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When HotWired launched on the Web on Oct. 27, 1994, it pioneered the most explosive new ad medium since the start of cable TV. With 14 charter sponsors and the hip attitude of its parent, Wired, the site went down in history as the first showcase for Web banner advertising.

In the two years since then, an entire infrastructure has sprung up to support the industry. There are companies to create ads. Companies to buy ads. Companies to sell ads. Measure ads. Manage ads. There's even an industry group to promote Internet ads.

Furthermore, marketer efforts on the Web have moved beyond experimental. Many marketers will make Web advertising a line item in their ad budget next year, alongside magazines, TV and radio. Of the 100 Leading National Advertisers as tabulated by Advertising Age, 46 have purchased Web advertising so far this year, and nearly all have corporate Web sites.

But the move from experimental budgets to real dollars carries significant baggage.


With an experiment, you don't necessarily expect a return on investment and are happily surprised if you get one. With real money, there's no such cushion.

Measurement, the thorn in the side of nearly every Web marketer, is expected to get significantly more accurate over the next year. It will have to, if the Web is to prove itself, long term.

Marketer Web sites, meanwhile, are changing. Companies like Levi Strauss & Co. that built megabucks mega-sites are now thinking of ways to slim them down.

The question for many marketers now is not "How do I drive traffic to my site," but "How do I make my marketing information accessible to the most people?"

It's a shift in thinking that some say will turn the Web ad model on its ear.


In the midst of all this is the drive to standardize the way ads are sold. It's a call to action that some believe will open the floodgates for Web advertising. Others decry the move, saying it will stifle the development of more creative online marketing.

How the Web industry addresses these issues-and how quickly-will go a long way toward determining just how big an advertising medium the Web will be. The developments of the next year will dictate whether the Web becomes an indispensable advertising vehicle or another overhyped and underdelivered technology development.

But first, there was HotWired, where it all began.

"I remember sitting on a plane with Andrew Anker [president of Hot

Wired]," muses Mark Kvamme, president of CKS Group, Cupertino, Calif. "If I remember correctly, he said, `We threw up a price, and it was mindboggling that we were getting 10 advertisers.' "

The summer of 1994 was a heady time for the marketing industry. With the call to action of Edwin Artzt, Procter & Gamble Co.'s then-chairman & CEO, resounding in their ears, agencies had started to take notice of this thing called the Internet. A few had already placed ads on Prodigy; others were building sites for brands like Coors Brewing Co.'s Zima and networkMCI.

"The fact that it was coming from Wired magazine made it very, very interesting to people," says Rick Boyce of the pitch from HotWired (http://www.

hotwired.com). A former Hal Riney & Partners ad exec, he plunged into the unknown as HotWired's ad director in September 1994.

the medium would appear to be a success with the marketing giants.

Forty-six of the top 100 ad spenders purchased advertising space on the Web through July of this year, according to research performed for Advertising Age by Jupiter Communications (see chart on Page 49).

But a closer look reveals that only 11 of the top traditional media advertisers ranked among the top 50 Web ad spenders in July, the most recent month data are available. And cracking the top 50 list required only $72,000-a mere fraction of P&G's average $225 million monthly ad outlay in traditional media last year.

The Web ad business rocketed to $71.6 million in the first half of the year and is expected to top $300 million by yearend, according to Jupiter. But 67% of the spending in the first half, by Jupiter's count, came from marketers that are either Web-based companies, telecommunications companies or computer companies-all of which have nothing to lose and everything to gain by promoting a networked, computer-based medium.

As the second half of 1996 wears on, Web publishers know that for Web advertising to succeed, the number of big marketers participating must increase and the amount of money spent by Web-centric companies must go down.


"We're writing business with over 200 marketers this month," said Ted West, president of Softbank Interactive Marketing, San Francisco, a leading Web rep firm.

"The preponderance of them are in the non-tech segment. But they're not the dollar volume" of technology companies.

Web boosters know that they need to prove the Web's value as a marketing medium.

"There is a real value proposition that's missing, and quite honestly it's on our shoulders," said Jonathan Nelson, president of Web developer Organic Online, San Francisco. "The marketer has to see a return on investment. It's pretty plain and simple."

Of course, not every brand of dog food, bathroom cleaner and toothpaste needs to advertise on the Web. But there are plenty of companies in categories like financial services, travel, healthcare and entertainment that could benefit from Web advertising.


"For large cash-outlay products like cars, travel [and] consumer electronics, where information about those products is important and valued by the audience, advertisers of those products have a tremendous opportunity on the Web and will see return on investment in 1997," predicted James Savage, VP-general manager of Ziff-Davis Publishing Co.'s ZD Net.

