- Introduction/Overview
- 2 Types of Online Advertisers
- Online Ad Spend Breakdown
- Top 50 Online Advertisers
Online advertising is currently undergoing a boom. According to the Internet Advertising Bureau (IAB), online advertising revenues reached a new record of $3.9 billion for the first quarter of 2006, a 38% increase over Q1 2005 at $2.8 billion and a 6% increase over Q4 2005 total at $3.6 billion. Full year online advertising revenues for 2005 totalled $12.5 billion, a 30% increase over the previous revenue record of $9.6 billion in 2004. In a report released in June, 2006, TNS Media Intelligence estimates that total online advertising spend, including search, would reach $20 billion by year end, or about 12 percent of the projected $161 billion 2006 measured media ad spend.
The industry’s striking recent growth has been fueled by advertisers’ increasing acceptance of the Internet as a powerful and critical medium to engage their customers, create deeper brand experiences, and drive increased ROI. The steady increase in the percentage of advertising budgets going online matches the increasing importance the Internet is playing in consumer’s lives, as broadband proliferates and consumers are able to access the Internet from a range of devices. The average Internet user now spends 3 hours per day online, almost double the average 1.7 hours spent watching television. A recent CBS study found that teens are now spending as much time online - about 2.9 hours per day - as they do watching TV. In addition, the Internet gives advertisers to ability to target, be relevant, and measure ROI in a way never before possible.
To give an example of what’s going on, in a recent Fortune interview Julie Roehm, Chrysler’s director of marketing communications, describes how she spent 10% of her budget online in 2004, 18% in 2005, and is planning on spending 20% ($400 million) online in 2006. The reason? "We like to fish where the fish are."
2 Types of Online Advertisers
The online advertising process begins with the advertiser. Although there are a variety of reasons that advertisers are drawn to the Web, most online advertisers can be separated into two general categories - brand advertisers, and direct response advertisers.
Brand Advertisers
Brand advertisers are primarily looking to use the Internet to build their presence online, strengthen their relationship with their customers, and increase purchase intent. Although brand advertisers are increasingly performance-based (measuring entries into contests or free registrations on a website), they are not as as ROI focused as their statistics driven counterparts. They judge the success of their campaigns based on a number of criteria, including the number of clicks they receive, share of voice, reponses they get, overall buzz generated, increase in awareness, increase in purchase intent, and overall bump in sales. While some brand advertisers simply extend their existing offline campaigns online, others tailor new strategies exclusively for the Internet, such as the successful Wedding Crashers "Trailer Crashers" campaign.
An example of a standard brand advertiser is the ABC Television Network, the 19th highest spending online advertiser in January of 2006. ABC is not looking to convert any customers in real time on the Internet, rather they advertise online in order to create awareness and buzz around their TV shows, in order to boost viewership and engage their audience. An example of a typical brand advertiser media buy is the following rich media placement for the show "American Inventor" on Yahoo's TV category.
Direct Response Advertisers
Direct response advertisers are focused on the measurable and direct return they receive per dollar of capital invested in online advertising. They tend to have an online component to their business where potential customers can sign up for the product or service that is being advertised. They judge the success of their campaigns based on the CPA, and the eCPM that they are seeing in their online advertising. These advertisers usually have an internal Customer Lifetime Value that they have calculated over time, and know exactly how much they can afford to spend per new signup. If a new online campaign is not meeting their pre-determined targets, they are quick to exercise their "out" and move their dollars elsewhere.
A highly visible direct response advertiser is Vonage, the #1 highest spending online advertiser in April of 2006 (and in fact for much of this year). By blanketing the Web with its trademark orange banners, Vonage is hoping to drive customers to sign up for its VOIP phone service through the registration page on the Vonage website. An example of a typical Vonage direct response banner that has been placed on RecipeLand.com can be found below.
It's interesting to note that direct response advertisers such as Vonage are not as selective about where they advertise because they are more focued on performance than brand building. The company tracks its online campaign performance very carefully, constantly optimizing it's creative and placements in order to acheive its ROI and scale goals.
For example if Vonage knows the average monthly revenue per customer ($25), its operating margin (20%), and the lifetime of the average customer (currently estimated to be around 4 years) then it knows that the maximum it can afford to spend per new customer is under $240. (Vonage reported a $209 marketing cost per customer in Q3 2005). This enables the company's media buying team to be very efficient with their online advertising dollars, quickly shifting dollars away from non-performing placements to those that meet their ROI goals. To illustrate how this works imagine the Vonage online media buyer analyzing the intial results from two campaigns. Campaign A is priced at a $2.00 CPM, is generating a 1% click-through rate, and a 0.5% conversion rate. Campaign B is priced at $0.50 CPM, and is generating a 0.1% click-through rate and a 0.1% conversion rate. Here is what the campaigns would look after the intial test:
| Campaign A | Campaign B | |
| Impressions | 1,000,000 | 1,000,000 |
| CPM | $2.00 | $0.50 |
| Cost | $2,000.00 | $500.00 |
| CTR | 1.00% | 0.1% |
| Clicks | 10,0000 | 1,000 |
| Conversion Rate | 0.50% | 0.10% |
| Signups | 50 | 1 |
| | |
| eCPA | $40.00 | $500.00 |
Although Campaign A is priced at over 4X that of Campaign B, it is performing much better from an eCPA perspective. The Vonage media buyer in this hypothetical situation would quickly cancel Campaign B and shift as many dollars as possible into Campaign A. For the online direct response advertiser, it is all about performance and ROI.
