Online advertising faces anxiety attack

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by Terry Lefton

(IDG) -- The stock market has been hammering ad agencies such as DoubleClick and portals like Yahoo, all because of a widely feared softness in the Internet ad market. Web publishers are angst-ridden about 2001. Even so, the leading forecasters of these things, like Jupiter Communications, aren't backing off their earlier projections that ad online growth will continue next year at a rate exceeding 33 percent.

Growth is slowing from 51 percent in 1999, and though 33 percent is still not shabby, Wall Street never likes slowing growth. And many of these stocks - both ad-related stocks and stocks of dot-coms that buy many of the ads - were inflated anyway. Furthermore, talk of a general economic downturn tends to make ad people nervous. The rest of the concerns might be chalked up to first-quarter blues. The post-holiday period has always been slow, but last year was such a cheery exception that people don't know what to expect this time around.

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"We're making our numbers, but it's a very tough sales environment right now, which I see continuing through the first quarter and then trending up," says Evan Sternschein, iWon.com's executive VP of sales, whose assessment matches those of the leading forecasters. For example, Merrill Lynch analyst Henry Blodget predicts just 10 percent growth in the first quarter, but notes that once pricing stabilizes and traditional advertisers begin to replace the ad dollars spent by overzealous startups, "market growth should accelerate for the second half of 2001 and into 2002."

Even if the climate improves by the end of the year, analysts, agencies and Web publishers say they expect next year to redefine the business: Prices will erode and more clients will insist on paying for Internet ads only when they perform.

Some industry executives are calling for an adjustment in expectations. "The sector is seeing what anyone else would call robust growth," says Barry Salzman, president of global media at DoubleClick, whose stock price has whipped between $135.25 and $8.75 over the past year. "But because the initial boom was fueled by overfunding from capital markets and IPO money that couldn't last, what we have now looks like a slowdown. It's actually just settling into a real business."

If prices erode, large portals like Yahoo will suffer most. At the same time, highly targeted sites and e-mail campaigns will be able to charge more as advertisers buy into the efficiency of Internet marketing. IBM, for example, ran a recruiting ad serviced by DoubleClick that appeared only on sites visited by users with a Columbia.edu e-mail address, Salzman says.

Internet advertising was supposed to be the most "accountable" ad medium this side of direct mail. But advertisers are agitating for even greater accountability. They're demanding performance-based pricing schemes like "cost per click" or "cost per action." These ads are a nightmare for agencies and publishers because they're less profitable.

Agencies love to tout projections that show ad spending on the Web eclipsing both cable TV and magazines within four years. Still, with the online share of all ad dollars at just 4 percent, the immediate challenge is to attract more traditional advertisers.

"Like cable TV in its early days, we're doing a lot of educating," says Drew Ianni, president and CEO of New York agency Atmosphere. "I've been telling clients to think of it as an R&D expenditure. That seems to make them a lot more comfortable."

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DoubleClick to cut 100 to 150 jobs
(The Industry Standard)
Some big spenders won't shell out for Web ads
(The Industry Standard)
Banner ads just don't cut it
(NW Fusion)
DoubleClick: Traditional advertisers stronger online
(InfoWorld)
Dot-com doom? No, says new ad data
(The Industry Standard)
Wasted days and wasted bandwidth
(NW Fusion)
Banner ads have proven disastrous
(IDG.net)
Will Wall Street ever feel good about Internet ads?
(The Industry Standard)

DoubleClick, Inc.
Yahoo! Inc.
iWon, Inc.

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