The headlines say it all. This time last year, typical Nua.com headlines about online advertising included: Ad revenues up for 18th quarter running". In the past month, advertising headlines were more along the lines of: UK advertisers wary of spending online.
The laws of gravity are exerting a heavy toll in the world of online advertising. Online ad revenues are down. Banner ad click-through rates are down. Internet-related advertising jobs are being cut.
So what went wrong? The slump in the technology sector has been the main cause of sliding revenues. Most major advertisers have found their budgets cut, and some high ad spenders of recent years have gone out of business.
Furthermore, advertisers have grown weary of the perceived lack of transparency and accountability associated with online advertising. A recent survey by Media Audits found that two thirds of UK advertisers rely on unaudited figures provided by publishers. Even those that do use third party advertising analysis have no way of knowing how many people see their online ads and react positively, but do not buy until weeks or months later.
The same could be said for billboards or TV advertising, but these formats, and the techniques for measuring their effectiveness, have evolved over decades. Advertisers are more accepting of what the New York Times calls "squishy" metrics when it comes to established ad formats. Internet advertising promised so much more in terms of user tracking and measuring effectiveness, but it has largely failed to deliver, leaving advertisers peeved.
Peeving them even more is the emergence of software such as WebWasher and AdSubstract, which strips webpages of all advertising. At least six million US inter net users have downloaded one of these two programs.
Other applications such as KaZaA and Gator are part of what Salon.com terms the "parasite economy". While they ostensibly exist to allow internet users to swap files, or store passwords in one place, they come with software that either inserts ads into the text of websites by highlighting keywords and turning them into hyperlinks, or covers up the original banners on sites with banners of their own.
This practice irritates content publishers and advertisers alike. The publishers are finding their content hijacked by ads they don't get paid for, while advertisers find the value of their ads diluted.
Arguing about banners, however, may be somewhat immaterial. Anyone who has had internet access for more than five minutes cocks a snook at banners. Banners are there to be ignored. Online advertisers see they must go beyond the banner.
They are realising that effective advertising on the net has to be targeted and interactive. New technologies allow for effective tracking and targeting of internet users. Although revenues from targeted ads are smaller because fewer users see them, campaigns are more effective because those who see them are more likely to act.
This granularity, or separating internet users into small, well-defined groups, is heaven-sent for advertisers, but raises thorny privacy issues. Online privacy advocates and online advertisers are set to clash, as each group tries to protect its own interests. Many advertisers may find it more politic to focus on interactive ads instead.
The newest interactive ads are floating ads, as offered by United Virtualities and Eyeblaster. A prime example was a recent Reebok ad that followed up on the company's "Lose the beer belly" TV campaign. It consisted of an animated pink belly that hovered over the text on a webpage. If you clicked on it, you were taken to the Reebok site. If you didn't, it just wandered about the page for a few seconds and then vanished. It was eye-catching, funny and, most importantly, not annoying.
Maybe floating ads are not annoying because they are different. Maybe we will be sick of them in six months, but I think they have a fighting chance. The principles of traditional advertising hold true online. The most effective advertisements are the most creative. They don't need to be complicated, just catch our attention.
Will online advertising survive? Yes, because we need it to. All popular media exist because advertising pays the bills. More importantly, it will survive because it is now big business. As Business Week recently pointed out, US advertisers spent $8.2 billion online last year, in comparison with $1.8bn on outdoor advertising, and $11.2 bn on cable TV advertising.
There is plenty of room for it to get bigger. After all, only 1% of advertising budgets in the US and UK go online. If online publishers and ad agencies can persuade advertisers to spend just another little bit of their budgets on the likes of little floating bellies, online advertising might just ride out the storm.
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