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Brad hagstrom thought he'd seen it all after 14 years in newspaper advertising sales. But Mr. Hagstrom, retail advertising manager for the Austin American-Statesman, has been amazed by the influx of online companies' advertising in the daily newspaper.

Increasingly, online companies are using mainstream advertising in Austin, Texas, ranked by New York-based Cyber Dialogue as the U.S. city with the highest percentage (59%) of adult Internet users.

Since December, more than 25 online companies have advertised in the American-Statesman; no online companies advertised in the newspaper before December. Advertisers now include Amazon.com, Virtual Vineyards and Vitamins.com.

Mr. Hagstrom sees a link between the city's technology-driven environment -- a hotbed of universities and computer companies -- and online companies' interest in it as a place to advertise.


The trend in Austin is evident nationwide: Online companies are aiming their offline ads at smaller cities with high per capita Internet penetration.

According to Intermarket Group, a San Diego-based business information publisher, 86% of e-commerce companies responding to a survey said they spent money on offline advertising in 1998. Only 14% had online-only ads.

More than half (55%) of large e-commerce companies advertised in newspapers in 1998, according to Intermarket. Other companies relied on trade and consumer magazines (54%); marketing partnerships with other sites (49%); online ads (47%); TV, radio and print catalogs (35%); and sponsorships of other sites (26%).

Limited budgets force online companies to choose carefully the cities in which they use offline advertising.

"Companies are going to budget their ad dollars where it gives them the best return," said David Strassel, a partner with Intermarket Group.

While the major markets, such as New York, Los Angeles and Chicago, still weigh in as hot spots for advertising, Austin, Denver, Washington-Baltimore, Nashville, Tenn., and San Francisco -- Cyber Dialogue's top five cities for online use -- are gaining in popularity. That's because they have people that online companies want to attract.

"Sixty-four percent of metro [Austin] households have a home computer; seven out of 10 of those households are using the Internet. And all new homes being constructed are prewired to accept ISDN use," Mr. Hagstrom said.

One advertiser, ApplianceOrder.com, an online appliance retailer, was so pleased with the results of the newspaper ad it ran in April that by May, it had doubled its ad spending, Mr. Hagstrom said. He said the online appliance retailer reported an increase in online sales as a result of the ads.

Other advertisers have had similar success elsewhere.

LendingTree, a Web-based consumer loan and mortgage broker (www.lendingtree.com), in January launched its first mainstream campaign. The radio and newspaper ads from Frankfurt Balkind Partners, New York, initially ran in Dallas, Los Angeles, New York and San Francisco. The company later added radio advertising in Atlanta, Cincinnati, Chicago and Washington, and outdoor in Atlanta and Charlotte, N.C.


In picking the markets for offline advertising, LendingTree sought cities with enough lenders to handle applications, markets large enough for significant brand exposure and cities with high Internet penetration, said Mitchell York, president of LendingTree.

Because it's cheaper to advertise in smaller markets, the company's ad buys in second- and third-tier cities with high percentages of Internet users were more efficient, Mr. York said.

"People who come to us through offline media close loans online [more often] than those who come to us through online advertising," Mr. York said, because those people are actively seeking a loan.

In February, Microsoft Corp. began an $18.5 million campaign to build awareness of MSN's portal. More than three-fourths of the budget went into print, with ads running in publications with a high percentage of readers with Internet access, such as Newsweek, Time and The Wall Street Journal. It also bought radio spots in eight markets, including Boston, Chicago, Dallas and Seattle, and outdoor in Los Angeles, New York and San Francisco.

"You can't ignore your major markets, but you must understand what you are getting because it's very expensive to advertise there," said Marty Taucher, Microsoft Network's director of network communications. "For the highest efficiency of media dollars, go to cities with high Internet penetration."


But just because a city is wired doesn't mean it's always the best market for an online company to advertise in, said Peter Krasilovsky, program director, Kelsey Group, Princeton, N.J.

"New York may not be as efficient a buy as Nashville, but you still have a lot of people online in New York. So New York's Soho might be a more important market for some companies trying to reach their users," Mr. Krasilovsky said.

In fact, there are more than 50 U.S. markets with more than 100,000 users online, he said.

Where an online company chooses to advertise may depend on the goals of its campaign. Companies that plan to go public may want to stick to the larger markets to raise investor awareness, said Peter Levitan, president of destination site New Jersey Online.

Ultimately, the goal for online companies may be to strike a balance between advertising in big cities with high numbers of Internet users and advertising in smaller cities with high percentages of Internet users, said Tom Miller, VP-Internet strategies group at Cyber Dialogue.

"People generally know [Internet] penetration follows population density," Mr.

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