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Last Updated: Monday, 31 January 2005, 18:12 GMT
Online ads win over the brand leaders
By Alex Kleiderman
BBC News business reporter

Web user (Courtesy Vismedia)
Online ads are increasingly reaching a mass audience

Online advertising has come of age with major brands like American Express and Nike now firmly embracing the internet as an equal to more traditional promotional outlets.

Yahoo has said a boom in online advertising helped it to more than double fourth-quarter profits to $187m (143.2m) in the last three months of 2004.

Newspaper groups, meanwhile, seeing a loss of revenue from print advertisements, are expanding their own internet operations as they bid to keep up with demand from marketers in a sector which is growing.

"We saw a complete change of philosophy last year," says Jeff Lanctot, vice president of media at AvenueA/Razorfish, the largest independent online ad agency in the US.

Faced with a multi-channel media landscape and corporate belt tightening, marketing departments began to see online advertising as a cost-effective medium.

With its mass reach, the internet can now rival other entertainment outlets for audience size, says Mr Lanctot.

"Brand advertisers once considered online an emerging technology they should test but in 2004 they considered it an essential part of their campaigns."

Rise of the portals

Total online spend grew by about 27% last year but still only accounted for 3-4% of US and European company marketing budgets, according to JupiterResearch.

By 2009, JupiterResearch forecasts revenues will have more than doubled to about $16.1bn (8.5bn) in the US and 4.7bn euros (3.2bn) in Europe.

Although growth will slow and overall revenues will remain far below TV and newspapers, online advertising is the only area expected to significantly increase its market share over the next five years.

Financial and travel companies were among the first to start selling products and services on the internet and now spend up to 20% of their advertising budgets online.

Sponsored searches - where firms pay to have links to their websites displayed in response to internet searches - and the bright spot in the years after the dot.com crash for the likes of Google - continues to grow.

And sales of online display or banner advertisements - the largest earner in the sector - generated their first increase in revenue last year since 2000.

It was the major brands advertising on specialist sport sites and the portals like Yahoo, MSN and AOL - where the cost of space has been rising and can now cost $400,000 for a 24-hour placing in the US - that is behind the recent boost.

Busy lives

Marco Bertozzi, commercial director at London-based digital media advisors Zed Media, has seen the number of clients who view the internet as "more than just a direct response channel" increase dramatically over the last two years.

Their online spend accordingly is up by about 400%.

"The shift is primarily being driven by volume," he says. "If the audiences are growing then you will be able to reach people more quickly."

"People are turning to the web for info, entertainment, to save time in a very busy life.

"Online is part of most people's lives now and the uniqueness of it is the fact that advertisers can get far closer to their consumers."

There are now the first signs of internet companies starting to sell ad space as part of a package and insist on minimum spend requirements but Mr Bertozzi believes prices could remain stable as choice allows advertisers to shop around.

Wary consumers

A survey carried out for the European Interactive Advertising Association, a trade organisation for sellers of interactive media, found 83% of online users felt that TV has too much advertising but less than half felt the same about the internet.

There was a confidence as the industry re-established itself on a much more stable footing after the dot.com crash
Julian Smith, JupiterResearch
A third of those surveyed said that online advertising was relevant to them.

"There was a confidence as the industry re-established itself on a much more stable footing after the dot.com crash," says Julian Smith, European online advertising analyst at JupiterResearch.

But Mr Smith envisages challenges ahead as faster internet connections see advertisers vying to create even more creative campaigns.

"As more [advertisers] come online in 2005 and competition intensifies to attract the attention of ever more experienced and wary online consumers, so the costs of online marketing will increase."

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