That's what interactive proponents have been saying for several years. But marketers still aren't as quick to the affirmative.

"We're going to budget, but we're going to reassess and reassess," said Frances Oda, VP-marketing services with Mitsubishi Motor Sales of America, which launched a Web site (http://www.mitsucars.com) this fall. "The interactive world is really changing fast, so it could be unwise to lock down the idea that you're going to budget this month for the next 12 months."

In the early days, Web advertisers good way to compare results of a Web marketing program with results of a traditional marketing program.

"What does it mean when 1,000 people visit your site?" asked Farris Khan, interactive consumer marketing coordinator at General Motors Corp.'s Saturn division. "Is it better or worse than 100,000 people seeing your TV commercial?"

For someone like Mr. Khan, whose job is to figure out how to mesh the fast-paced, turn-on-a-dime Web with the three-year production and marketing cycle for the average new car, that's a legitimate question.

Other research questions persist as well.

Most Web tracking software, for example, can't tell whether someone clicked on an ad but then changed his mind and stopped the transfer.


The problems are only now being addressed by companies like Accrue Software, a startup based in Mountain View, Calif., and NetCount, Los Angeles, which last week introduced a system called AdCount.

"With a system like ours, you can see how your site is doing, how your banner is doing" in real time, said Tom DuBois, VP-business development with Accrue.

Marketers that aren't buying ad banners cite a lack of reliable statistics as a major reason for their inactivity.

"We're not buying banners right now because there's no adequate measurement factor out there," said Mike Perugi, communications specialist for Chrysler Corp.'s Dodge Division.

Even those that are active on the Web have resorted to their own piecemeal tracking methods. Modem Media uses a variety of software, both off-the-shelf and proprietary, to gauge the effectiveness of Web advertising placed for clients like AT&T and Reader's Digest Association.

"It's difficult to do business because of the lack of standards and consensus in tracking," said John Nardone, Modem's director of media and research services.


Industry groups are working toward common definitions that will make the Web more accountable. But they acknowledge that the Web is a moving target, and standards may always be one step behind.

"We recognize that that's the environment we're operating in, and we've got to constantly adapt," said Michael Lavery, president of the Audit Bureau of Circulations and its Audit Bureau of Verification Services unit, which works with Web sites.

Web sites are making reporting a top priority, knowing that showing value is the key to getting more advertising.

"We've committed a major portion of our engineering team to work on reporting issues. It's been clear that's been a frustration," said Mr. Boyce.

Nothing epitomized the Web craze of early 1995 more than the Coca-Cola Co. Web site. Dubbed "Galaxy of Coca-Cola," the site featured a flashy front door and nothing behind it but an annual report and some press releases.

Levi Strauss, which spent more than $1 million on a site dedicated to the worldwide coolness of its jeans, is now recasting the site (http://www.levi.com) as less avant garde and more familiar.

"We are more targeted to our best customers-the brand loyalists," rather than a more general audience, said Sean Dee, new-media director for global marketing.

The Levi site, and similar sites from Pepsi-Cola Co. and Toyota Motor Sales USA, were launched at a time when Web advertising was all about getting consumers to spend a lot of time with a brand on the Web. When that wonderfully wired audience didn't materialize as expected, that's when banners became popular.

But research by Web measurement company Internet Profiles Corp. shows only a 2.1% average click-through rate. And 42% of online users never look at ad banners, according to a 500-person survey conducted last month by Market Facts for Advertising Age.

Now advertising on the Web, which has been all about linking a user to a marketer Web site, is about to change dramatically.

"The simple two-inch banner clearly has already gone the way of the dodo," said Mary Modahl, director of the Media & Technology Strategies practice of Forrester Research.

Signs of this shift are already apparent in the success of the PointCast Network, which delivers news, information and advertising via a screen saver.

Animated ads entertain users and invite them to click over to the Web site. But even if they don't jump to the marketer site, they still have an interactive experience with a brand.

Others like Freeloader, Intermind and Microsoft Corp. are working in a similar vein.


During the Olympics, AT&T conducted an extensive campaign to distribute pieces of its site across the Web. Ordinary-looking banner ads carried not only an invitation to visit the AT&T site (http://www.olympic.att.com), but animated games users could play without leaving the place where the ad banner existed.

GM's Oldsmobile division uses Java applets-small interactive modules-in its sponsorship of HotWired's Packet site (http://

www.packet.com). When a user passes his cursor over the site's navigation bar, the applets pop up automatically, offering a bit of information about Oldsmobile.

Banner ads on Electric Minds, a highly anticipated Web chat site scheduled to launch next week (http://www.minds.com), will incorporate the site's chat focus.

