What's ahead for '97

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Do you want your WebTV?

If you've watched TV this fall, you've seen ads for WebTV. Sony & Philips have been promoting the heck out of the devices, hoping that consumers too cheap or too scared to buy a computer will surf with abandon from their recliner. Is '97 the year Internet appliances will take off? Don't count on it. Long-term potential is great; short term is debatable.

"I see a lot of crap and poorly thought-out stuff about to emerge," said a top exec at one company involved in the Web device market. We do like the idea of combining the TV and the Internet in some way, but this early iteration probably won't get Joe Consumer to log in.

The maddening spiral of Web measurement

Ever get the feeling Web measurement is going in circles? The more data marketers say they want, the more sites say they can provide. The more sites provide, the more marketers say they want. The irony is, marketers and publishers still don't have what they can really use: comparative data on which sites get the most traffic and are best at serving up ads.

Internet Profiles Corp. launched with a desire to be the Nielsen of the Net--the key source of comparative information on Web sites. But it's had serious difficulties reaching that goal. While I/Pro's competitors (folks like NetCount, Accrue Software and Interse Corp.) covet some of its prestigious accounts, they remain more focused on measuring activity within a site, not comparing sites.

In the coming year, there's a big need just waiting to be filled. Arbitron, are you listening?

An agency group gets Omni-potent

Omnicom Group approached the Internet more cautiously than did most of its peers. But in September, it staked out a piece of the future by announcing minority investments in five differently niched interactive shops. Deals with two or more others, including Organic Online, are in development. The investments in companies like Agency.com and Red Sky Interactive give Omnicom flexibility and reach but probably not much control in the end, given the minority stakes Omnicom owns in each company. Watch for the holding company to aggressively seek to leverage the shops' expertise on behalf of its other agencies--including DDB Needham Worldwide and BBDO Worldwide.

John Wren, Omnicom CEO, has shown a deft touch in exploiting fast-growing communications niches and sounds bullish on this one. But he has yet to identify a substantive strategy for achieving leadership in the realm.

Where, oh where are the subscriber fees?

The debate rages on as to when, how and how much online content brands can charge for subscriptions. But don't look for a resolution anytime soon. Finance-related brands such as The Wall Street Journal are having some success targeting an audience used to paying for this genre of content in other media.

But delayed launches of pay areas on Playboy, Entrepreneur and other sites make us wonder if the more general media brands can succeed at charging for content online.

Personalized versions of sites, with their clunky agent-based technologies and see-through target marketing interfaces, still have a long way to go before users will pay up for them.

Microsoft's deal to provide free access to a variety of content sites, including the Journal's, with its Internet Explorer browser, ultimately will do little to shift consumer attitude.

We agree with Forrester Research's prediction that subscriptions will account for less than 10% of publishers' revenue streams for at least two more years.

Online ad spending: Up, but how high?

Online ad spending will grow next year, but it probably won't show anywhere near the 40%-plus quarter-on-quarter growth it's seen this year. Spending this year should top out at about $300 million, but next year, Advertising Age predicts, the total may reach only $500 million. That's not all bad. As marketing on the Net gets more sophisticated, the definition of advertising will shift and slide. What portion of the Time Warner/Procter & Gamble Parent Time joint venture is considered ad spending? If Sun Microsystems sponsors an online chat with one of its execs, is that advertising?

If online ad spending doesn't grow as fast next year, it's not a sign of failure. The smart marketers and publishers will be looking not only beyond the banner, but beyond the ad for what they can do on the Net.

After `beyond the banner'

Anyone who thinks ad banners will die next year had better think again. Instead of being mere billboards on an active content site, banners will start to draw attention on their own.One look at Hewlett-Packard's Pong-inspired ad for one of its printer brands shows where banner creativity is headed. The ad is an entire game in itself: You control the righthand paddle and play against the computer (the computer rarely loses). All the while, a soft sell for the copier trails across the top of the banner. No need to go to the HP site--the game delivers the message. Instead of small pictures that say "click here," banners will become bits of content themselves and perhaps even allow consumers to purchase goods and services without ever leaving the site they went to.

Not much to talk about

Real-time chat generates up to 70% of total revenue for commercial online services, and there's no lack of Internet-based companies looking to enter the market. But the advertising potential for chat remains guarded at best. Analyst projections of $1 billion in ad revenue from chat by 2000 seem awfully inflated. Sure, Yankee Group expects chat to increase some 30% in '97 alone and chatting has proven to be one of the most time-consuming and popular activities undertaken online. But throw in some intrusive advertisers, and users may get turned off.

