November 30, 1998
Net Advertising Pushes Boundaries
As Targeting Becomes More Precise
By GEORGE ANDERS
Staff Reporter of THE WALL STREET JOURNAL
OAKLAND, Calif. -- Tony Nethercutt points to a big white swatch of
emptiness as his computer pulls up a page on the Web. Then he coyly tells his
audience: "All that space is still available. It can still be yours. But there's a
great land rush going on for advertising space on the Internet. Eventually,
there will be a bidding war for sites like this."
Across the table, two Clorox Inc. executives listen eagerly to the ad salesman's
presentation. They are looking for new ways to promote their Armor All line
of car cleansers. Online advertising is new territory for them, but Mr.
Nethercutt beckons with a $50,000 opportunity to reach a targeted audience.
His proposal: Put their message on the Web pages of Kelley Blue Book Inc.,
the bible of used-car data.
After a moment's pause, Clorox marketing manager Cary Rosenzweig nods
his head. "I'm very supportive," he says. "This is the right thing to do."
Mr. Nethercutt's triumph is part of a wider coming of age for cyberspace
advertising. Just 18 months ago, much of his pitch would have been laughable.
Few companies outside the technology field wanted to advertise on the
Internet, and those that tried were hardly dazzled by the results. By some
estimates, more than 80% of the Internet's available ad slots in 1997 went
unsold.
Now, online advertising is booming. First-half spending in the U.S. totaled
$774 million, double the year-earlier pace, according to
PricewaterhouseCoopers. Full-year 1998 outlays are expected to reach $2
billion, says Salomon Smith Barney Inc. Online ad spending isn't just keeping
pace with increased use of the Internet -- it is rising appreciably faster.
Blurring Some Lines
This surge is happening in part because advertisers see new ways cyberspace
can fit their strategies. Some global marketers, such as General Motors Corp.,
are spending more online as they hunt for alternatives to television.
Meanwhile, dozens of start-ups want to make a splash in online commerce,
and their business plans practically force them to buy Internet ads.
Moreover, the online world is accommodating advertisers in ways that print
and broadcast media would find impossible. Some of these ways are
technological, including an exceptional ability to target specific customers.
Others involve a willingness to blur the division between content and
advertising, which traditional media regard as almost sacred. If the money is
right, many online publishers are willing to strike whatever sort of
partnerships an advertiser might want.
"There are so few rules here," says Anil Singh, senior vice president, sales, at
Yahoo! Inc., the Internet directory company in Santa Clara, Calif. Mr. Singh,
who oversees a cyberspace sales force of about 100 people, relishes the way
his company can help advertisers meet their goals. "Creativity is crucial," he
says.
The Unknowns
Still, whether online advertising can live up to its champions' hopes is unclear.
Rates are steep enough that some marketers wonder whether they can get
enough response to justify the cost. Most advertisers pay at least as much to
reach an Internet audience -- typically $10 to $40 per 1,000 viewers -- as they
would for TV or magazine ads.
And online audiences often greet ads with a yawn, as measured by
"click-through rates" of sometimes 1% or less. The rates show how often
computer users point their mouse at an ad and ask for more information. "A
lot of Internet banner ads are like billboards on the side of the highway," says
Martha Deevy, a senior vice president at Charles Schwab & Co., a brokerage
firm. "People drive right past them and don't bother to look."
Still, the people who sell space on the Internet often have something new and
supposedly better than last month's way of advertising. These days, many are
promoting "sponsorships," which cost more than simple banner ads at the
corner of a Web page but showcase a message much more prominently. Also
popular are "rich media" ads with video-like images, including flying golf
balls and wiggling fingers, that are meant to engage Web surfers.
The brash, chaotic nature of the Internet-ad business comes through clearly in
daily sales calls. Computers periodically freeze up or crash in the midst of
demonstrations. Negotiators dicker over ad rates as if at a used-car lot. And
even low-level managers can't seem to conduct a meeting without a speech
about their unique vision of where the Internet is headed.
A week on the road with the 40-year-old Mr. Nethercutt shows both the allure
and the limitations of online advertising. A lifelong salesman, Mr. Nethercutt
abandoned his old career in TV-ad sales last year after a corporate
restructuring cost him his job. Now he helps cover northern California for
DoubleClick Inc., an ad-sales network based in New York. It represents more
than 70 sites on the Internet. (The Wall Street Journal Interactive Edition uses
DoubleClick technology but isn't part of its ad network.)
In practically every call, Mr. Nethercutt woos advertisers with the notion that
he can deliver just those parts of the vast Internet audience most valuable to
them. If they want to reach women, he plays up DoubleClick clients such as
foodtv.com, an offshoot of cable television's Food Network. If they want
small-business owners, he plugs the Web site for Fast Company magazine.
If customers want even-more-precise targeting, Mr. Nethercutt can often
oblige. At AirTouch Communications Inc., ad manager Paul Whitbeck wants
to reach people in Sacramento, Calif., but not the nearby San Francisco
suburbs, where his cellular-phone company can't deliver service. No problem,
Mr. Nethercutt says. In the brief moment when Internet users wait for a Web
page to be delivered to their screen, DoubleClick's computers can identify the
area code being serviced. People in Sacramento's 916 area code would get the
AirTouch ad; those elsewhere wouldn't. "Nice," Mr. Whitbeck says. "The
customer has been targeted before he knows it."
