What Are the Internet Based Advertising Models?
A paper prepared for ACMEBROADC@ST
Table of Contents
What is Internet Advertising?
Publisher versus Advertiser Web Sites
History of Internet Advertising
Why has the World Wide Web Become a Popular Marketing Vehicle?
Demographics
Benefits of Internet Advertising
What is the Current Market for Internet Advertising?
Advertisers/Publishers Market Forecast
What are the Various Forms of Internet Advertising?
Home Pages versus Hyperlinks
Banner Ads on Home Pages
Banner Ads on Content Pages
Sponsorship of other Web Site
Affiliated Advertiser Listings
General Listings and Directories
Cybermall Storefront
Responsibility for Advertisement Effectiveness
Traditional Media versus Internet Advertising
Overview of Traditional Advertising
Traditional Passive Advertising
Traditional Interactive Advertising
Internet Advertising: A Combination of Active and Passive Advertising
Customized Internet Advertising
Internet Advertising Valuation: The Applicability of CPM
CPM Explained
Are CPMs Applicable to Internet Advertising?
Internet Advertising CPMs
Internet Advertising Premium Multiples
Response Rate Analysis
Internet Advertising Rate Structures
Flat Fee-Based Rate Structure
Impression-Based Structure
Pay for Performance-Based Rate Structure
Internet Advertising Measurement
Traditional Advertising Measurement
Internet Advertising Measurement
The Challenges of Internet Advertising Measurement
The CASIE Guiding Principles
Required Audience Measurement Information
The Challenge of User Registration for Audience Measurement
Tracking and Measurement Software
Summary of Directions in Internet Advertising: How Technology Will Change the Medium
Banner Advertising Becomes Dynamic
Move Towards Customized Advertising
High-Technology Web Sites Emerge
Summary of Directions in Internet Advertising: Valuation and Measurement
Industry Converging on CPM
1995 was the year that the Internet became a household name. Several million new users subscribed to services that provide Internet access. 70,000 sites opened on the World Wide Web (Cyberatlas). Virtual magazines, shopping malls and chat rooms became commonplace. The world of advertising discovered a new virtual, but very powerful medium to reach consumers.
On the Internet, advertisers are no longer constrained by print space, air time, or geography. They are limited only by a consumer's attention span. The interactive power of the Internet allows the consumer to determine the extent of the advertising message, ranging from a quick brand impression to an interactive session with a brand, product or service which could last for hours. During this time, the advertiser has the opportunity to learn about the consumer and his/her interests, educate the consumer about products and services, and potentially even sell products or services on-line.
How should such a powerful new advertising medium be valued? Traditional advertising has been valued through standardized measurements: a 15 or 30 second commercial, a one page print advertisement, or direct mail piece. On the Internet, these standards do not exist. The involvement with an Internet ad can range from two seconds to several hours; one page view to dozens of pageviews. For the past year, advertisers have struggled with a valuation methodology, that is comparable to traditional advertising options. More specifically, the industry has hotly debated the applicability of the CPM (cost per thousand) model, the basis for all traditional advertising mediums, to Internet advertising. This paper will discuss the evolution of Internet advertising and explore the applicability of the traditional CPM model to this new advertising medium.
We will begin by understanding the concept of Internet advertising, its evolution and the current market. We will then conduct a thorough analysis of Internet advertising. To do so, we will categorize traditional forms of advertising into "passive" and "interactive" formats. This will help to explain how traditional advertising compares with Internet advertising. We will then analyze the various forms of Internet advertising and how they differ. Next we will examine the two viewpoints regarding the applicability of CPMs to Internet Advertising and explore methodologies for valuation and measurement. In addition, we will evaluate the many issues regarding audience measurement, the key component of CPM analysis. Based on industry trends and perspectives from leading Internet advertising agencies, we will evaluate the progress towards industry consensus on standardized valuation methodologies and measurement tools, and explore the future evolution of Internet advertising.
What is Internet Advertising?
Internet advertising is the placement of an advertising banner or logo on a web site, for a fee, to drive traffic to the advertiser's web site via a hypertext link. There are two types of web sites: publisher web sites and advertiser web sites. Publisher sites publish content and support their content or service through advertising revenues. Examples of publisher sites include Pathfinder, Yahoo and ESPNet Sportzone. Advertiser web sites are promotional sites developed and supported by a company. These sites provide information about a company, their products or services, and often include an entertainment element and the ability to E-mail comments. Examples of advertiser sites include AT&T, Zima and Saturn. In a few cases, a very popular advertiser site may also accept advertising, such as the Netscape site, but generally this is not the case. Advertisers hope that consumers who visit publisher web sites for content, will click on their banner or logo in order to learn more about their product or service. By doing so, the consumer will be automatically transported to the home page of that advertiser, or to an intermediary ad page.
History of Internet Advertising
For years, the Internet was advertising-free. The Internet existed as a network of several million computers, used primarily by the government and universities, as a means to publish research, exchange ideas through discussion groups and to communicate via electronic mail. Text was generally in ASCII format and information was retrieved through UNIX commands. There were no commercial applications and users preferred it that way. The World Wide Web grew out of a 1991 hypertext project started by a group of physicists to organize on-line scientific information. The web did not achieve widespread popularity, however, until a program called NCSA Mosaic was developed in 1993 by a group of undergraduates at the National Center for Supercomputing Applications (NCSA) at the University of Illinois. The invention of NCSA Mosaic, the first Internet browser, allowed users to access information easily through GUI (graphical user interface) technology, instead of typed commands, and presented "pages" with formatted text and colorful graphics. The browser software allowed linkages to other pages on the World Wide Web that provided more detailed information or complimentary topics. As the content on the World Wide Web increased, and improved browsers such as Netscape's Network Navigator become widely available, the general public became fascinated with the concept of "surfing the net." As the World Wide Web gained in popularity, consumer demand for content grew. Since web content was expensive for some publishers to develop and maintain, many initial publisher business models anticipated charging subscriptions to their sites, similar to the current business model for magazines. An alternative form of revenue support was to accept advertising from the many companies developing their own web sites. Both these business models were shunned by the early adopters of the World Wide Web who were determined to keep the medium in its original free and non-commercialized format. However, as the web drew a larger consumer audience, publishers created more content, and more companies opened promotional web sites. As a means to draw consumers to their site, companies advertised their site by placing their logo in the form of a banner on a popular site, with a link to their web page. Hotwired was one of the first popular sites to accept advertising, in October 1994. By mid-1995, the consumer outcry against advertising began to dwindle, as the public realized that the alternative was to pay for access to the information. Thus, the World Wide Web evolved to the current predominantly advertiser-supported business model.
