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Microsoft corp. has seen advertising's future, and it's on the Internet.

Although Microsoft initially turned on to TV to build its brand with the masses, it now says it won't be long before its spending on Web ads matches or exceeds its TV budget.

"We are heading toward a new mass media," says Robert Herbold, 55, Microsoft's exec VP-chief operating officer, adding that it's "quite possible" the software giant's Internet media budget will surpass TV within the next decade.


Dennis Carter, Intel Corp.'s 45-year-old, VP-sales and marketing, says it's "quite likely" the computer industry within the next decade will spend more on Internet ads than on TV.

The technology category's two other power players-Abby Kohnstamm, 44, IBM Corp.'s VP-corporate marketing, and David Middleton, 41, VP-worldwide marketing and communications at Compaq Computer Corp.-stop short of giving Web a leg-up over TV in their future media budgets.

"Television is still much more of a mass medium than the Internet will ever be," says Ms. Kohnstamm.

But all four agree the Internet is ideally suited today as a medium to target business buyers, who are almost all plugged into the Web. And they agree the Web is rapidly evolving as an efficient way to reach the mass of home PC users.


Tech marketers followed older consumer companies to TV and now are leading the way to the Web. Microsoft expects to spend some $36 million to $41 million on Web ads in the year ending June 30, 1998, vs. an estimated $107 million on TV. Mr. Herbold estimates Microsoft, the top Web advertiser, accounts for 7% of all Web advertising.

"Our best customers are Internet friendly," he explains. "It makes sense to be the No. 1 spender."

Actually, Intel is sure to displace Microsoft as the top spender next year when it starts allocating 10% of its estimated $750 million "Intel inside" co-op budget to online advertising.

That will assure a flood of Web advertising from PC makers who buy Intel chips and take its co-op cash. But Microsoft should remain the largest single Web advertiser.

Mr. Herbold, a veteran of Procter & Gamble Co., cautions that non-tech marketers must decide how the Web relates to consumers in their categories before blindly buying into Internet hype.


How should marketers-tech and non-tech-deal with a medium evolving as rapidly as the Internet?

The powers that be advise being disciplined about the medium while keeping in mind that current debates about banner ads, browsers and download speeds may prove insignificant in a few years given the pace of change.

Ms. Kohnstamm says the Internet has evolved enough that IBM is applying the same rigor and evaluation to Web site buys that it does to other media.

"As the options of where to advertise increase dramatically, Web site owners will have to compete for ad dollars the way all media always have," Ms. Kohnstamm says.

IBM now almost always demands to see a third-party audit of a site before advertising, she adds.


Ms. Kohnstamm also says the Internet's key opportunity as a medium is in one-to-one interactive marketing tied to powerful customer databases.

"It's a very powerful medium that will increasingly play a major role in IBM's marketing activities," she says.

But Web money isn't necessarily incremental: Ms. Kohnstamm anticipates that much of the spending for IBM's Internet media will come out of traditional direct-marketing efforts like direct mail.

At Microsoft, Mr. Herbold hopes to cut the percentage of revenues spent on marketing this fiscal year for the third straight year; Microsoft spent 9.8% of revenues on marketing in the year ended June 30. So while Web spending is booming, Microsoft's print and TV budgets are only getting an increase for inflation, well below the growth rate of its revenues.

Mr. Carter says Intel is purposefully leaving PC makers freedom to experiment with Web co-op money rather than setting up tight rules on how the "Intel inside" money can be applied.

"We don't have the formula for what's really going to work there," he says. "A laissez-faire (approach).

..we think will lead to more experimentation."


But Web advertising is only part of the current picture. Power 50 newcomer Mr. Middleton, who left IBM in March to run Compaq's global marketing and communications, points to the Internet's bigger potential for marketing as opposed to just advertising.

"It will change how companies are structured to communicate with customers. As soon as you combine voice and data and video, [all] traversing the Internet, that's it: You've reached that new plateau," he says.

That suggests the Internet could become the multimedium, combining the power of print advertising, direct marketing and TV commercials. Yet Mr. Middleton is prudently cautious about where the Web fits in today.

"The Internet is going to go through a series of evolutionary steps," Mr. Middleton says. "You could envision that it would become a substantial, if not the most substantial, medium to reach customers. But it has some maturing to do."

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