Special Report: Web ad networks fine-tune strategies to stay competitive

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In basketball, the winner is often determined by who plays the better transition game, made up of those many, brief, chaotic moments on the court when the action shifts sharply from offense to defense, or vice versa. B-to-b Web advertising networks are playing their own transition game.

As their star property, the banner advertisement, fades in glory, the networks are introducing new moves designed to produce measurable return on investment for each marketing dollar spent.

Established b-to-b Web ad networks such as B2BWorks Inc., Engage Inc.’s Business Media unit, and the specialized arms of DoubleClick Inc. and 24/7 Media Inc. have changed jerseys, repositioning themselves as digital multichannel marketing companies. Some are opening discussions on new ways of compensation—specifically pay-per-performance or a share of every dollar generated. And most are selling integrated online promotions designed to reach individual customers through banners, directory listings, affiliate programs and e-mail.

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It’s a good thing, too, because a new breed of competitor is ready to push the ball up the floor. Content aggregators, such as VerticalNet Inc. and Yahoo! Inc., are beginning to tout themselves as a better way to spend the b-to-b Web advertising buck. And, ultimately, b-to-b exchanges will be a threat to the ad networks once they deploy mechanisms that allow suppliers to brand their products and services on the exchange itself.

What’s caused the chaos of transition? B-to-b marketers are becoming more sophisticated, and they recognize that banner advertisements can’t keep pace with the rest of the pack, said Jim Nail, senior analyst with Forrester Research Inc.

"The advantage of online is that the mix of mediums has a sum greater than the parts," Nail said. "For b-to-b marketers, banners are a dead end. The b-to-b focus has shifted to marketing that aids the sales process. The idea is to focus on moving prospects into the pipeline, watching where they are in the pipeline and moving them toward sales."

Good news for b-to-b

The good news for specializing b-to-b networks is that their market should grow. Total online b-to-b marketing expenditures are projected to be $2.9 billion in 2001, up from $1.6 billion in 2000, according to Forrester. But the largest growth is forecast to be in e-mail marketing, affiliate programs and other one-to-one marketing techniques, the company predicts.

Forrester reports that by 2005, when b-to-b Internet marketing spending will reach $10.1 billion, e-mail marketing will be the most pervasive form of b-to-b marketing with $3.2 billion spent versus $2.1 billion spent on the second-highest category—the banner ad. The trend should benefit media outlets, Nail said.

"Pay-per-performance is a matter of survival for many b-to-b publishers because they can’t make money on volume," he said. "The traffic is simply not there."

Two specialists in the b-to-b space, B2BWorks Inc., Chicago, and the Andover, Md.-based Business Media unit of Engage, were the primary forces behind an increase in the cost per thousand charged for b-to-b Internet advertising last year. They succeeded in raising rates for all b-to-b sites close to $50 per thousand impression prices.

There’s still a long way to go before publishers can routinely expect between $50 and $80 per thousand for dishing up vertical industry-specific viewers, but B2BWorks in particular has been successful in driving up the rates for select sites into rarified air. For example, one B2BWorks publisher, Defense Daily Network, routinely sells its advertising at $800 per thousand.

"We’re not selling remnants here," said Bill Furlong, B2BWorks president-CEO. "We are selling at premium pricing and delivering the absolute targeting that marketers are looking for." An October deal with opt-in e-mail specialist NetCreations Inc. has allowed B2BWorks to extend services to publishers who haven’t yet started building their e-mail databases. And Furlong is one of the industry’s leading advocates of b-to-b campaigns that tap banners, directories, performance-based and e-mail techniques in a single integrated campaign.

Generally, B2BWorks charges between $50 and $120 per thousand for targeted banners on more than 500 sites across 60 vertical industries. Moreover, it gets $100 to $250 per thousand for exposure on e-mail lists and newsletters.

Shift in pricing

Yet that type of pricing is increasingly shifting to a pay-per-performance model, where advertisers pay for leads generated and sales completed, said Forrester’s Nail. Though publishers are reluctant to grasp pay-per-lead or even percent-of-sale advertising models—in part because it penalizes them if the marketer’s campaign is poor—performance criteria will be a part of 71% of all Internet media buys by 2005, Nail said.

A year ago, Engage Business Media looked to be B2BWorks’ top competition among b-to-b ad networks. It had established itself as a stand-alone division of Engage, which specializes in business-to-consumer media sales, delivery and technology services. Yet significant layoffs at the network—a phenomenon that 24/7 Media and DoubleClick have also endured—stalled its b-to-b progress.

Now, Engage Business Media is attempting to step up its sales of small office, home office advertising, as well as newsletter sponsorships and direct e-mail for such vertical industries as agriculture, food service, finance, health care and technology, said Deanne Moore, the unit’s director of product marketing.

"The best approach for b-to-b advertising we’ve seen is a blend, whereby you hit customers in many different online mediums," Moore said. "There’s more interest and more dollars being spent."

24/7 Media, which has a strong footprint in the health care industries, has yet to fully define its overall b-to-b marketing approach. Meanwhile, DoubleClick is sharpening its claws to grab a share of b-to-b services business from the incumbents. Its aim is squarely on servicing campaigns that mix banner advertising, directory listings and e-mail.

DoubleClick’s year-old Sonar Network has created technology-oriented marketing programs, which allow marketers to reach very precise audiences. For example, classifications have been created to isolate IT professionals, Web developers and small-business technology owners. Its small-business technology category is already getting seven times the average CPM DoubleClick gets for business-to-consumer campaigns (estimated around $10), said Bill Wise, general manager of Sonar Network.

"In technology, we originally set out to differentiate between consumers with high-tech interests and professionals, but the pushback we got from b-to-b marketers was that the category was way too broad," Wise said. "Now, we’re targeting down to job titles."

Sonar Network is pinging off other b-to-b categories, including a category that reaches educators and a just-launched program designed to reach medical professionals. In 2001, the company will continue to expand its offerings into other b-to-b categories, Wise said.

A whole new breed

A new breed of competitor is also rising in the b-to-b marketing arena.

VerticalNet Inc., Horsham, Pa., and Santa Clara, Calif.-based Corporate Yahoo! programs are building vast contact databases for b-to-b buyers. Increasingly, those powerful content players are eyeing direct sales of b-to-b campaigns as a key income stream. Mark Walsh, chairman of VerticalNet, jokes that there’s "no ‘m’ in our CPM" but espouses the merits of selling horizontal-oriented and vertical industry-specific business media packages to marketers.

"With one bill, the marketer can attack the buyer and ‘specifier’ in a lot of different places," Walsh said.

Vertical Net’s modus operandi is also a very powerful way to capture marketing sales. It has an inbound and outbound telephone sales organization, which contacts businesses about building a corporate storefront for a $5,000 to $6,000 annual fee. Through a deal with Microsoft Corp., which has agreed to pick up the first-year cost of the storefront for up to 80,000 businesses, the sales force can offer a no-risk program for building a sales site. "A lot of times that sale of a storefront leads to the opportunity for a sale of media space," Walsh said.

The existing Web ad networks should withstand the threat of VerticalNet, Corporate Yahoo! and other powerful b-to-b aggregators, said Dana Serman, analyst with Lazard Frères & Co. L.L.C., New York. The key will be the network’s ability to segment their audience, and prove that they can be reached through banner, director, affiliate and e-mail campaigns across a wide array of sites and using powerful b-to-b contact lists, he said. The enterprise portals will then be under pressure to expand via partnerships if they wish to continue to compete, Serman said. "The enterprise portal model is clearly a growing threat to b-to-b networks, but it is a model that’s going to be trickier than one might expect."

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