Why has the World Wide Web Become a Popular Marketing Vehicle?
As recently as early 1995, many consumer products and services companies had never heard of the Internet and the World Wide Web. Now they are racing to develop web sites to promote themselves on this new medium. Their web sites range from basic, informative product and company information to high-tech entertainment sites with complex graphics and even animation. The development costs of these sites range from tens of thousands to millions of dollars. Why all the fuss? Demographics World Wide Web users have highly desirable demographics. According to an Internet Demographics Survey jointly conducted by CommerceNet and Nielsen Media, users are professional, upscale and well-educated: 50 percent hold professional or managerial positions, 25 percent have incomes over ,000 and 64 percent have at least a college degree. These demographics contrast with the general demographics of the United States and Canada: 27 percent hold professional or managerial positions, only 10 percent have income levels above ,000, and only 29 percent hold at least a college degree. Males currently account for 66 percent of Internet users. The survey estimates the current number of Internet users to be approximately 24 million.
Benefits of Internet Advertising
The World Wide Web enables certain forms of marketing, unmatched by other media. The web provides interactive, demand-based information for both current and potential customers. Consumers can spend as much time as they want interacting with a marketer's web site. They can obtain as much or as little information as interests them. If the information they seek is not available on a web site, they can E-mail the company from the site and obtain a prompt response to their question. Furthermore, consumers can revisit the marketer's web site, upon demand. Marketers can also use their web sites to learn about their customers' interests and product suggestions. As a result, a web site increases a company's exposure and promotes its brand image. What is the Current Market for Internet Advertising? Advertisers While the market for Internet advertising is growing rapidly, it is still concentrated among a small group of leading national advertisers and Internet start-up companies that have dedicated portions of their media budgets to experiment with this new medium. The 1996 Online Advertising Report from Jupiter Communications reports that advertisers spent .9 million in 1995 to place banners on other web sites, to drive traffic to their home pages. According to a survey by Webtrack, telecommunications companies, such as AT&T,MCI and Sprint spent a combined $1 million in the fourth quarter of 1995 for web advertising, more than any other category of web advertisers. Other categories with high Internet advertising expenditures included: computers and office equipment, electronic entertainment equipment, publishing and media, insurance and real estate and financial services. The top 15 advertisers were responsible for approximately 34 percent of all Internet advertising spending in the fourth quarter of 1995. They included: AT&T, Netscape, Internet Shopping Network, NECX Direct, Mastercard, American Airlines, Microsoft, C/Net, MCI, Sportsline, Silicon Graphics, Home Arts, Honda, Music Boulevard and Sprint. The top 30 advertisers accounted for approximately 51 percent of all advertising spending. Publishers' ad spending is still focused on the most popular publisher sites. According to Webtrack, publisher advertising revenues reached .4 million in the fourth quarter of 1995. The top five publishers accounted for 50 percent of all revenues, while the top 15 accounted for 87 percent. The primary criteria for choosing to advertise on a site is the site's traffic volume. Therefore, it is no surprise that the most popular publisher sites for advertising placement are search engine and web directory sites, such as Yahoo, Infoseek, Webcrawler and Lycos. Users will often visit these sites several times during a session to find sites that meet their interests or informational needs. These sites alone generated over million in advertising revenues, or 35 percent of all Internet advertising spending. Sports and entertainment sites accounted for 20 percent of spending, as primary content destinations. Entry portal sites (browser software home pages), such as Netscape and GNN, are also highly in demand by advertisers, since their sites are automatically visited upon logon by the user. The entry portal category received 19 percent of ad spending dollars. According to Webtrack, the top 15 web publishers are: Netscape, Lycos, Infoseek, Yahoo, Pathfinder, HotWired, WebCrawler, ESPNet, GNN, C/net, Playboy,CMP Techweb, ZDNet, Riddler, and IUMA. Many of these sites were the initial World Wide Web trailblazers, and therefore are most familiar to Internet users, resulting in high traffic. As new content publisher sites gain acceptance and realized increased traffic, the sites chosen by advertisers are expected to diversify. Market Forecast Jupiter Communications predicts on-line ad sales will near million in 1996 and reach billion by 2000 (Ad Age IM&M/96 "Marketers Link Up to the Tune of .7 Million) Internet advertising will increase as advertisers become more comfortable with this new medium. Increased consumer usage and improved valuation methodology and tools will increase advertisers' comfort level. Technology will also evolve rapidly, and by the year 2000, the Internet will provide the most dynamic, flexible and truly multimedia medium to support both mass advertising and one-to-one marketing efforts. Although the industry expects that advertisers will shift more of their media budgets to Internet advertising, the bulk of the budget still will be allocated to traditional media forms of television, print and radio advertising. Therefore, the Internet advertising market will still remain only a small percentage (3 percent) of the billion market for traditional media (McCann-Erickson).
What are the Various Forms of Internet Advertising?
Home Pages versus Hyperlinks
A marketer's web site is the primary form of Internet advertising for a company, its products or services and brand image. The first page of a web site is the Home Page. It is the point of entry to the site and is critical. It is the basis by which a visitor will decide to interact with the site or to "surf" to another site. The goal as a marketer is to make the page visually exciting, entertaining and enticing, so that the visitor will stay and explore the site for as long as possible. A company can benefit from Internet advertising by educating their customers, increasing "share of mind" and building brand image. If a company's site includes a small survey, it can also learn about current customers or generate leads for new customers. How can a company publicize its new site? Certain sites advertise their Internet addresses within their print advertisements, inviting readers to "check out" the new site. Other sites may be so interesting and distinct that they are included in a "Cool Site" directory, which will steer traffic to the site for free. Still others become popular through word of mouth. The best way to stimulate traffic to a site is through advertising, by placing a hyperlink to the site on a complementary publisher's site. Advertisers should be careful to choose a site not only for high traffic volume, but also to ensure that the site's visitor demographics and brand image is complementary. There are six forms of advertising hyperlinks:
Banner ads on publisher site home pages
Banner ads or logo placement on publisher site content pages
Sponsorship of other web sites
Logo placement on other site affiliated advertiser listings
Site listing in a general listing or directory
A storefront in a cybermall
Banner Ads on Home Pages.
