Advertising Looks to Online Future

Advertising Looks to Online Future
From The Sunday Times
http://business.timesonline.co.uk/tol/business/industry _sectors/media/article1595910.ece

Advertisers now spend more online than in the national press but the boom in digital ads has not run its course, says Paul Durman

NIGEL MORRIS, one of the most experienced figures in the online-marketing industry, likes to tell the story of what happened when his young children, then aged five and three, visited their grandmother.

His sons were watching a Scooby Doo cartoon on the Boomerang channel when they were called for tea.

As the children of a leading ad man, they were used to the latest electronic gadgetry at home — but there was no personal video recorder, such as a Sky Plus box, at their grandmother’s house.

Morris recalls the look of consternation on his five- year-old’s face as he realised he would not be able to pause the programme he was watching. He simply couldn’t understand “why he would watch something on a screen that he could not pause”.

Morris, chief executive of Isobar, an international network of digital-marketing specialists, is one of many who believes that youngsters growing up today will have a completely different relationship to TV and other forms of media.

Unlike their parents, the YouTube generation will not be prepared to sit back and simply consume what they are given. They will expect much more control — to be able to choose when, where and on what device they watch and read about the things that interest them. Their attention will be much harder to win.

“Television companies will tell you that kids are still watching as much TV,” said Morris, “but they’re not. Television does not have the emotional pull. Programmes do, the stuff they see on a screen does.

“But conventional TV — something that’s scheduled, that I sit down and watch at a time someone has decided for me, prepared to watch the ads while it’s on — they don’t get it.”

He continued: “You ask any kids, what would you rather be without: the TV or the internet? They will tell you, we’d rather be without TV.”

This generational change is one of the drivers behind the boom in online advertising, which last week passed another milestone. The latest figures from the Internet Advertising Bureau (IAB), prepared in conjunction with Price Waterhouse Coopers, showed that British advertisers spent just over £2 billion online last year — overtaking the amount spent in national newspapers.

Advertisers are already spending more online than on radio (£582m), outdoor-poster sites (£932.5m) and in business magazines (£1 billion). But what is more striking is the continuing rate of growth. Online grew by 41% last year, and the IAB’s Guy Phillip-son is forecasting the sector to attract at least another £500m this year.

In contrast, the growth in other sectors is at best anaemic. TV advertising revenues shrank 4.7% last year, radio by 5.2% and press classified by 7.8%.

Even if these declines are exacerbated by cyclical factors, as many believe, the increasing importance of the internet and other forms of digital advertising is clear.

This was reflected in the recent souring of the 25-year relationship between Nike, the sportswear giant, and Wieden + Kennedy, the agency responsible for a string of memorable campaigns.

Nike wants a new firm to handle some of its advertising, partly because of a lack of digital expertise at Wieden. “We are looking for expertise in different mediums, different creative directions,” said Nike.

The move has sent a ripple of concern around the advertising industry.

Mark Beilby, analyst at Dresdner Klein-wort, said in a note last week: “Many traditional advertising agencies, with deep-seated expertise in television and print, have been slow to grasp the impact of the internet.

“Many agencies seemingly still do not have enough digital talent to meet client demand, and those that do often have kept the digital department separate from the rest of the firm.

“The real issue is no longer one of change from old to new media, but whether media companies are infusing digital into all aspects of their departments.”

The role of social-networking sites, such as MySpace and Bebo, is also growing in importance. (MySpace is owned by News Corporation, ultimate owner of The Sunday Times.)

The huge success of the current box-office smash 300, a gorily-told story of Spartan bravery, is partly attributed to Warner Brothers’ use of MySpace. The film’s MySpace page offered video clips and wallpapers — not unusual these days — but the real hook was a sponsorship deal that enabled the site’s users to store 300 photos, far more than previously. 300 took $70m (£36m) on its first weekend in American cinemas last month, a record for a March opening.

In Britain, the growth in online advertising is still being driven by Google, and search advertising more broadly.

What may not be so widely appreciated is the scale of Google’s UK business. With revenues of about £870m last year, the search giant makes more from UK advertisers than either Channel Four, Sky or Five.

