The New Media Elites
And that's big bucks. Internet advertising is up by 26 percent this year to $14.7 billion (out of total advertising of $278 billion) and is expected to top $26 billion by 2010, according to research by Forrester Research. Google alone sold $6.1 billion in ads this year, double that of last year and more than any newspaper chain, magazine group, or television network. By 2006, its ad revenues are projected to top $9 billion, which would put it fourth among American media companies in total ad sales and ahead of such giants as NBC, Universal, and Time Warner.
Some of the graybeards have adopted the strategy of "if you can't beat 'em, join 'em." Rupert Murdoch's News Corp. plunked down $1.3 billion earlier this year on acquisitions including MySpace.com, a fast-growing social-networking site, and IGN Entertainment, which publishes video games and other content. CBS owner Viacom tried to buy MySpace and IGN but ended up instead with Neopets, a website for children offering virtual pets. Disney recently announced a landmark deal with Apple to sell ABC' s top-rated television shows Desperate Housewives and Lost in a digital format where they could be downloaded to a video iPod. The New York Times Co. bought About.com (which features independent experts offering advice) earlier this year for $418 million. Although its third-quarter revenue of $14.2 million was a small portion of the Times Co.'s earnings, About 's ad revenues mushroomed by 67 percent--compared with just 2.9 percent for the Times Co. overall.
Online ads appeal to marketers because their effectiveness can be measured in a number of different ways. Advertisers can see exactly how many people click on the ads, where they go once they click through, who they are (in some cases), and how often the ad converts a shopper to a buyer. "The virtuous circle," says Yahoo! Chief Operating Officer Dan Rosenzweig, "is that if the content is more relevant and the advertising is more relevant, the consumer will be happier and will keep coming back."
TV offers nothing comparable, so advertisers rely on ratings information that is often subjective and less than reliable. "The Internet is the most ubiquitous experimental lab in history, built on two-way, real-time interactions with millions of consumers whose individual consumption patterns can for the first time be infinitesimally measured, monitored, and molded," says Richard Yanowitch, a veteran Silicon Valley marketing consultant.
Get your clicks. The Internet is also helping to rewrite the very rules of advertising, where companies aimed ads at selected demographic groups they believed were most interested in buying their products. "Traditionally, the focus has been on the outbound message," says Tim Armstrong, vice president of ad sales for Google. "But we think the information coming back in is as important or more important than the messages going out. For years, demographics has been a religion among advertisers because it was the only information they had. Now they're realizing there's more out there." Google rationalizes that reaching 60 people who have actually shown interest in a particular product by visiting its marketing site or a related blog is much more effective than targeting 600 people who are in the right age, education, and income bracket to buy the product but have not indicated any special interest in it. And because most of Google's ad-buying clients pay for ads only when users click on them, the company can precisely measure their effectiveness and charge more for ads that really work.
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