The most popular, visible and impactful form of advertising is the Banner. The banner is a strip usually along the very top of a publisher site's home page. It is large enough to display a company's logo, an enticing tag line, or both. An example of a banner ad is located at the top of theZDNet home page. Sometimes banner space may include up to three different advertisers, as on thePathfinder home page. Banners may also take the form of a button or icon, as illustrated by the logo on the Yahoo web site. By clicking on the banner or icon, the user is automatically transferred to the advertiser's home page. This form of advertising commands the highest rates since it is the most visible to the user, and therefore, guarantees an impression. Sometimes publishers will rotate several ads through a banner position, to increase the number of advertisers supporting their site. A rotating banner ad position is less expensive than an exclusive banner position. Banner Ads on Content Pages Banner advertising space may also be available on site Content pages. These are the pages beneath the home page that provide content to the visitor, based on the visitor's interests. For example, Pathfinder provides content ad space on its individual publication pages such as Time and Fortune. These ad placements tend to cost less than home page banners since only a portion of site visitors will choose to view a specific content page. Furthermore, the amount of this type of ad space is limited because the reader may be turned off by an unacceptable level of advertisement, such as an ad on each site page. For this reason, ESPNet limits the total number of banners on its site to 24 different content pages. Publishers may also rotate banners on content pages.
Sponsorship of other Web Site
Another form of advertising is site Sponsorship. A sponsorship can be in the form of an icon, a button, a hyperlink or even a banner. Typically, a sponsorship will be listed at the bottom of the home page. For example, the Hotwired site is "Powered by" Silicon Graphics. That simply means that Silicon Graphics provided the money to support publication of the site's content. In return, Silicon Graphics is advertised as the site's sponsor. Sometimes a chat room will be sponsored by an advertiser. Chat rooms can be a very powerful form of targeted advertising since they are typically organized by demographics or interest. For example, a camera manufacturer could sponsor a chat room on the topic of photography. As people spend time in the chat room, they would be continually exposed to the company's logo.
Affiliated Advertiser Listings
Affiliated advertiser lists provide the opportunity to advertise on a popular publisher's site, but at less expensive rates than banner or sponsor positions. An affiliated advertiser list is an area of the site that lists icons of advertisers who want to be associated with the publisher and pay for that privilege. For example, the Pathfinder web site lists an Ad Directory, recommending other advertisers' web sites to visit. The benefit to the advertiser is that they can complement their brand image by being listed in a site that is valued by their demographic target, at a lower cost. The downside, however, is that the advertiser must share the space with other advertisers, and potentially competitors. The impression level is much lower than with a banner ad because site visitors may not even choose to view the list of affiliated advertisers, or if they do, they may not notice a specific company's icon amid the long list of advertisers. General Listings and Directories In addition, the Internet contains numerous general listings and directories. One form of advertising is to include a link to your web site in a Yellow Pages directory, such as the Nynex Yellow Pages. For example, an Internet travel agency could include a listing under the topic of "travel" or "cruises," and would therefore be brought to the attention of potential customers who are interested in travel information via the Internet. Many web directories, such as Yahoo offer free listings to all web sites that register with the search engine directory. Yahoo also offers sponsorships of keywords or categories used in searches. The sponsor is charged a few cents every time a user executes a search using a sponsored keyword. In return, the sponsor's site is listed at the top of the "search results" listing , improving the chances that the user will choose the sponsor's site as a destination for information on the topic of choice (Ad Age IM&M/96 "Words Hold the Key to Web Ad Packages")
Cybermall Storefront
A special form of advertising used by retailers includes cybermall advertising, such as Netplaza. This advertising is in the form of a storefront, usually with transaction capabilities. The advertisement may include a link to the advertiser's home page or to more detailed ad pages, such as a catalog. For example, the PC Flowers and Gifts listing withi n the Netplaza cybermall is a brief description of their service that links back to their home page. Another example with NetPlaza is Clambake Celebrations The listing describes the company's services. However, the advertisement is hosted on Netplaza's server, and therefore, does not link to a home page, because the company either does not have a web site or because it may simply choose not to link to it. Both formats (cybermall links and cybermall-hosted advertisements) usually have the ability to order product on-line.
Responsibility for Advertisement Effectiveness
Regardless of the form of link an advertiser decides to utilize to drive traffic to their site, it is the responsibility of an advertiser to develop a compelling message for the lin k. Many advertisers only display their company logo as an icon link. A company logo is good to build brand awareness, but an advertiser should not be disappointed if that does not drive as much traffic to the site as might a banner with an intriguing tagline or special offer. The site publisher's role is to deliver an audience to the web page locations where they sell advertising space; it is the advertiser's role to convince the consumer to interact with the advertisement.
Traditional Media versus Internet Advertising
An Overview of Traditional Advertising
In traditional media, advertisement placement is usually determined by a combination of target audience demographics, optimal medium and cost effectiveness. For example, one target demographic for Toyota's Tercel model is women aged 18 to 35. The car is positioned as the ideal first car purchase decision for young, educated women, either starting college or beginning a career. Toyota would choose among traditional media options to communicate their message. For broadcast media, optimal choices to reach this target demographic would be to advertise on television programs with high female viewing audiences. To reach the same audience through print advertisement, target publications might include women's fashion magazines. Other mediums might include billboard advertising at a shopping mall. Typically, an advertiser and the company's advertising agency will plan their media schedule based on the best medium to meet their goals and the costs associated with effectively delivering the advertising message to their target audience. A media schedule will often include more than one medium to vary delivery and increase audience exposure.
Traditional Passive Advertising
Broadcast, print and billboard are all forms of passive advertising; the target audience can only view the advertisement, forming an impression of the advertised product. The audience has no direct means of acting upon the advertisement or asking for more information, such as the nearest dealer, prices, etc. Passive advertising is the most common form of traditional advertising. Traditional Interactive Advertising There are also forms of traditional interactive advertising, such as direct response advertising which encourages an action. Using the prior Toyota Tercel example, forms of direct response advertising might include: a commercial promoting a contest to win a Tercel by calling an 800 number to register; a print advertisement with an 800 number inviting the reader to call for their nearest dealer; or a direct mail piece with a rebate coupon and an invitation to call a local dealer to schedule a test drive.