A Sun Microsystems banner, for example, features both a marketing message and a picture of Sun's John Gage, director of the science office. The marketing message leads to Sun's site, but the picture leads to an interview between Howard Rheingold, creator of Electric Minds, and Mr. Gage.

"You click on a banner and go to somebody's home page. Waste of time," said Bill Peck, who had stints selling ads for Wired and InfoSeek and now consults with Electric Minds. "I would rather click on a Honda banner and have it download a picture of the car and a list of dealers."


As technology improves, it's giving rise to the concept of the virtual Web site. Instead of existing at a fixed URL, advertising material will spread out across the Web. It will be dynamically generated, demographically targeted and capable of existing in multiple places in multiple formats.

Next year, "you'll see fewer advertisers running Web sites," said Forrester Research's Ms. Modahl. Instead, "they'll pour their money into the actual advertising."

Will the concept of Web sites go away entirely? Not necessarily. Web sites still serve a valuable purpose for conducting transactions, generating sales leads and

providing an easy resource for information.

But marketers looking to engage a consumer in a brand will in many cases do it outside of their Web site.

If it weren't for the Web, businesses like Scott Heiferman's wouldn't exist. Mr. Heiferman, who once held the nerdishly cool title of interactive marketing frontiersman at Sony Electronics, now runs

i-traffic, a New York Web media planning shop.

There are currently more than 90 different banner sizes on the Web, meaning advertisers and their agencies must spend significant time sizing ads over and over again to fit various sites' specifications.

If ad sizes were standardized, proponents say, agencies and marketers would spend less time worrying about designing them and more time making the ads more creative.

The Coalition for Advertising Supported Information & Entertainment issued a proposed set of guidelines early this month, suggesting six banner styles set in fixed positions on a Web page. The Internet Advertising Bureau, another industry group, is working on its own guidelines.

"You want the money to keep coming in, and you want the money to be applied to good creative activities," said Martin Nisenholtz, president of The New York Times Electronic Media Co. and chairman of the CASIE committee developing the guideline proposal.


Standards will give the Web ad industry a framework in which to operate, proponents say. As marketers become more sophisticated in their use of the Web, they will demand more accountability. Standardizing the way ads are placed will make it easier to show that.

But there's a large faction of the Web ad industry that considers anything about the word standards to be anti-creative and backwards.

"We've been talking about encouraging models that allow us to do a lot of different types of ads online," said one prominent ad industry executive and CASIE member. Defining banner ad sizes "seems to be retrograde."

Standards proponents think they can resolve the issue by yearend, if not sooner. But with all the debate going on, Web marketers have little faith in the committee process.

"At the rate these standards committees go, we'll all be old and gray before these get done," said one executive.

If the factions can come to any agreement, the most logical one might be to establish the banner as a basic ad unit, with standard sizes and positioning. Sites and advertisers would be free to create other, more sophisticated kinds of advertising.

"Last year, there were maybe one or two groups thinking about how, strategically, this fit into their marketing communications plans," AT&T's Mr. Block says of the marketer's Web efforts. This fall, he says, 17 AT&T units have incorporated Web advertising into their media budget.

But despite all of its attention to the medium, "I don't think we've looked at the success of our Web marketing and said, `That really made the whole program,' " Mr. Block says. "The scale isn't there yet."


From the launch of HotWired, the Web ad industry has developed at lightning speed. Although it's only been two years, those involved say it feels more like 10.

"In an environment like the digital media, where technological change happens certainly every week and nearly every day . . . two years of those changes add up to years of advertising history," said HotWired's Mr. Madsen.

Everyone is looking to advertising not merely to sustain the medium but to save it. Without advertising, Web publishers and all the infrastructure companies go out of business.

"We are not profitable this year," said ZD Net's general manager, Mr. Savage. "We really see 1997 as a critical year."

No one would expect a normal 2-year-old to live up to such amazingly high expectations. But Web advertising is a gifted child, built on a foundation of creativity and technological innovation.

$5 BIL BY 2000?

Forrester and Jupiter predict online advertising will be a $5 billion market by 2000. But next year will indicate just how realistic those projections are.

For some marketers, the phase of experimentation with Web advertising was over in 1996. For many more, it will be 1997.

Next year will be all about return on investment, and adequate measurement, standards, alternatives to the banner-and, most importantly, a big influx of major marketers.

"It's a matter of becoming much more sophisticated in our marketing efforts," said Web advertising consultant Mr. Peck. "Next year is the year you show value, or you don't survive."

Contributing: Alice Z. Cuneo, Jean Halliday, Bradley Johnson.

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