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Friday, 16 February, 2001, 17:13 GMT
End in sight for banner ads?
Banner advertisements
Is there still the same money to be made from advertising online?
Websites once pinned their hopes for the future on banner advertisements.

But the dot.com fallout and fears of a US recession have dented hopes that online advertisements could buy websites a profitable future.

Far fewer people are clicking on advertisements, with one industry expert suggesting the click-to rate is now barely a fraction of 1%

Advertisers may not want their name splashed across the top of websites any more, but, experts argue, they are still prepared to pay up if it helps them get customers through the door.

Traffic in shops

One of the first things companies cut when times get tough is their advertisement budgets.

This is as true in the offline world as it is in the online world.

When the economy starts to slow down, people are less concerned about building a brand and far more worried about getting customers into shops.

"We are counter-cyclical, " said Nick Hynes, managing director and president of Goto.com Europe, one of the UK's few search services that are "paid for placement".

"We wouldn't want to launch a brand, what we are about is getting people into shops," said Mr Hynes.

With the Goto.com model, websites bid on search terms and phrases that are relevant to their site. The higher it bids, the higher it is listed. Every time a user clicks on a site, the site is charged for it.

Other performance-linked options are affiliate marketing programmes. With these, e-tailers pay websites a commission for sales or customers they refer.

Banner advertisements still have their defenders, who argue that users still notice the advertisements, even if they do not click on them.

Web savvy

But others argue that the growth of performance-related advertising is as much as to do with the maturing of the internet as it has with the slowdown in the US economy.

Web users are just not as interested in clicking on banner advertisements as they used to be.

"In the early days, you would click on anything, you hadn't yet learned to filter out," said Toby Smallpeice, chief executive officer at search optimisation company Webgravity.

In those heady early days, the click though rate for banner advertisements was typically between 5% and 10%. It is now closer to 0.1% or 0.01%, he said.

This fall in popularity has increased criticism of the banner ad model.

"Banner ads are not a hugely wonderful experience for advertisers... We call it the 'pay and pray' model... It is a very expensive way to get customers," Goto.com's Nick Hynes said.

Espotting.com is a UK company which offers a similar service to Goto.com.

Espotting.com's Max Moore said: "People don't want to spend huge amounts of money on non-accountable advertisements."

Search engines and web directories are among those looking to boost their revenues from advertisements.

Engine for growth

Web directory Yahoo has already warned that the year ahead could be tough.

"Even Yahoo has added paid placements within some parts of their directory, it is precisely because banner advertisement revenues are going down, advertisers are looking for other ways to reach out to consumers," Searchenginewatch.com's Danny Sullivan said.

But Searchenginewatch.com's Sullivan questions whether you need to pay money to more business on the web.

Most customers find the sites they want by clicking on search engines or web directories.

These directories take non-paid for submissions by companies for inclusion within their directories.

If "careful" submissions - designed to throw up your site in several searchs - are made to the major directories by strong sites, then, in theory, these sites should attract users for free.

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26 Jan 01 | Business
Yahoo remains upbeat
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