Internet Advertising: A Combination of Passive and Interactive Advertising
Internet advertising can be directly compared to traditional advertising in that it incorporates both passive and interactive advertising. All forms of banners and links on publisher web sites are a type of passive advertising, whereas advertisers' web sites in their own right are the highest form of interactive advertising. As an Internet user visits a publisher's web site, he or she is exposed to one or more forms of passive advertising: banners, logo icons or sponsorships on the site's home page. For example, each time a user visits the Pathfinder website, he or she will see a banner ad at the top of the home page. This is the equivalent of a passive impression. It is very similar to a billboard promoting a brand name or a slogan. If the user scrolls down to the bottom of the home page, he or she might see a sponsorship logo, such as the one located on the Car & Driver site. This impression is similar to the type of impression a viewer might have when watching a college basketball game and seeing a sponsor logo on the scoreboard. Internet advertising allows passive advertising to become interactive. In most traditional passive advertising today, a viewer will notice the advertising message, or subconsciously note the logo, but will usually not immediately react by driving to the nearest store to purchase the product, or by calling the company and asking for more information. With Internet advertising, if a consumer is intrigued by the message or interested in the company's product, the Internet user has the option to simply click on the banner or icon and visit the advertiser's website to begin a truly interactive experience. For example, a web site may have a banner ad promoting anNECX Direct special to purchase a Hewlett-Packard Printer for . A consumer intrigued by the special offer may click on the banner for more information. Immediately, the consumer is transported to NECX's web site, to view more information on the special. In fact, the web site provides several levels of product information, from basic features to product specifications. The site even invites the user to purchase the product directly from the web site by completing an order form and entering a credit card number. The printer can then be shipped overnight to the consumer's doorstep. The opportunities for interactive advertising on the web are endless. Sega of America has a searchable database of over one hundred of its video game products, with full product descriptions. Ragu offers visitors Italian recipes using its product, on-line coupons, Italian language lessons, and E-mail to write comments to the company. Saturn provides information on all its models, the ability to order a brochure and an easy-to-use database to find the closest dealer. In addition, many web sites offer company information, on-line press releases, executive profiles and even job listings. A consumer can potentially spend hours interacting with just one company's web site. No comparison to this exists in traditional advertising. Customized Internet Advertising Technology is now available for Internet site publishers and advertisers to customize banner ads and messages based on user demographic profiles. For example, PointCast is a new form of interactive screen saver software that regularly downloads a personalized selection of news, stock quotes, sports scores and weather from the Internet. It then displays the data on a user's computer screen. Based on basic demographic and interest category information supplied by the users when setting up their personalized news system, tailored ads appear. This is a powerful new advertising format since it is possible to target ads to people most likely to read them. Similarly, Focalink Communications is a media planning firm that has developed SmartBanner, a technology that provides centralized media planning services to marketers on the Internet. Focalink serves clients' banners itself, allowing it to target different ads to site visitors depending on the domain of the visitor's server: .gov, .com, .edu, etc. This permits a form of customized advertising without requiring a user to provide demographic information.(Ad Age IM&M 2/5/96 "Focalink and Doubleclick Debut New Technologies") The development of customized advertising capabilities will take Internet advertising "beyond the banner," and add another dimension that is highly attractive to both advertisers and, potentially, users. Internet users are more likely to increase interactivity with advertising that is directly related to personal areas of interest. Therefore, this technology has the potential to enable more cost efficient and effective advertising than any other media today.
Internet Advertising Valuation: The Applicability of CPM
The CPM (cost per thousand impressions) valuation is extremely important to the advertising community. It is the only measure which allows media buyers to compare cost efficiencies across different types of media. This is why there has been so much pressure to apply a CPM valuation to Internet advertising. There are two issues related to this topic. First, is it fair to apply traditional CPM analysis to Internet advertising? Second, why are the CPM values so high versus other media? We will explore these issues examining how CPM is calculated for various forms of traditional media. Next we will examine the current debate about the applicability of CPM valuation in Internet advertising. Then we will demonstrate how it is possible to use CPM as a calculation for certain types of Internet advertising, specifically the passive formats such as hyperlinked banners and icons. We will also evaluate the CPM premium associated with Internet advertising. Finally, we will examine response-rate analysis, an alternative to CPM valuation. CPM Explained The cost of all forms of traditional advertising are discussed on a cost per thousand or CPM basis. CPM is a standard industry measure of efficiency which reflects the cost for generating one thousand target audience impressions, or gross exposures to an advertisement. An impression is a combination of both audience reach and frequency. Reach is defined as the number of different individuals or homes actually exposed to a media schedule. For example, one million homes may be in the target audience for an advertisement, but the reach is the 800,000 homes tuned to the specific program that broadcasts the commercial. Frequency is the average number of times that individuals or homes are exposed to an advertising message. In order to ensure that individuals in a target audience see an advertisement, advertisers will broadcast commercials several times to that audience, either during the same broadcast or on a different night with a program that appeals to the same target demographic. By doing so, the advertiser hopes to reach the balance of the target audience. If all people in that target demographic view the advertisement just once, the average frequency equals 1 (800,000 + 200,000/1 million). The number of impressions is calculated by (reach x frequency). In this example the number of impressions would equal one million (1 million homes x 1 viewing each). The number of impressions is very important, since it is a key factor in assessing the cost efficiency of an advertising medium. For example, in 1992, the average cost of a primetime television advertisement on the ABC network was ,428 for a 30 second commercial. The average ABC audience during primetime was 11.1 million adults over the age of 18. Assuming that each viewer saw an advertisement once (reach = 11.1 million, frequency = 1) the cost to make 1000 impressions (CPM) was .23 (,428/11.1 million X 1000) (Advertising & Media Fact Book 1994). This can be compared to a targeted print medium such as Fortune, which has a CPM of .30. This is determined by the cost of a one page advertisement of ,250, and an average issue audience of 3.45 million. Other comparisons include Working Woman which has a CPM of .29, or Car & Driver which has a CPM of .61 (Marketer's Guide to Media 1993-94). Targeted print magazine CPMs are higher because the medium is more efficient in delivering the advertising message to a smaller, but more defined audience. Network television advertising is less efficient, and therefore generally has a lower CPM because the advertiser's message often gets wasted on viewers that do not fall into the target demographic. Television advertising efficiency can be improved by targeting programs that attract very specific demographic groups, similar to special interest magazines. Are CPMs Applicable to Internet Advertising? One of the hottest topics related to Internet advertising has been the CPM debate. The question has been: if Internet advertising provides marketers with new marketing capabilities such as interactivity and flexibility, and new dimensions such as depth, how is it possible to compare this new medium to traditional advertising? There seem to be two different points of view regarding the applicability