The ad industry may soon learn just how much real money is being spent on the Internet.
When the Internet Advertising Bureau releases its report on 1996 ad revenues this week, it also plans to say how much of that funding came not in cash, but in barter.
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SITES BLAST BARTER
While companies including Starwave Corp., CNN, Microsoft Corp., CNET: The Computer Network and Softbank Interactive Marketing blast barter as a tool on their sites, other Internet giants including Netscape Communications Corp., Yahoo!, Excite and Infoseek Corp. acknowledge that it is a substantial part of their revenue mix and promotional strategy.
"I could guess that up to 25% of revenue at content sites is not in real dollars," said Peter Storck, group director in charge of online advertising at Jupiter Communications, which reported that $301 million was spent on online advertising last year. Discounting that figure by 25% would bring the actual expenditure down to $226 million.
Barter is a touchy subject among Internet publishers, who find themselves at one moment decrying it as detrimental to the growth of the industry and in the next defending it as a natural part of advertising in any medium.
`WE PRACTICE WHAT WE PREACH'
"People think that barter should not be included in the total [reported ad expenditure on the Internet], but it's the way people do it in traditional media," said Rich LeFurgy, VP-marketing and advertising at Starwave and chairman of the IAB. But when it comes to Starwave sites, "we practice what we preach and spend real money," he said.
Executives with other major content sites are equally against barter on their own properties.
"Since we launched, we have not taken any ads that are not for cash," said Richy Glassberg, VP-general manager of Turner Interactive Media Sales, which is responsible for CNN and other properties on the Web. "We saw that as absolutely the worst killer of the business model."
Others are more willing to use barter. For Web-based companies--particularly small companies--with little cash to spend and a lot of ad inventory to fill, sometimes the easiest answer is to trade it.
"While barter hasn't been a big part of our online mix, it will play a greater part in the future," said Scott Epstein, director of marketing communications with Excite. "No one is selling 100% of inventory. There is excess space, so why not put it to use through some sort of barter deal?"
One analyst at Alex. Brown & Sons reported that barter accounted for 23% of Excite's revenue last quarter, a figure Mr. Epstein insisted was too high.
At Yahoo!, meanwhile, barter amounts to "less than 10% of our revenue," said Karen Edwards, director of marketing.
Netscape, the No. 1 ad seller and No. 5 ad buyer, according to Jupiter, is a big participant in barter deals, mainly with search engines.
Netscape has a barter arrangement in new yearlong sales contracts that take effect May 1 with four search engines--Excite, Infoseek, Lycos and Yahoo!. Last year's deals also included a barter component.
But Netscape only does trades with sites where it already would be advertising, said Jennifer Bailey, VP-electronic marketing, meaning Netscape secures Web placements it wants without having to spend cash.
"Outside the Net search agreements, Netscape does barter on a limited basis with folks who are, again, real advertising buys," Ms. Bailey said. "We don't do barter with just everybody. If it's a truly valuable advertising buy for us and they're willing to barter, then we will barter. But we also spend a lot of money online with folks who aren't willing to barter."
Where barter gets sticky is when it shows up as actual revenue. If site X and site Y each trade $1 million in banners, and each accounts for this in earnings statements as revenue, then $2 million of revenues have been conceived with no one spending a dime.
"Netscape reports components of barter deals as a sale, so in that case we'll report it as revenue," said Brett Bullington, Excite exec VP.
INFOSEEK VALUES BARTER
Infoseek includes in its revenues the value of ads it gets by trading space on its sites. Such revenues have been "insignificant to date," but Infoseek expects to do similar deals in the future, according to a Securities & Exchange Commission filing last fall.
Nando.net, the Web site of The News and Observer of Raleigh, N.C., has made "dollar-for-dollar" deals with advertisers, including one last year with WebCrawler. It may do another similar deal this year with Excite.
Each of the deals involves less than $100,000 changing hands, said Advertising Director Denise Doyle.
Netscape's Ms. Bailey believes the dollar amount of barter deals is increasing given the Web's growth.
But she and others argue that barter is accounting for a decreasing percentage of overall Web advertising. That's because marketers like Procter & Gamble Co. and automakers generally do cash deals, Ms. Bailey said, because they don't have Web properties to barter.
"It's really easy to slam the industry on the perspective of barter," said Mr. Bullington. "Sure, there are some that say sites aren't selling or buying enough advertising. But the other side is that this is a completely new opportunity and there are very creative ways to develop co-promotions and innovative barter arrangements to help further your own growth and the growth of the industry."
But real growth may only come when the Internet industry acknowledges that barter can disguise or even inflate actual ad revenue estimates.
"I think if the Jupiter numbers and other industry numbers divided out real cash and barter, people could fairly evaluate the total industry," CNN's Mr. Glassberg said.
Contributing: Kim Cleland, Jane Hodges, Bradley Johnson.
Copyright March 1997, Crain Communications Inc.