Dave King, managing director of Eyefall, the search- marketing specialist owned by Engine Group, said: “There’s huge more upside. A significant volume of brands have yet to go through the learning process. Lots of clients would say search is absolutely new. We still see chief executives and marketing directors who are bowled over by the apparent transparency of this medium.”

The measurability of search-based pay-per-click advertising — the ease of calculating return on investment — is its great initial attraction.

But King said more sophisticated advertisers, such as Phones4u, were using search to complement television and press advertising. For example, he suggested, the mobile retailer might buy search terms such as “new Nokia handset” to maximise the impact of a TV commercial which interests viewers and prompts them to go online.

The growth in online does not necessarily mean that traditional media cannot hold their own.

Daily Mail and General Trust (DMGT), publisher of the Daily Mail, last week published figures showing that advertising revenues at its national titles had grown by about 4% in recent months.

Peter Williams, DMGT’s finance director, said the Daily Mail’s 5m readers, “very targeted in terms of middle England”, were still a big attraction for “heartland” advertisers such as Marks & Spencer.

“To get to that volume of people in their marketplace online is still pretty difficult,” said Williams. “It’s going to remain so. It’s complicated to get to the same number of people by aggregating different web properties.”

However, the fastest-growing part of DMGT’s ad revenues — up 141% year-on-year — is online.

The group has bought Jobsite, Prime Location and several other recruitment, property, dating and car websites, and is investing heavily. “We expect to see substantial growth,” said Williams.

Some newspapers have been hit by the loss of recruitment and other forms of classified advertising. But there is confidence that they will continue to be a more attractive option than the web in display — the high-impact advertising that is important for brand- building.

Claire Enders of Enders Analysis, the media-research firm, said: “We don’t believe that display advertising as we know it will be kaput in 2010. It’s not going to happen.

“We’ve had five years of really fierce experimentation online. But there’s very little emotional response to online display. It’s still viewed as an experimental medium.”

Enders pointed to the difficulties that web firms, including Yahoo, MSN and AOL, have had in persuading their users to accept “prerolls” — short ads that run before, and finance, the video clip they wish to see. That difficulty suggests there is still plenty of life in the 30-second commercial, and in display advertising in newspapers.

That said, there is little scope for traditional media to be complacent. Enders expects that the revenues for television, radio and newspapers will each fall by about 5% this year, and will fall again next year. The proliferation of new digital radio and television channels will continue to cut slices from the advertising cake.

The growth in online display (or graphical) advertising — banners, videos, sponsorship and so forth — has lagged behind search. The improvements in broadband speeds and appeal of online video may start to change this.

“It would be fantastic to see the graphical side of things matching search,” said Caroline McGuckian, media director of LBi, another leading digital agency. “I fully expect the growth pattern to continue, but I hope and envisage that the shape of the growth will change. The graphical element will be driven forward more in the next couple of years.”

Glen Drury, head of Yahoo UK, said the increasing ease of using online video opened up the internet to brands that found it hard to use search. (Nobody searches for “tooth-paste”, he pointed out.)

Moreover, better targeting of ads using “behavioural matching” analysis is offering dramatically improved results. Yahoo has begun offering advertisers the opportunity to reach consumers who have in some way expressed an “intent to purchase”. For example, they may have searched for “BMW”, clicked on a car ad, or used the car section of Yahoo’s price- comparison site, Kelkoo.

Drury said the results were much better than when targeting ads by simple demo-graphics. “There’s a 56% uplift [in response rates] when you target by behaviour,” he said. “That’s enormous.” Another challenge, barely visible at present, will come from the mobile-phone industry. It may be hard to believe looking at most of today’s handsets, but faster connection speeds will soon make the mobile internet a reality.

Like Google and Yahoo, mobile carriers already have lots of information on their users that will allow for the efficient targeting of advertising. Combined with location data, mobile advertising is set to become an important adjunct.

The mobile carriers are also teaming up with the social-networking sites. Orange last week signed a partnership deal with Bebo, and Vodafone is already working with MySpace and YouTube.

Morris, who wrote his first research report on the internet in 1993, believes the move online is inexorable, and Isobar is well placed to benefit.

“The shift in the proportion of spend is going to be quite large,” he said. “Some big brands are still spending a tiny amount online, not using the channel in any way.

“But for a lot of clients that have made the move, it’s a vital business driver.”