of the CPM Model to Internet advertising. One viewpoint is that there is a brand image value in the impression generated by viewing a brand logo or advertising tagline, and therefore CPM analysis can be applied to the passive components of Internet advertising (banner ads, icons, sponsorships, etc). The opposite viewpoint is that there is no inherent value in viewing a passive advertisement, and thus no inherent value in impressions, unless there is a consumer response. The interactive and flexible nature of the Internet enables advertising that is capable of drawing immediate consumer response. Therefore, an impression-based CPM model is insufficient for the Internet. A consumer response-based model would be more appropriate. Internet Advertising CPMs To examine one viewpoint, CPM can be applied to Internet advertising the same as it is applied to traditional advertising: to passive forms of advertising only, such as broadcast advertisements, print media and billboards. Passive forms of Internet advertising include: hyperlinks on publisher sites in the form of banners, icons, sponsorships, listings and storefronts. Once an Internet user clicks on an advertisement and is transported to the advertiser's website, Internet advertising becomes interactive, and CPM analysis can no longer be applied. Other forms of advertising efficiency and effectiveness measures must be utilized. To calculate a CPM for an Internet advertisement, it is necessary to know the cost of the advertisement and the number of expected impressions. Impressions are based on th e number of user visits to a site page with an advertisement. The number of impressions can be determined by utilizing tracking software which counts the number of times a web page with an advertisement is downloaded and viewed. With a user registration system (where a user must type a unique password for site entry), it is possible to also calculate audience reach and frequency by tracking the number of times a unique user downloads a web page with the same advertisement.Car & Driver charges $1,500 per month for an advertisement on their web site. The advertisement, an icon of the advertiser's logo, is rotated among five ad sites so that it is viewed on the home page ever fifth day. Car & Driver guarantees advertisers 50,000 impressions, translating into a CPM of ($1,500/50,000X1000). To compare the CPM to Car & Driver's print magazine, the advertising rate is ,530 with an estimated audience of 6.86 million, translating to a CPM of .61. (,530/6.86 million X 1000) (Car and Driver Advertising Dept, MRI Data). Internet Advertising Premium Multiples Why does Internet advertising have a higher cost per thousand than most forms of traditional media? How can the web site for Car & Driver magazine command CPM rates double that of its print version? For the same reasons that print magazine CPMs are sometimes double the CPMs of television advertisements; it is a more efficient medium in terms of effectively reaching a target audience. Furthermore, Internet advertising provides the potential for interactivity, which is highly valuable and not available through any other medium today, and therefore adds a premium multiple. For example, an advertisement in Car & Driver's print magazine is typically a one page glossy photograph of a car model and some ad copy. By advertising on the Car & Driver web site, advertisers can invite visitors to their own web sites and provide users with on-demand, detailed information on the car model, dealer locations and special offers. Advertisers' web sites may also include more pictures, a simulated tour through the car or even a video. This interactivity potential of an Internet advertisement commands the 2.3 premium multiple over print advertising. Response Rate Analysis The second viewpoint argues that Internet advertising is more similar to direct response advertising and should be valued based on response rates. The belief is that there is no value in an advertisement unless it invokes an action by the consumer, such as calling a response number, entering a contest, mailing in a request for more information, visiting a dealer or actually purchasing a product. The associated actions or direct responses cannot be evaluated on a CPM impression basis because it goes beyond a simple impression: a decision about the product or company has been made by the consumer. This decision may be to obtain more product information or to purchase the product. To value this kind of advertising, most direct mail and advertising firms measure the rate of response and the cost per response. For example, ABC company spends ,000 on a direct mail campaign to send literature to 1000 targeted households describing their new vacation resort. The cost per mailing is therefore . The mailing invites recipients to call a toll free number for reservations or a complimentary video. ABC Company is not interested in the number of impressions generated. The company has pre-selected this group of people based on their history of resort travel. ABC is only interested in the number of consumers that responded by calling the toll-free number. If 250 households call the toll-free number, the response rate is 25%. Therefore, the cost per response is $ 20. This cost is much higher than the cost per impression, but the rationale is that a respondent on the verge of a purchase decision is more valuable than an impression. The response rate measure can also be applied to Internet advertising: analysis of the click-through rate (the percent of users who see an ad and choose to click on the banner or icon of an advertisement on a publisher site). Auditing software is being developed that can track the number of click-through responses on a publisher's web site. For example, ABC Company advertises their resort on a banner ad on a publisher's web site for per month. If 5,000 of the 50,000 site visitors click on the banner to view more information, the response rate is 10 percent (5,000/50,000) and the cost per response is $1. This valuation method may eventually lead to a pay-for-performance model. Advertisers can also use response rates to determine the optimal publisher web site for an advertisement. For example, web site A has a CPM of and a click-through rate of 10 percent, and web site B has a CPM of and a click-through rate of 50 percent. The cost per user response for B is $.04 per click-through, versus $.10 per click-through for A. Therefore, while web site A may be more cost efficient in terms of reaching 1000 users and forming impressions, web site B is more cost-effective in terms of user response. Internet Advertising Rate Structures Site publishers have generally followed two types of Internet advertising rate structures: flat-fee rates for a certain time period, or impression-based rates. Few sites have adopted a pay-for-performance rate structure to date. Flat Fee-Based Rate Structure One popular method to value a publisher's advertising space is the flat fee model: ad rates are quoted on a per month or quarter basis. Valuation is based on general traffic volume and market demand for a publisher's space. Usually, a flat fee rate will include statistics to indicate traffic volume to advertisers but there are no implied traffic guarantees. Some examples of this include Pathfinder, or ESPNet, popular sites which command the highest rates on the Internet, since they can deliver such high traffic volume to advertisers. Pathfinder banner rates are quoted as flat rates of ,000 per month, and ESPNet rates are ,500 per month. Similarly, more targeted sites also employ the flat-fee method, although their rates are lower due to their smaller audience sizes. Examples include Total NY, or Ski Utah. Total NY rates start at ,000 per month, and an exclusive sponsorship for Ski Utah is quoted at ,500 for the entire ski season (Webtrack Interad Monthly) Impression-Based Rate Structure There seems to be a trend, however, towards quoting advertising rates on the basis of guaranteed impressions. Most of the search engine services follow this rate structure. For example, Yahoo charges ,000 per month for 1 million searches ( CPM), or guaranteed impressions. Hotwired also guarantees 100,000 banner impressions for its ,000 monthly ad rate (CPM)(AdAge /95). Some publishers are going to an entirely guaranteed impression-based rate structure. In addition to the ZDNet Premium program rates of ,975 per quarter for 675,000 guaranteed impressions, the site also offers ZD Net Random Run of Sites, a program which ranges from ,000 for 100,000 impressions ( CPM) to ,000 for 500,000 impressions ( CPM) (Webtrack InterAd Monthly Jan 96). The number of publisher sites calculating CPM rates is increasing, most likely because of the increasing acceptance of this value basis, and because of the demands of advertisers and media buyers who require a standard that is comparable across media. If advertisers can relate to a site's value basis, such as a CPM, they are much more likely to advertise on that site, versus on a site with an unjustifiable flat-fee structure.
