertisers such as those in financial services, automotive and package goods that are increasing their Web ad budgets. He said business is pretty evenly split between new business and increased spending by existing clients.
CNET: The Computer Network, also garnered more consumer goods advertisers, most notably from airline, travel and automotive categories, said Lon Otremba, exec VP-network sales at CNET, adding that tech companies expanded their Web efforts as well. CNET reported second-quarter revenues of $8.3 million, an increase of 46% from first quarter. "I think the gates opened up and a lot of people joined the party," said Mr. Otremba.
NEW REVENUE MODELS
One of the most encouraging signs of growth, he said, was that the site attracted 156 advertisers in the second quarter, up from 111 in the first; that's significant because mid-year advertisers tend to represent budgeted spending, he said, rather than a discretionary ad buy made with leftover cash in the fourth quarter.
Just waiting for the market to pick up is certainly not enough, and online publishers like CNET are busy developing new ad revenue models to make the Web a more inviting place. For instance, Mr. Otremba said, its Creative Sponsorship group came up with "The Intel Screamer of the Week" a branded area of CNET, where visitors vote on Web sites nominated for their hip design and creative use of technology.
Rival site ZDNet formalized a new rate card in the second quarter, which its VP-General Manager Jim Savage said contributed to almost doubling revenue from first quarter. Changes included opportunities to sponsor site content as well as e-mail messages requested by subscribers, new banner formats and placement, micro sites--or the online equivalent of an advertorial--and a chance to advertise on ZDNet as one of the pre-installed channels on PointCast.
Search engines also spent the second quarter scrambling to find new revenue streams, mainly locking up key co-branding sponsorships, a strategy that reaped results. Yahoo! reported $13.5 million in revenue for the quarter that ended June 30, with revenues up 42% from the first quarter.
Excite and Infoseek Corp. followed closely: Excite's revenue grew to $9.5 million, a rise of 26% over first quarter. Similarly, Infoseek's revenue jumped to $7.7 million, an increase of 25%.
While industry analysts speculate that Lycos' ad revenues will follow a similar revenue pattern, it closed its fourth quarter July 31, and financial data were not available at press time.
So what's fueled the growth?
"Last year every site thought they'd be ad-supported," said Anil Singh, director of sales at Yahoo!. "This year, they've learned it takes more than banners to be a valuable Internet property."
While the majority of Yahoo!'s ad revenue still comes from banner ads, the search engine expanded in several directions last quarter. Yahoo! kicked off a series of metro guides at the end of first quarter, which, supported by local content providers, has grown to more than 20 sites. "Advertisers clearly like the concept, and the ability to buy across the network," said Mr. Singh, noting that the network contributed significantly to its revenue growth.
Commerce initiatives are another area to watch: Yahoo! just signed a revised partnership with Visa International to launch the commerce site Visa Shopping Guide by Yahoo!. It replaces a co-branded and jointly owned electronic commerce site between Visa and Yahoo!.It also announced a deal with Sabre Group's Travelocity, making it the premier air travel and booking service on the Netscape Guide by Yahoo!. Its Yahoo! Finance site also tied up a partnership to offer the online trading services of Charles Schwab & Co.'s e.Schwab, E Trade and Datek Securities' Datek Online.
Similarly, Excite and Yahoo! (as well as America Online) brokered separate deals with Amazon.com, making it the preferred bookseller on their sites, and integrated search results with relevant book titles available at the giant book site.
MOVING AWAY FROM IMPRESSIONS
If sponsorship deals like the one with Amazon.com are a glimpse of what's to come, said Bob Hood, exec VP-chief financial officer of Excite, "the basis of the revenue won't be impression based."
The new models involve either slot placement, renting real estate on a popular site or closely integrating two services, which--as in the Amazon.com case--requires the bookseller to pay Excite fees over time, based largely on transaction performance or bounties.
MARKETERS SHOWING COMMITMENT
Overseas partnerships are another way to seed future revenue. While all the major search engines are expanding internationally through browser deals, Lycos seems to have the lead in Europe. In May, it announced a co-partnership with European media company Bertelsmann to create online navigation sites in Europe with a local sales force and content. In Germany alone, it has 18 regional sites with over 50 advertisers.
Perhaps the most encouraging sign for continued growth is that marketers are beginning to show commitment to Web investments, said Excite's Mr. Hood, noting its three-year co-branding deal with Amazon.com and a seven-year partnership with Intuit to create a new personal finance channel. "To do a three-year deal with Amazon three months ago would have been unthinkable," Mr. Hood said, "And the seven-year deal with Intuit, that's forever in Internet time."
Copyright August 1997, Crain Communications Inc.