Sunday, December 31, 2006
Soaring Online Ad Prices - Is an End in Sight?
Media executives and investors get a pleasant neck ache from watching the skyward path of online advertising revenue. However, for those who have to pay for advertising, the trend is bringing some anxiety. Prices for some types of online advertising are going up, and some retailers and brand marketers have said that the big question hanging over 2007 is whether publishers will be so emboldened by a strong advertising market that they will raise ad prices sharply. "Everybody's excited about online advertising," said Mark Vadon, chief executive of the online jeweler Blue Nile. "But the rates keep going up and up and up." Joanne Bradford, corporate vice president and chief media officer at MSN.com, would not specify the extent to which that site would raise prices next year, but she said that during the past two years, "there's been unbelievable price pressure."
For instance, Bradford said that for the front pages of some popular MSN sections, prices rose tenfold. "That settled down quite a bit, and now we're starting to see price pressure more evenly spread across the network," she said.
According to Greg Stuart, chief executive of the Interactive Advertising Bureau, an industry group that represents online media companies, there are no reliable statistics on average advertising rates, in part because ad agencies often negotiate special rates with publishers and keep those deals quiet. "Rates are going up, but effectiveness is going up, too," he said, suggesting that consumers were more likely to make a purchase or request additional information than in previous years. Online advertising revenue in the U.S. is expected to show growth of 31 percent to US$16.4 billion for this year, according to a report by eMarketer, an Internet consultancy. That spending represents 6 percent of the overall advertising market. Revenue for 2007, eMarketer said, will probably rise 19 percent to $19.5 billion.
Rates are expected to grow at a far slower rate, said Greg Smith, chief operating officer of Neo@Ogilvy, North America, an interactive advertising agency that serves clients like Cisco Systems and the U.S. insurer Allstate. In popular categories like autos, health, finance and travel, Smith said, "rates will creep up, whether it's on Yahoo Health or MSN's auto sites, since places like that always perform very well." Vadon said that the same irrational spending that fueled the rise in online advertising during the dot-com boom was at work now. "In 1999, it was a rush of venture money that did it," he said. "Today, you've got a rush of corporate money. And everyone says the Internet's great because you can measure everything and track results, but a lot of people don't measure everything." Rates for ads on video sites, which are attracting marketers as users stampede toward online videos, have actually shown signs of dropping, said Jordan Bitterman, vice president and media director for Digitas, an online marketing agency. Publishers are offering so many video advertising spots on their Web pages that they are outpacing demand, he said.
Bitterman agreed that rates on certain pages of popular portals and other sites have risen significantly, particularly in recent months, but he disputed the notion that rates were rising across the board. Many publishers still have "10, 20, 30 percent inventory that doesn't get sold out, and you can still get a lot of great efficiencies there," he said. That is precisely the strategy employed by Matt Coffin, chief executive of LowerMyBills.com, a financial services company owned by Experian. Coffin said that on publisher pages attracting a more general readership, as opposed to readers of a specific demographic, rates on ads had actually dropped. "We're a very broad-based advertiser, so we're able to make things like that work," Coffin said. "For other people, it doesn't work to advertise that broadly."
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For instance, Bradford said that for the front pages of some popular MSN sections, prices rose tenfold. "That settled down quite a bit, and now we're starting to see price pressure more evenly spread across the network," she said.
According to Greg Stuart, chief executive of the Interactive Advertising Bureau, an industry group that represents online media companies, there are no reliable statistics on average advertising rates, in part because ad agencies often negotiate special rates with publishers and keep those deals quiet. "Rates are going up, but effectiveness is going up, too," he said, suggesting that consumers were more likely to make a purchase or request additional information than in previous years. Online advertising revenue in the U.S. is expected to show growth of 31 percent to US$16.4 billion for this year, according to a report by eMarketer, an Internet consultancy. That spending represents 6 percent of the overall advertising market. Revenue for 2007, eMarketer said, will probably rise 19 percent to $19.5 billion.
Rates are expected to grow at a far slower rate, said Greg Smith, chief operating officer of Neo@Ogilvy, North America, an interactive advertising agency that serves clients like Cisco Systems and the U.S. insurer Allstate. In popular categories like autos, health, finance and travel, Smith said, "rates will creep up, whether it's on Yahoo Health or MSN's auto sites, since places like that always perform very well." Vadon said that the same irrational spending that fueled the rise in online advertising during the dot-com boom was at work now. "In 1999, it was a rush of venture money that did it," he said. "Today, you've got a rush of corporate money. And everyone says the Internet's great because you can measure everything and track results, but a lot of people don't measure everything." Rates for ads on video sites, which are attracting marketers as users stampede toward online videos, have actually shown signs of dropping, said Jordan Bitterman, vice president and media director for Digitas, an online marketing agency. Publishers are offering so many video advertising spots on their Web pages that they are outpacing demand, he said.
Bitterman agreed that rates on certain pages of popular portals and other sites have risen significantly, particularly in recent months, but he disputed the notion that rates were rising across the board. Many publishers still have "10, 20, 30 percent inventory that doesn't get sold out, and you can still get a lot of great efficiencies there," he said. That is precisely the strategy employed by Matt Coffin, chief executive of LowerMyBills.com, a financial services company owned by Experian. Coffin said that on publisher pages attracting a more general readership, as opposed to readers of a specific demographic, rates on ads had actually dropped. "We're a very broad-based advertiser, so we're able to make things like that work," Coffin said. "For other people, it doesn't work to advertise that broadly."
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