Pay for Performance-Based Rate Structure
Few sites have adopted a "pay for performance" rate structure, but more are expected to do so in the future. One example of a web site planning to implement this structure is E-Coupon, which will launch in June, 1996. The web site will act as a repository for "free stuff" from advertisers. In return for demographic information from site visitors, E-Coupon will offer free product samples, retail coupons, discount certificates, and contest and sweepstakes opportunities, which can be selected by visitors and received by postal mail. E-Coupons plans to charge marketers a fee ranging from $.50 to $.95 for each lead. Other web sites may display an e-coupons link, and in return receive a 20% royalty on the income generated from users clicking on the link to gain access to the E-Coupon site (Webtrack InterAd Monthly Nov/Dec).
Internet Advertising Measurement
A CPM value basis assumes that the delivery of one thousand impressions is verifiable. In traditional advertising, audience sizes and impressions are verified through audits from third-party media research firms. Similarly, firms and measurement methods are evolving to verify audience size, number of unique users, and frequency of visits on an Internet web site. This data is required to calculate a CPM for valuation purposes.
Traditional Advertising Measurement
In traditional advertising, advertising effectiveness for frequency of visits on an Internet web site. This data is required to calculate a CPM for valuation purposes. Traditional Advertising Measurement in traditional advertising, advertising effectiveness for passive advertising is evaluated by third-party auditors. Nielsen Research regularly measures television audiences, by monitoring the viewing habits of 2000 representative households. Similarly, Arbitron collects quarter-hour radio listenership statistics. MediaMark Research Inc and Simmons measure the average number of readers for all magazine and newspaper publications. These audience verification efforts are supplemented by independent surveys to determine the level of a viewer's ad recall to determine the effectiveness of the ad's message versus other advertisements viewed during the same program. Internet Advertising Measurement In Internet advertising, the most popular method to measure site traffic has been by counting the number of hits to a site. A hit is defined as an accessed file which resides on the web site's server. This file can include data, text or graphics. While generally accepted as one method to gauge the level of traffic volume to a web site, it is not an effective form of measuring the number of unique users to a site. The use of hits as a measurement tool emerged in the early days of Internet advertising, when advertisers and publishers desperately needed a basis for measurement and valuation. Today, simply counting the number of hits to a site is far too simplistic for advertisers' needs. There are many issues with using hits as a measurement tool. First, the number files contained on a web page can vary greatly, depending on the level of graphics and content. Some web pages can have as little as one or two, or as many as 30 files to make up a single page view. Two different web sites may have the same traffic volume, but one site may have twice as many hits if twice as many files need to be accessed to complete a page view. Hits can only be used as a very broad measurement tool, for example, to compare a site that receives 20,000 hits per week versus a site that receives 1 million hits per week. In this case, it would be safe to say that the latter site is generating higher volume. An advertiser will generally know the average number of hits per pageview, and therefore can estimate the number of times that page was accessed and viewed. However, there is no simple method to determine if the page was accessed by 20,000 unique users, or by 2,000 users who visited the page ten times each. In addition, sites must self-report the number of hits. Without third-party verification, there is no method to ascertain the accuracy of site volume. These volume statistics are very important to advertisers who purchase ad space on a publisher's site. Furthermore, there is no way to determine the demographics of the person visiting the web site. For these reasons, hits are deemed ineffective as a measurement tool, unless accompanied by some form of user identification, such as registration of a site user's identity or demographic information. Since the beginning of Internet advertising, the industry has debated alternative forms of measurement methodology. One form of measurement has been the number of pageviews, or complete pages downloaded. However, this is still not a concrete basis for comparison across sites, since one advertiser's web site may have limited depth, but a lot of content on each page, versus another advertiser that may have a large number of pages on their site with very little content on each page, resulting in a higher number of pages accessed. Another popular basis for measurement has been the number of impressions. While this is becoming the basis for valuing Internet advertising, the term impressions, has been used differently by various Internet advertisers and publishers. Some use the term to mean the number of click-throughs (clicks on a banner advertisement and transport to the advertiser's web site), while others use the term as an interpretation of ad recall. The proper usage of the term is to represent ad exposures, as in traditional advertising. The industry is finally beginning to accept and employ the term impression correctly.
The Challenges of Internet Advertising Measurement
The measurement of Internet advertising is becoming an industry in itself. Since the emergence of Internet advertising as a new medium, start-up software companies and established media research companies have been racing to establish methodologies and develop tools that will become accepted industry standards. This is due to two significant needs in this area: the need for advertisers to verify audience statistics at publisher sites and the need for them to understand the demographics and usage patterns of visitors to these sites. Also, advertisers are increasingly looking for third-party auditing services to verify publisher audience statistics coun ts. This is to ascertain that advertising rates are justified by actual audience volumes, and to facilitate comparison across different publisher sites, for planning purposes. In addition, there is a need for internal audience tracking software to be able to analyze audience characteristics and site usage patterns for an advertiser's web site. This information is useful to demonstrate the marketing value of the site.
