For Advertisers, Just Being on the Web Isn’t Enough

With at least some of the dust settling on the initial excitement and novelty of the Internet, it is no longer enough for marketers to say they advertise on Yahoo! or America Online -- they are demanding a solid return on their investment.

For advertisers, who were lured to the medium because of its real time direct marketing potential, an ad campaign is a failure if consumers do not take some kind of action, whether they click on the ad, purchase a product, register for a service or fill out a form requesting more information.

As a way to ensure success and a high rate of return, many advertisers are increasingly pressuring publishers to offer a performance-based ad-buy package instead of one based on CPM, or cost-per-thousand, which requires the advertiser to pay a fee every time a consumer sees the ad.

Under a performance-based arrangement, advertisers would pay for an ad only when a consumer clicks on it with a computer mouse or takes some other action.

“People are simply saying, ‘Hey, it’s great to show my stuff to 1,000 people, but if none of them transact, I’ve wasted my money,’ ” said Jonathan Nelson, chief executive of Organic, one of the industry’s largest integrated Internet marketing agencies.

On the surface, publishers, who prefer CPM pricing because of its no-risk feature, are resisting the pressure. According to Internet research firm Jupiter Communications, a recent survey of Web publishers revealed that 85 percent of them offer no performance-based ad packages.

On industry e-mail discussion lists, most executives on the publishing side will argue vigorously for the CPM model, claiming that any other model would make them unfairly accountable for the effectiveness of an ad over which they have no creative control. They also say that a cost-per-action, or CPA, model would give advertisers free branding opportunities and take up valuable inventory.

But Jupiter analyst Evan Neufeld cautions against taking appearances at face value. He said the Jupiter survey was skewed because publishers are reluctant to talk about results-based deals.

“There is increasing pressure to have some kind of performance,” Neufeld said. But those who do negotiate performance-based packages “are often forbidden from telling people,” he added.

With the Internet Advertising Bureau estimating that Internet ad spending doubled to $2 billion in 1998 and research firm Forrester Research predicting $10.5 billion in 2003, it seems the industry is healthy. But publishers still struggle to sell unused ad space.

Adam Boettiger, publisher of the Internet Advertising Discussion List (www.internetadvertising.org), estimates that on average, 50% of inventory on Web sites goes unsold. On Yahoo!, it can be as much as 85%.

With new Web sites constantly entering the market and vying for the same advertising dollars, most sites are increasingly pressured to listen to advertisers and offer better deals.

While a few sites are offering advertising based on cost-per-action, most are trying to solve the dilemma by offering hybrid deals, which combine an upfront flat fee with a percentage fee of transactions made.

The IAB said in its 1998 third-quarter report that 52% of ad revenue reported last year came from hybrid deals, while 43% came from CPM deals. It expects even more publishers to offer creative pricing deals this year.

That way, “The publisher can count the impressions and the advertiser can count the click-through,” said Brian Coryat, chief executive of ValueClick, a results-based ad network.

Still, some Web publishers are clinging to their CPM pricing models but compromising with advertisers by providing data that show a cost-per-action breakdown. A few Web sites hope to avoid any changes by attracting buyers with rock bottom CPM rates instead.