The future of online marketing

With dotcom budgets drying up, online advertising is returning to more rational levels. What does this mean for the industry?

With dotcom budgets drying up, online advertising is returning to more rational levels. What does this mean for the industry?

Contrary to popular opinion, online advertising is not in decline, it is just growing up. A couple of years ago, all an online media owner had to do to sell advertising space on its sites was pick up the phone. The industry was awash with marketing cash, most of it burning a hole in the pockets of various start-ups, having been dished out by gung-ho venture capitalists.

This easy money is now virtually all gone. Luckily, more and more blue-chip organisations are moving in to replace the online advertising spend lost with nose-diving dotcoms. But these clients are more savvy. Like everyone else investing online today, they want some palpable return on their investment.

Return on investment (ROI) is the biggest argument in the online advertising market today.

Most online advertising deals are currently done on a cost-per-thousand (CPM) basis, where advertisers pay a set fee for every thousand people who see their advert. But a combination of falling click-through rates, an increase in the amount of unsold space and the desire for demonstrable ROI has led to new models of advertising gaining ground.

"A new intelligence has hit the market, and with it a new kind of approach allowing brands to get a direct measurable return per pound spent," says Adrian Moss, managing director of the Deal Group, which specialises in success-based online advertising.

"Everywhere, marketing departments are looking for something that gives demonstrable results, [something] that is measurable, trackable and accountable, and they now have the answer with the Internet, a world that can do it better than anywhere else," says Moss.

Moss is referring to cost-per-action or cost-per-acquisition (CPA) advertising deals, in which advertisers do not pay a fee to site owners but are charged on the number of sales or customer registrations their adverts bring.

Moss's company has signed deals with 20 UK Web media owners, many of which own small- to medium-sized sites that may not have been considered big enough by some advertising agencies. Using this network, Moss claims that his company now delivers a monthly million leads and prospective sales to his customers, which include William Hill, Dialaphone, Thomas Cook and Comet.

Web sites joining the Deal Group network earn commission from sales leads they generate for these companies, from which Deal Group takes its margin of up to 30%.

Many larger media owners, however, are not so happy with the CPA model. Caroline Pathey, advertising sales director for one of the UK's largest portals, Freeserve, believes that charging adverts based on response puts too much of a burden on the media owner.

"It has too many risks. What about the quality of the product, how it is priced? Is the client's Web site working?"

Pathey said that a client recently came to her with a CPA proposition that it said would earn Freeserve £70,000 over three months. After two weeks the client's site was not even up. Once Freeserve had offered technical help it found that the company was getting zero registrations. It discovered that this was because customers were expected to fill in a three-page registration form on a site that was continually crashing. After a month, Freeserve had earned £150. It walked away from the deal and has not considered a CPA proposition since.

CPA-based marketing can work for direct marketing campaigns, where the Internet is used to replace mail-outs and catalogues, but will not work for branding campaigns, stresses Pathey.

"If you have a brand, you want to protect it. You get close to the media owner you want to work with and build a campaign using targeted locations," she says.

"There is no third-party research that has proved the value of the Internet for branding. Branding is just paying for advertising without any proof of response," says Moss, who cannot understand why a client would shift their offline branding budgets online if there is even more of a question mark over its effectiveness.

"I am not saying don't bring branding online, just link it to an action. For example, you could get customers to click on a banner to download a voucher for a product," Moss says.

Research group Forrester believes that performance-based advertising will grow from 3% of advertisement deals today to 83% by 2003.

The likelihood is that, as the Internet develops as an advertising medium, some form of hybrid approach will develop that will be able to meet the demand of both sides:

Media owners will have to go to greater lengths to prove the worth of their advertising space, probably by installing more sophisticated visitor tracking and measurement software.

In return, advertisers will have to agree to some form of minimum standards in terms of Web site, product and creative if they expect media owners to accept payment according to response.

Which type of online marketing should I choose?
  • Brand building: banner advertising, site sponsorship, viral campaigns, online PR, strategic channel partnerships
  • Lead-generation: e-mail campaigns to new and existing lists, affiliate marketing, strategic channel partnerships, banners, online promotions
  • Sales - online and offline: strategic channel partnerships, affiliate marketing (via high-traffic sites), personalised e-mail marketing, online promotions
  • Relationship building: personalised e-mail campaigns, mobile marketing
  • Research and satisfaction measurement: personalised e-mail with online incentives.

Remember that all these activities will be more effective if they are part of an integrated online and offline strategy, and take advantage of the ease of monitoring online effectiveness to test, learn and test repeatedly. E-mail marketing will take off because it is good for so many tasks, but make sure you only use opt-in lists or your own permission-based database, and that you personalise where possible.

Source: Moti Shahani, managing director of E-Marketing

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