Regardless, companies like Electric Minds, HotWired Network WebGenesis and iChat are plugging along with big plans to turn chat into a major ad medium.

Silent sponsorships, staggered ad rotations and user-only chats are ways that sites are attempting to keep advertising as unobtrusive as possible. But we think the jury is still out on chat as the next great ad medium.

MTV: Pay out or stay out

If you want your MTV, your Internet service provider may have to pay. That's one idea MTV has bandied about late this year.

The MTV proposition milks the idea that the Internet is a cable-like media environment, and online service companies are networks that should pay to distribute Web content they don't produce.

Give the network credit for its aggressiveness, but don't look for it to succeed. Cable companies can get away with charging tiered fees for basic and premium channels, but on the Web, a brand name will go only so far.

Push comes to shove

The computer desktop will rule as the content platform of choice next year. With Microsoft's Active Desktop, Web updates automatically will be delivered to the PC from "premier providers" like PointCast and MSNBC and other sites selected by the user.

Active Desktop will be part of the Internet Explorer 4.0 browser, appearing in the first half of the year. It's expected to radically change the way Internet users get their information.

That and other "push" technologies will represent a $220 million ad market in 2000, according to Yankee Group.

So, forget work. We'll spend our time clicking through newly arrived content and banner ads. Active Desktop and its brethren could be the biggest productivity killers since Minesweeper and Solitaire.

Ted's excellent adventure

After spouting wisdom all year about how America Online is really an entertainment media company, Ted Leonsis now has to pull money from where his mouth is.

In his new role as president of AOL Studios, a content development unit of AOL, Mr. Leonsis is charged with making big Web-to-TV deals with TV companies. He's also angling to get multimillion-dollar sponsorships for all this content. Mr. Leonsis' company will sell its stuff to AOL or anyone else who wants to buy it.

We thought being in the hot seat as president of AOL (his former title) was tough. Now, Mr. Leonsis is no longer king of the hill, but merely one of millions trying to make it to the top.

If you thought cost-per-click was bad...

Wait until you see cost-per-lead and cost-per-sale. Web publishers that complained about advertisers wanting to pay for ads based on how many users clicked on them have a real challenge ahead as more and more advertisers adopt a direct marketing model for the Web. Agencies already are whispering about being paid on performance--so many leads or sales, so much payment--and they're starting to demand that sites do the same.

The cost per impression model will fade away over the next year as advertisers and their agencies demand more from publishers than mere eyeballs. They'll want the whole body, and the more creative promotions sites can drum up, the more dollars they'll see.

Pathfinder's new course

When Paul Sagan, Time Inc.'s president and editor of new media, announced plans for an 18-month family vacation starting next year, we had to wonder where the behemoth online property called Pathfinder was headed.

Reports are flying that Time Inc.'s new sibling, CNN, will take over management of the site next year. Time Inc. New Media already named an editor for the site but has been slow to come up with a body to fill the top spot. Norman Pearlstine, Time Warner's editor in chief, will do the job temporarily, Time Inc. told us last week.

Merging the Pathfinder and CNN operations makes eminent sense. Turner Broadcasting System has done an excellent job branding its individual networks on the Web; Time Inc. could learn much from such a partner.

An interactive agency giant is born

More than any other ad holding company, True North Communications has bet its future on technology. With hot shop Modem Media now on board, '97 will be a pivotal year for the company. However, two major uncertainties still loom large.

The cooling market for initial public offerings could cause TN Technologies Holding to put its IPO plans on indefinite hold, as rival Poppe Tyson did earlier this month. That would lead to distractions and a smaller-than-expected pot of capital.

The bigger challenge is structural. True North cobbled together a bunch of related--but separate--businesses, including Modem, R/GA Interactive and Seattle-based direct marketing agency Cf2GS, to form TN Technologies. Combined, they are the industry's largest interactive agency, but the union could be hampered by turf and ego battles between TN Director Greg Blaine and G.M. O'Connell, the man behind Modem. Stay tuned for this one. It could get juicy.

Telcos take on the ISPs

We've been hearing for some time about the looming competition to Internet service providers from companies like AT&T, MCI, Sprint and the regional Bells. Next year, they'll make good on that threat.

As more and more people jump online, convenience and bundling will become the keys to unlocking the real potential of this market--and bundling is something the phone companies know how to do.

Yankee Group predicts that the long-distance companies and regional Bells will be the big winners, owning about 25% of the estimated 26 million access accounts by 1998; traditional ISPs are expected to account for just 10%.

Copyright December 1996, Crain Communications Inc.

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