Web widens for online as digital potential becomes even clearer

If ever there was an advertising growth story then the internet is it. The medium did not exist 10 years ago and nearly died in infancy at the turn of the new century. But now it is coming into its own and shaking up the traditional marketing mix.

This show has single handedly changed the very definition of a “celebrity”.

Research from PricewaterhouseCoopers and the Interactive Advertising Bureau shows that online is growing faster than any other advertising sector. The market was worth £267m in the first six months of 2004 – up 76% year-on-year – and captured 3.2% of all UK advertising spending. Having broken through the 3%barrier for the first time, online is now fast approaching radio advertising.

This explosive growth – underpinned by the economic upturn – mirrors the massive expansion in web access and usage. The internet is reaching a wide and ever-expanding audience, now enhanced by the increasing uptake of broadband.

Prime attractions of the internet for advertisers are measurability of response rates and the ability to reach niche audiences at the point when they are most inclined to buy a particular product or service.

Click-through rates and click-to-order ratios are often way ahead of traditional advertising.

Online advertising is also highly cost-effective.

Advertising.com – the interactive marketing group acquired by AOL for $435m earlier this year – buys up space on other websites and offers it to advertisers who generally pay according to response rates.

PwC’s research shows that the fastest-growing area of web advertising, both in the UK and the US, is search-related campaigns. Here, an advertiser typically pays to sponsor individual key words on internet search engines which then drive traffic to the advertiser’s website.

Sponsored search represented some 40% of all online advertising in the US in the first half of 2004 and almost 41% in the UK.

Major branding campaigns are currently lagging behind sponsored listings in their web usage. Yet they too are beginning to take online advertising more seriously – recognising the multiplier effect in terms of consumer awareness gained when traditional branding campaigns on TV or in the press are backed by web marketing So far, however, online branding campaigns have tended to use pop-up, skyscraper and banner formats, which can be technically and creatively limiting. They have also often focused on products in sectors such as auto, hi-tech and finance, where consumers are more inclined to research products online. The fast-moving consumer goods sector still needs more convincing of the internet’s selling power.

The recent exponential growth in online advertising will clearly have implications for traditional advertising media, notably print display ads, radio and outdoors, as well as the various below-the-line initiatives.

Yet currently, perhaps because it is promoting products and brands in an entirely new and different way, the internet appears to be working in synergy with, rather than against, other media.

I can see no obvious reason why the internet advertising market should not continue to grow. Its near-death experience in 2000/2001 was due to external economic pressures and frenzied over-spending by corporates during the dotcom era. Now, with a proven revenue model, it is a far more mature, accepted and stable sector capable of rational, sustainable, long-term growth.

The internet’s huge advertising potential is further evidenced by the fact that it is now the UK’s third most important medium– after television and radio – accounting for about 15% of all media consumed. So, despite its recent growth, there is still a large gap between total ad spend online and the amount of time consumers are actually logged on to the net.

Just as advertisers must get to grips with the possibilities afforded by the internet, media owners too must explore how they can best exploit the market and expand their online offerings.

Generally, both parties need to become bolder and not be deterred by technology. The web is no longer the preserve of the techies. It is an exciting place to be for publishers, creatives and clients alike. And the staggering pace of innovation means that we are now only scratching at the surface of what interactive, digital marketing will mean in the future.

Olivier Wolf is a partner at PricewaterhouseCoopers

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