Cookie Trail
Craftier techniques are about to arrive. Many Web sites already tag visitors'
computers with small files, known as "cookies," that help identify users on
return visits. If they never come back, though, they vanish. No more. Starting
next year, DoubleClick will introduce powerful software that will let
advertisers spot those visitors weeks later on other Web sites. Then people can
be greeted with more ads for the original merchant.
On a recent morning, Mr. Nethercutt and several DoubleClick colleagues
introduce this new service to Lot21 Interactive, a San Francisco ad agency
representing the NationsBank unit of BankAmerica Corp. It is clear that the
new service, called Boomerang, is enticing. When DoubleClick executives
briefly fumble about quoting a price for the service, a Lot21 executive chides
them: "Come on, I brought my checkbook for you."
Boomerang gets a chillier reception on Mr. Nethercutt's next stop. "I'm
worried about a privacy issue here," says Elizabeth Duff, a marketing
manager for the Discover brokerage unit of Morgan Stanley Dean Witter &
Co. Customers might be uneasy about so many of their online habits being
shared with strangers, she says. Her bosses give her a lot of leeway to try new
ideas in cyberspace, she says, but they don't ever want to find Discover in hot
water over its business practices.
Finding What Works
A look at click-through rates shows why targeting is becoming such a key part
of online-ad strategy. In extreme cases, only one viewer in 2,500 clicks on a
banner-ad site. The advertiser could end up spending an astronomical $1,500
to recruit each new customer online.
But a savvy salesman like Mr. Nethercutt knows how to comb through data to
find a happier story. One morning, he visits BSC Inc. to discuss the results of
a shotgun campaign in October, when the Burlingame, Calif., company
plastered the entire DoubleClick network with ads for its GetSmart
online-loan service. Many of the sites turned out to be duds, generating click
rates of 0.6% or less.
Mr. Nethercutt isn't perturbed. He has singled out some of the top-performing
sites -- such as Autobytel.com Inc., an online car-buying service -- where
click rates are as high as 1.7%. It is a logical home for GetSmart ads, he says,
because many car buyers need financing. He proposes that GetSmart spend
heavily to increase visibility on such sites.
"Can I try it for a month?" asks Shane Spitzer, GetSmart's vice president of
business development.
"Yeah," Mr. Nethercutt replies. "They want a longer term, but I'll give you a
typical one-month exit."
"OK," Mr. Spitzer replies. He spends the next few weeks pressing for a
discount from DoubleClick's rate card, but he embraces the basic idea of
experimenting with many sites, then sticking with the winners. "You get an
incredible amount of information on what sites work well and what sites
don't," he explains. "And you get it fast enough that you can react to it."
Maximum Flexibility
Increasingly, online advertisers aren't just moving money to the sites they
like; they are stepping forward with ideas about how to change the sites into
better vehicles for their messages. And the people who run Web sites aren't
taking offense, the way their cousins in print and television might. Instead,
they are braiding advertisers' stories into the central message of their sites.
DoubleClick, for example, persuaded Scott Adams, the cartoonist who draws
Dilbert, to include a "financial section" on his Web site, with stock portfolios
for his favorite characters. This new section appears in the center of
dilbert.com's home page, surrounded by cartoon strips and background facts
about Dilbert. But it is paid advertising, packed with plugs for Datek
Securities Inc., the online stock-trading firm.
How does Mr. Adams feel about this? The answer appears on his site. "Many
people have asked why the Dilbert Zone has sold out and accepted
advertising," he writes. "The reasons are complicated, involving many
philosophical and ethical issues. For the slower students, I can summarize it
this way: They give us money. We like money."
So Change the Site
At other times, the online boundary between advertising and content is
wiggling in ways hard to pin down. One morning, Mr. Nethercutt visits
AllApartments.com Inc., a San Francisco rental service, to suggest that it
advertise on a section of the MindSpring Enterprises Inc. Internet directory
labeled "Home and Auto."
That idea doesn't quite click with Andy Jolls, the head of marketing at
AllApartments. "The category is too broad," he says. "We'll get a lot of
people wanting to buy a house who aren't our customers. But if they renamed
it 'Apartments,' we'd probably be interested." Mr. Nethercutt says he will
encourage MindSpring to make the switch and will come back if he can
oblige.
"We all grew up in this environment where publishers had this strict,
church-and-state separation between content and advertising," says Mr.
Nethercutt's boss, David Gwozdz. "In the online world, it's different. Users
are more attuned to advertising, and publishers are less choosy."
Mr. Nethercutt won't say how many ads he has sold this year or what his pay
will be. But colleagues say that after one year on the job, he has become a star
in DoubleClick's most productive office. Mr. Gwozdz says his top salespeople
have base salaries of about $70,000 a year and earn commissions on every
sale. Competent salespeople earn at least $100,000, he says. Top producers can
exceed $200,000.
There are cases where even a star can't sell Internet advertising. Mr.
Nethercutt made repeated efforts to sign up California Milk Processors'
Association, which spends a hefty $22 million a year on TV, print and
outdoor ads. It got nowhere. Milk is already a familiar product, an association
official notes, and it can't exactly be bought online. Some manufacturers say
online advertising's real strength is helping specialized products find the right
customer. Car cleansers and home loans may meet that test; soap and soft
drinks don't.
Mr. Nethercutt says he can do just fine bringing online advertising to
whatever markets seem appropriate. "I was born way too late to be part of the
pioneers in television," he says. "But I used to think a lot about how much fun
it must have been to be the first person to figure out how to sell Folger's
coffee on television in the 1950s. Now I'm getting a chance to be one of the
pioneers in this new medium." |
