WEB AD SPENDING HITS BRAKES IN FIRST QUARTER '97

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Web advertising activity slowed considerably in 1997's first quarter, prompting several online publishers to reassess their ambitious revenue goals.

After a particularly strong fourth quarter-spending hit $102 million, according to Jupiter Communications, up 51% from the previous quarter-early indications are that first-quarter spending won't grow nearly as much. Some publishers are reporting flat or declining revenue, surprising for a medium in its infancy.

Ad revenue for December's top 25 Web publishers fell 8.5% in January to $23.9 million, according to a preliminary analysis performed for Advertising Age by Jupiter. Figures for February and March aren't yet available.

AT&T CUTS SPENDING 50%

AT&T Corp., one of last year's top five Web spenders, cut first-quarter Internet media spending by as much as 50% compared with the fourth quarter-after a company reorganization hit budgets.

AT&T spent $3.4 million on Web advertising in the fourth quarter, according to Jupiter.

Ad revenue at Time Inc. New Media's Pathfinder Web service was flat in the first quarter, said Linda McCutcheon, VP-ad sales and marketing. She declined to provide figures, but Jupiter reported Pathfinder revenue at $2.4 million for the fourth quarter.

Publishers reporting increases said the rate of growth was below expectations. Leading search engines, in particular, are expected to report lower-than-anticipated ad revenue when they announce first-quarter figures.

Yahoo!'s chief financial officer, Gary Valenzuela, speaking at a conference in early March, said the company's revenue may mimic those of traditional media and show first-quarter sluggishness, according to Reuters. Mr. Valenzuela cautioned that Yahoo! most likely wouldn't maintain the strong year-over-year gains it enjoyed in 1996.

Yahoo! releases its first-quarter report this week.

LYCOS UP 37%

Search engine Lycos, however, reported $5 million in revenue for the quarter ended Jan. 31, a 37% increase over the previous quarter.

"January seems to be the doomed month everyone refers to," said Bob Davis, Lycos CEO. "But we've already reported growth for the month of January. . . . Nothing I've seen indicates anything but growth and upward trends in online advertising."

Excite and Infoseek declined to comment on their advertising revenue pending release of their financial statements later this month.

"We had a real tough quarter," said Mark Mariani, exec VP with SportsLine USA, which generated $1 million in ad revenue for the quarter, up 20%. "Coming off of December, I was thinking we'd have a better first quarter, to tell you the truth."

Some attribute the quarter's slowness to traditional media seasonality, since first-quarter spending usually lags behind the fourth quarter. Others say marketers are taking a step back and assessing the return on investment from online advertising.

`WANTED TO STEP BACK'

"We absolutely spent less in the first quarter," said Raj Vaswani, Allstate Insurance Corp.'s interactive marketing manager. "We did a tremendous amount of testing in the third and fourth quarters of '96, so we wanted to step back in the first quarter of '97 and evaluate our online strategy."

The January revenue decline likely resulted from advertisers dumping budgets into the market at the end of '96 and then waiting until after the holidays to begin planning for '97.

A significant portion of Web advertising is bought within 30 days of running, said Steve Goldberg, manager of business development and strategy at Microsoft Network. He said the network's first quarter was up 25% in ad revenue.

Modem Media, Westport, Conn., said AT&T and other clients focused on enhancing their own Web sites in the first quarter rather than buying ads on other sites.

"We still have this mentality where clients spend behind their sites," said John Nardone, Modem's director of media and research. "First quarter is big production, and second and third quarter is when you see media spending pick up."

SHOCKED SALES REPS

In a fledgling industry yet to experience a decline, even the slightest falloff is enough to send a shock coursing through the ranks of online sales reps.

"First quarter was very tough," said Patrick Stack, VP-regional sales for the Chicago office of online rep Softbank Interactive Marketing. "The fourth quarter was a feeding frenzy, and we were going like gangbusters right up to the bell."

Not every online company was displeased. America Online is set to report record advertising revenue for the first quarter of 1997, said Neil Davis, VP-director of ad sales.

It's believed AOL could report as much as $10 million to $15 million in revenue, though as much as 70% of that came from custom marketing modules created for a variety of advertisers.

SIGNS OF A PICKUP

As the first quarter ended, there were signs the market was picking up. IBM Corp., for example, signed a major deal to become the first global advertiser on Yahoo!.

There are, though, longer-term concerns about the medium's growth.

"Marketers need to better understand what their Web strategies are before they get into execution mode," said Mr. Mariani. "Are we using it for branding? For direct response? Those questions still need to be answered."

Contributing: Bradley Johnson

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