The CASIE Guiding Principles
While many industry efforts in the area of audience measurement have been innovative, a clear set of standards has not yet emerged. As a result, in late 1995, the Coalition for Advertising Supported Information and Entertainment (CASIE) issued a set of guiding principles to measure interactive media, including advertising on the Internet. CASIE is a joint project of the Association of National Advertisers, the American Association of Advertising Agencies and the Advertising Research Foundation. Their goals are to provide objective leadership as the industry works towards a consensus on optimal measurement and valuation standards. Their guidelines, as published in the CASIE Guiding Principles of Interactive Media Audience Measurement include the following: Best Media Research Practices: "Audience measurement of interactive media should follow established media research practices, resulting in audience estimates that are objective, accurate, relevant, timely, precise and reliable." Third Party Measurement/Auditing: "Audience measurements should be taken by objective third-party research suppliers, and established industry auditing practices should be employed." Comparability: "Audience estimates should be comparable within the same interactive medium. Furthermore, estimates should be provided within the context of total medium measurement." User Information Preferable: "Although innovation is encouraged, it is highly desirable that cyberspace media be measured at the analysis levels corresponding to traditional media measures of gross-exposures, reach/frequency and demographics. Audience measurement should include the ability to determine the number of different users accessing the medium (reach) and the number of times they access it in a given period of time (frequency). These two key measurements provide a gross-exposure measure (impressions). This methodology can be used to calculate measures of cost efficiency comparable to other media, both traditional and interactive. " Use of Census and Sample: "A truly complete and accurate census of users is preferable, versus using a sample." Non-Intrusiveness: "Measurement methods which are least visible to consumers, and require the least effort on their part are preferable." Required Audience Measurement Information From the perspective of advertisers, an "ideal" Internet advertising world would include the ability to track the browsing behavior of consumers in their target demographic group. Tracking software would allow advertisers to: track the number of unique users visiting their site, identify their demographic profiles, determine from which web site they arrived, measure the frequency of visits, length of exposure, and depth of interactivity within a certain site area, and track the site to which they next transferred (Interactive Age (Print)/95). With this knowledge, advertisers could customize site content based on the visitor's demographic profile, and therefore optimize the appeal of certain areas of their sites. In addition, this would enable advertisers to determine the effectiveness of their hyperlink advertisements on publisher's sites. The Challenge of User Registration for Audience Measurement To enable the level of tracking outlined above, a form of universal Internet user registration would be required, which has proven to be difficult to establish. In general, Internet users prefer the anonymity of the Internet, and still discourage commercialization. Also, site registration is inconvenient for Internet users who are already frustrated by slow data transfer speeds. As a result, when users encounter a "registration roadblock," they tend to change their minds about visiting that site. Or, if they register once, they often forget their registration code and password, making their next visit frustrating. When Hotwired instituted a registration requirement for access to its site, visitor volumes dropped significantly. Subsequently, their registration process was modified to be optional. Hotwired now promotes the benefits of site registration which includes a more customized, interactive experience. Internet Profiles (I/Pro)/Nielsen Media are instituting a form of universal user registration. They are currently promoting their I-CODE tracking system to both advertisers and Internet users. I-CODE encourages Internet users to register demographic information about themselves, and in return, receive a unique I-CODE. When these users visit an I-CODE supported advertiser web site, the visitor supplies the I-CODE, and receives some form of reward such as a contest entry, a product sample or discount. The advertiser who subscribes to the I-CODE system, receives compiled demographic information about its I-CODE enabled visitors each month. While users would still have to register with the I-CODE system, they would only have to do so once, instead of completing unique registrations for various sites. This may prove to be more tolerable, and may increase the acceptance of registration. Even with a universal registration system, such as I-CODE, there would still be two unresolved issues: the bias of information due to a voluntary registration process and the reporting problems associated with caching practices. As part of theInternet Demographic Survey conducted jointly by CommerceNet and Nielsen Media, the validity of voluntary survey information was examined. They collected similar survey information through both an Internet site, where participation was voluntary and a random sample phone survey. They found that the information collected through voluntary methods gave a significantly different picture of the representative population, and therefore could not be used to draw conclusions for the population as a whole. Another issue involves determining the true number of users and their associated site usage patterns, when a site has been cached by an access provider. This occurs when an access provider copies files to their own server, enabling subscribers with low-bandwidth data transfers speeds to download the site more quickly. For the site publisher, only one hit to each page is recorded when the site is originally downloaded, even though thousands of users may be accessing the site from the access provider's server on a regular basis. Often, however, the access provider engaged in caching does not provide user data to the site publisher, resulting in an inaccurate recording of visits to their site. Some web sites with highly popular content have been able to successfully implement site registration policies. Examples include The Wall Street Journal Update site, and The Riddler. Registration has helped these site publishers understand their audience, attract advertisers and substantiate their advertising rates. However, there are many other publishers who need to attract as many visitors to their site as possible, and cannot risk site rejection due to inconvenience. These sites cannot perform this "ideal world" audience analysis, and can only project traffic based on the number of hits and estimated users. Options for these sites are improving. Currently, tracking software can better estimate the number of unique users through relational databases and by software which analyzes the visitor's domain (.gov, .edu, .com, etc.) Tracking and Measurement Software Internet advertising tracking, measurement and auditing software has significantly evolved. There are generally two types of Internet advertising software: advertiser site audience tracking, measurement and analysis software, and auditing software. The leading software companies for tracking software are Nielsen Media/I Pro, Net Count, Interse, Streams and Group Cortex. The leading auditing software companies are Nielsen Media/I Pro and Net Count. Many of these firms' software track the same standard forms of information: the number of hits by time of day, by web page, by domain. Following is a brief overview of the leading software companies: Nielsen Media/I Pro - This company offers 3 Internet advertising tracking products: I/COUNT, I/AUDIT, and I/CODE and is emerging as the early industry leader. I/COUNT is their Advertiser Web Measurement system software, and has been used commercially since May of 1995. The software enables a web site operator to analyze the number of visits to a site, determine the most frequently accessed files and