Benchmarking the Bounce Back


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Excuse me for breaking the silence, but has anyone noticed that the Web is back? Over the course of the past year at least, many online consumer content brands (and a handful of business publishers as well) have quietly reported double-digit revenue gains each quarter. For the month of January 2004 alone, NY Times Digital reported a striking 42% increase in ad revenues over January 2002, which exemplified similar gains among other major media brands online. CBS MarketWatch, Slate, CNet, and TheStreet.com, among others, reported reaching or maintaining profitability during 2003. After the over-hyped Web "revolution" of the late ‘90s, and a post-bubble ethos in which investors, advertisers, and analysts fled the Internet faster than the Democrats tossed Howard Dean out of the boat, everyone I speak to in the industry is loathe to admit what the numbers clearly demonstrate. Web content—or at least some important sectors of the digital content economy—has waged a quiet but remarkable comeback.

The real benchmark of the Web's return came a few months ago, when the Interactive Advertising Bureau (IAB) tallied ad sales receipts for the last quarter of 2003 and found that online advertising revenues had hit a new high of $2.2 billion. That means that more ad money is being spent online now than at its height in late 2000, when revenues hit $2.12 billion on the eve of the great Internet crash that signaled this medium's short Dark Age of 2001 and 2002. In fact, in the midst of a general media recession over the past few years, the Internet has become the unlikely leader of the return to ad spending, growing 20% in 2003. Online researcher eMarketer predicts that total ad revenue for 2004 will be $7.8 billion, just shy of the $8.1 billion spent in 2000. By the end of 2005, spending should surpass the old record and, by 2007, Web advertising should be a $9.9 billion business.

At long last, and after a great deal of solid effectiveness research, case studies, and self-promotion, econtent has demonstrated the medium's chief selling points of accountability, efficiency, and an almost exclusive hold on business and consumer audiences during the day. In talking to advertisers and agencies about the decisions to shift more of their budgets online, I hear from their lips many of the mantras chanted over the past few years by industry organizations like the IAB and the Online Publishers Association: "daytime is prime time online," bigger ads and rich media make the medium a branding vehicle, not just a direct sales channel, and cross-platform ad campaigns that include online have greater effectiveness.

While I'm ready to declare the great Web recession over and a new boom just beginning, it is important to parse the positive numbers and qualify this comeback. First, this is not a boom for all and maybe not even for most content providers, especially those in the business information segment. This bounce back is mainly by and for big brands. According to Nielsen//NetRatings AdRelevance, the top 100 cross-media advertisers in the U.S. were responsible for about 30% of online ad spending, by early 2003.

According to Nielsen, 2003 marked the first year that large traditional advertisers substantially increased investments in Web marketing. Even the automotive industry, already aware of the Web's role in car-buying decisions, bought 74.9% more ad impressions in 2003. Of course, big advertising coming to the Web is good news, but it is particularly good news for major media brands rather than small and medium-sized publishers. Blue chip advertisers prefer tried-and-true media, often those they already work with offline. Companies like NY Times Digital far outstrip general ad growth rates or others like CondeNet (Conde Nast). By the third quarter of 2003, NY Times Digital saw a 61% improvement in year-to-date revenue and Knight Ridder's online division had a 51% revenue spike. These numbers point to a recovery concentrated on a select few surviving dot-com brands and a number of old media names.

Finally, this ad sales surge is being driven by the phenomenal rise in search advertising, which has more to do with an even smaller circle of publishers (namely Yahoo! and Google) than with most content providers. Between 2002 and 2003 alone, paid search advertising went from 15% of all online ad spending to 30%. Some analysts say that if search spending were taken out of the mix, ad revenues in 2003 actually might have declined overall.

Finally, this ad sales surge is being driven by the phenomenal rise in search advertising, which has more to do with an even smaller circle of publishers (namely Yahoo! and Google) than with most content providers. Between 2002 and 2003 alone, paid search advertising went from 15% of all online ad spending to 30%. Some analysts say that if search spending were taken out of the mix, ad revenues in 2003 actually might have declined overall.

Clearly the top line numbers suggest that some sort of boom is occurring online, but those numbers don't tell us the whole story yet. The money is finally following the eyeballs online, but for whom and for how many? For the time being, it seems that both the spending and the available venues online have narrowed to some very familiar names. Whether this resurgent ad economy can support a broad base of publishers large and small is an important question for a medium that championed the ideal of decentralized and multifarious content.