To: Lizzie Tudor who wrote (36395 ) 1/24/1999 7:44:00 PM From: Glenn D. Rudolph Respond to of 164684
The Internet Capitalist SG Cowen Internet Research 7 Having had the pleasure of covering this company over the past few years, we have heard the targeted advertising pitch very consistently for the last few quarters. Of course, targetability is a cornerstone of the Internet as a medium and when it is combined with mass reach numbers (like TV today or broadband in the future), advertisers begin to salivate. Yet, much like Pavlov's dogs, advertisers have been conditioned to react to such words without fully comprehending how and why. Ever since Excite announced the acquisition of MatchLogic in 1Q98, the message has been advertisers will pay more for targeted audiences and that Excite (via MatchLogic) would deliver them and collect the increased revenues. While we agree this is a good mantra and certainly one that differentiates Excite from other portal competitors, the reality is that the concept has not yet delivered the top-line impact that the message inherently promises. Worse, it seems that we shouldn't expect it in 1999. If you're scratching your heads, you're copying us. We tried to get behind this curiosity by querying Excite's management team on the Q$ results conference call. Their response: two big barriers still stand in the way of realizing the full value of targeting. First, it represents a real paradigm shift in terms of how traditional media is bought and sold. Most agencies are not ready to make the transition. This reveals the strategic and executional differences between mass marketing and one-to-one communication with the consumer. Let's use Gillette as an example. Their target: active men, 18 -44. For years, they have successfully reached their target through sports programming, but now, thanks to the Internet, they are being told not to worry about advertising on big sporting events. The Web will deliver your advertising message only to your target and will reach them anywhere they go: financial news sites, weather sites, engagementring.com, whatever. The logic being that ad dollars would no longer be spent passively, on the likelihood that someone will be watching the big game, but rather actively, seeking out the target without the need to be locked into specific programming. The second barrier Excite referenced was technology. Today, very little of their inventory is so highly targeted. In truth, the second reason is much more related to the composition of the audience on the web. Traditionally, the Internet population has been more educated and upscale than the overall US population. From an advertiser's perspective, there is little incentive for the tail to the wag the dog; packaged goods advertisers will invest online only when their target is online. Thus, it is important not just for the Internet population to grow, but to change its audience composition also. While the growth of shopping on the web has been partly attributed to more women coming online, the growth of advertising on the web is linked to a more diverse audience. As Michael Eisner said recently after the launch of Go.com, "I don't think we [Disney] are too late. The next 50 million people to sign on (the Internet) are not going to be early adopters, they are going to be like my family, like my mother...” And that is happening. A study released by the Pew Research Center last week found that people that went online for the first time in 1998 were less wealthy than longtime web users (23% with incomes under $30,000 vs. 16%) and less educated (almost twice as likely not to have attended college vs. longtime users). A key reason much of today's inventory is not targeted is the fact that most of today's web advertisers are competing for the same target.