In the end what every advertiser is looking for is relevance, defined as reaching the right person, at the right time. Relevance is what drives up click-through and conversion rates, and results in more sales and better ROI for advertisers. It also allows brand advertisers to deliver a high-impact message in front of the right audience. Relevance is the reason Google has done so well with AdWords. The Google search engine is like a database of intentions, allowing Google to serve up the ultimate in online advertising relevance - targeted ads right at the moment that someone is declaring their intent to search for that product or service.
Online Ad Spend Breakdown
CPM based advertising continues to dominate the industry with 48% of reported online ad revenue priced on a CPM or impression basis. Performance based pricing includes advertising purchased on a cost-per-click, CPA, CPL, or revenue-share basis.
As far as the advertising format goes, search continues to lead the pack with 40% of total online dollars. While the total dollar amount going into each of these categories has increased, the overall advertising mix has remained pretty consistent from 2004 to 2005.
Definitions
Consumer advertisers represented the largest category of Internet ad spending, accounting for 51% of Q2 2005 online ad revenues. They were led by retail advertisers, which made up 48% of consumer ad spend, with automotive, entertainment, and leisure advertisers also represented.
It is interesting to note that the revenue consolidation in the online advertising industry remains extremely high, with the top 50 ad-selling companies controlling 96% of the online advertising market.
Top 50 Online Advertisers - April 2006
| Position | Advertiser | Media Value ($ 000) | Sector |
| 1 | Vonage | 19,654 | Tech |
| 2 | Monster | 11,330 | Class |
| 3 | Classmates.com | 10,915 | Misc |
| 4 | Dollar Rent A Car | 9,691 | T/H |
| 5 | Ameritrade | 8,144 | Fin |
| 6 | Netflix | 7,948 | M/E |
| 7 | Scottrade | 7,630 | Fin |
| 8 | Forex Capital Markets (FXCM.com) | 7,428 | Fin |
| 9 | Fidelity Investments | 7,210 | Fin |
| 10 | Cingular Wireless | 6,211 | Tech |
| 11 | Dell VAR Computers | 6,109 | Tech |
| 12 | Dell Dimension Computers | 5,895 | Tech |
| 13 | FreeCreditReport.com | 5,515 | Fin |
| 14 | University of Phoenix Online | 5,498 | Edu |
| 15 | MLB.TV | 5,469 | M/E |
| 16 | HomePages | 5,282 | Class |
| 17 | E*Trade Financial | 5,270 | Fin |
| 18 | Amazon.com | 4,367 | Ret |
| 19 | HP Printers | 4,079 | Tech |
| 20 | Wal-Mart | 4,052 | Ret |
| 21 | Dice | 3,879 | Class |
| 22 | LowRateSource.com | 3,793 | Fin |
| 23 | Target.com | 3,762 | Ret |
| 24 | Verizon Wireless | 3,554 | Tech |
| 25 | Charles Schwab | 3,520 | Fin |
| 26 | LowerMyBills.com | 3,460 | Fin |
| 27 | LendingTree | 3,441 | Fin |
| 28 | NexTag Serivces | 3,414 | Misc |
| 29 | eBay | 3,383 | Misc |
| 30 | Comstock | 2,965 | Misc |
| 31 | Mensfacts.com | 2,876 | M/E |
| 32 | VacationsToGo.com | 2,869 | T/H |
| 33 | Bank of America | 2,775 | Fin |
| 34 | Discover Card | 2,754 | Fin |
| 35 | Wal-Mart | 2,750 | Ret |
| 36 | Overstock.com | 2,709 | Ret |
| 37 | DISH Network Satellite | 2,696 | M/E |
| 38 | AT&T | 2,691 | Tech |
| 39 | ShareBuilder | 2,683 | Fin |
| 40 | Circuit City | 2,649 | Ret |
| 41 | Lamisil Toenail Fungus RX | 2,601 | Misc |
| 42 | JCPenny | 2,582 | Ret |
| 43 | Blockbuster Online | 2,500 | M/E |
| 44 | PlanetOut.com | 2,422 | M/E |
| 45 | CyberTrader | 2,422 | Fin |
| 46 | Strayer University | 2,408 | Edu |
| 47 | Cingular Wireless & HBO Mobile | 2,387 | Tech |
| 48 | T-Mobile Wireless | 2,381 | Tech |
| 49 | Thrifty Car Rental | 2,366 | T/H |
| 50 | State Farm Insurance | 2,334 | Fin |
| GRAND TOTAL | $234,720 |