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Thursday, 8 March, 2001, 16:30 GMT
Can dot.coms make money from advertising?
One of the most high-profile internet names in the world is having trouble getting enough advertisers on its site.
Unlike many of its its dot.com competitors, internet portal Yahoo has managed to turn a profit before.
Yahoo shook the industry when it blamed the difficulty in selling advertisements for its profits shortfall.
Yahoo, with a total global audience of over 150 million, is thought to be the world's most visited website.
If this internet giant can't make money selling advertisements on the internet, then which of its smaller competitors can?
It is always difficult to sell advertisements when the economy is slowing down.
Advertisers are typically more concerned about shifting goods from shop shelves than they are about building a brand name.
This is as true for old media as it is for the internet.
But for the internet, the blow has been made more brutal by the demise of many dot.coms.
Saturday marks one year since the Nasdaq reached its all-time record high.
Its fall since then has been steep.
But while there have been many dot.com casualties, analysts have consistently said that quality dot.coms would ultimately thrive, which is what makes Yahoo's profit warning more worrying.
"I was very surprised by the magnitude of Yahoo's shortfall," Derek Brown, an analyst with W.R Hambrecht in San Francisco said. " The new outlook represents a staggering reveral of fortunes...the implications for the online advertising market are dire."
The problem, says Jupiter MMXI analyst Staffan Engdegard, is the dot.coms that drove the growth of online advertising - such as Boo - have either gone out of business or have had to radically cut their costs.
"What everyone is waiting for is the traditional advertisers to come online to take over the fallen mantel of the dot.coms...That will not happen over one day," Jupiter MMXI's Engdegard said.
By this analysis, this current lack of online advertising is only a temporary, albeit painful, gap.
Does it work?
But many traditional advertisers have yet to be convinced of the cost effectiveness of spending their marketing budget on the web.
"There seems to be a lack of a definitive standard for identifying how effective advertising is, particularly banner advertising. That is really the key issue," Joe Lamb, spokesman for the Incorporated Society of British Advertisers (ISBA), which represents about 40 of the FTSE 100 companies, said.
He said it was up to dot.coms to sell the benefits to potential advertisers.
"The online advertising industry could really have a look at itself and prove the effect of online advertising to major blue chip advertisers," he added.
Jupiter MMXI's Staffan Engdegard agrees that advertisers need to be clearer about what they are getting for their money.
While it is easy enough to find out how many people clicked on an advertisement, it can be tricky to gauge the success of a campaign in terms of increased sales or brand awareness.
Part of Yahoo's problem is also that internet advertisers are moving away from mass purchases of space on the most popular sites such as AOL and Yahoo towards more niche areas.
Enthusiasm still exists for web advertising.
Online advertising can be more robust than advertising for traditional media, providing users with the chance to view ads, request and receive specialised product information and make an instant purchase.
Potential also exists to make money from performance-related advertising, where advertisers can pay-per-click.
But, in the meantime, companies like Yahoo need to find other ways of making money.
"We will see continued growth. What it is for Yahoo and other sites, it is really to control their costs and to find ways to take a larger share of not so fast growing market," Jupiter MMXI's Staffan Endegard said, adding that they need "complementary revenue streams...that have the opportunity to grow faster than online advertising."
Many internet media companies - including Yahoo - had already said they hoped to build other sources of income apart from advertising.
The easiest way to make money quickly is to charge consumers for services.
Preferably, these services should be new because, as online file swapping service Napster could soon find out, people are reluctant to pay for something they have thus far been getting for free.
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