directories, geographic distribution of companies visiting a site, and identify the names of organizations visiting a site. Reports can be structured based on time, date, geographic or organizational data, or specific files. I/AUDIT is their auditing software for independent verification of web site usage, used primarily by web publishers. This software verifies visits per month, number of pages visited and average visit length. Visits by day and time, and the most frequently files accessed. In addition, visitors can be classified by state, country and organization name. Advertising banners can also be audited for AdViews and AdClicks by day, and the AdClick Rate by day. I/CODE is their Universal Registration System software, as discussed above. Nielsen/I Pro uses the demographic information from their I/CODE users to enrich their analyses for their I/COUNT and I/AUDIT products. Group Cortex -offers tracking software called Site Track. This software performs a basic traffic analysis, including page requests by date/time and domain. In addition, they track how people entered the web site, (based on the URL the user followed to reach the homepage), and which link visitors used to leave the site. Streams Online - offers a "Response Assessment Service" called Lilypad. Lilypad's niche in the tracking software market is that it reports to site operators how visitors learned about their site. Lilypad tracks if visitors clicked on a commercial or non-commercial site, a search tool, a newsgroup, a bookmark, or simply typed the URL to arrive at a web site. Interse - offers tracking software called Market Focus. Their software utilizes hit usage data and through inference-based algorithms reconstructs the actual number of visits, users and organizations visiting a web site. Market Focus can also identify organization names and their geography, down to a zip code level, based on their domain registration. The software also analyzes visit duration and user bandwidth. NetCount - Netcount provides several Internet tracking products and services. Their primary product is NetCount Basic, site traffic measurement software which is provided free to participating web sites. In addition, participants can access a weekly report which tracks the source of visitors to the site, the information they received, and what information was not successfully transferred. The company also offers NetCount AdCount, a third-party verification software which tracks, verifies and reports the activity of designated web advertisements. Information tracked includes the number of ad exposures (impressions) and the click-through rate. Other services include the NetCount Ratings Service which provides standardized performance measurements of web publishing sites to media buyers. As web sites proliferate and Internet advertising becomes an established industry, tracking and auditing software will become a necessity. As in traditional media, it is expected that one or two firms will quickly become the industry leaders, and set the industry standard statistics and vocabulary. Other firms will remain, but serve only in a niche capacity.
Summary of Directions in Internet Advertising: How Technology will Change the Medium.
Banner Advertising Becomes Dynamic As technology evolves, the static banner ad will become archaic. New technologies, such asJava, Macromedia's Shockwave, Real Audio, and advanced browser technologies are already changing passive forms of advertising from static to dynamic, making them more compelling to Internet users. According to Jeff Dickey of DoubleClick, a spin-off of Poppe Tyson, "The banner creator will have to become more innovative through new technology. Banners will become a form of packaging for the site." For example, C/Net utilizes Java-enhanced icons to create a finger that taps at a link with a message "click here." Click-through response rates to this dynamic advertising are about four times the level of static ads. Duracell has already gone "beyond the banner," by substituting a drawing of a battery breaking through the page. Curious consumers who clicked on the battery would then see an image of the back of the page laced with electrical circuits along with the message, "Powered by Duracell" (Ad Age IM&M 3/4/96 "Going Beyond the Banner with Web Ads"). Animation, scrolling features and even full-motion video, with sound, are either beginning to emerge, or are just on the horizon. This will all affect consumers' interest in Internet advertising, and will m ost likely increase click-through rates. There is, however, a risk that multimedia Internet advertising will become as intrusive as broadcast advertising, and that the positive effects will be lost. This will most likely not happen. According to Jeff Dickey, "Anything which is intrusive is automatically shunned." Move towards Customized Advertising Technology will also increase the ability to deliver customized advertising, resulting in higher CPM premiums, or even new valuation methods. On a basic level, customized advertising could be request-based. For example, when a user types a keyword, such as "golf," into a search engine site, a banner ad for a golf club manufacturer would be delivered. Most publisher sites that provide customized advertising are utilizing demographic and personal interest information provided through user registration, or domain analysis. According to Anthony Manson, Senior Vice President and Group Director of Young & Rubican's New Technologies Group, "technology will be used to make advertising more efficient and smarter. We have to start knowing who people are, and time advertising messages accordingly." Even without user registration, however, relational database technology can monitor usage patterns and customize advertising, web pages and special offers. Bob Colvin, President of Interactive Media Sales, describes this capability as "using an 'intelligent agent'. The technology already exists, only people don't know it." For example, if an Internet user utilizes ABC search engine to regularly look-up information on travel to the Pacific Islands, the ABC site could start to regularly include Pacific Island advertiser information whenever the user does a search on general travel. These advertisers are sure to pay more for this highly targeted advertising opportunity. Even though ABC might not know the user's personal identity or demographics, Netscape's "HTTP Cookie" technology enables them to leave a numeric identification tag on the user's hard drive, which their server would look for upon the user's next visit. The web site's server tracks the clickstream behavior of the identification tag. By analyzing this clickstream behavior, usage patterns emerge, enabling customized advertising in future visits. This example demonstrates only one form of technology that enables customized advertising. There are certain to be other emerging technologies, which will intensify debate about privacy issues. According to Bob Colvin, "the biggest issue to face this industry will be the settling of the privacy issue and what can and cannot be done with clickstream and demographic information." High-Technology Web Sites Emerge As technology evolves, web sites will become more like CD-ROM programs, increasing the quality of the site visit experience. Most web sites today are developed with basic HTML software, and include mostly text, and a few graphics. Pages are distinct and generally informational in nature. Technology will soon change the appearance of web sites, and the involvement levels of visitors. The Pepsi-Cola web site, which utilizes the latest technologies such as Macromedia's Shockwave, Java and RealAudio is a good example of this. Visiting Pepsi's site is an experience. Visitor's enter a virtual world that offers hours of exploration through exciting visual effects and twists and turns. The site offers interactive games and virtual night clubs to visit, hang-out, and hear rock band clips and interviews. There is little product information, but the Pepsi logo is visible throughout. This new, cutting-edge site demonstrates that the potential of web sites is the equivalent of CD-ROM technology today: endless exploration in new virtual worlds. Pages appear seamless, and information is delivered in multimedia formats. This is sure to create new measurement challenges. New sites such as Pepsi's demonstrates that "tomorrow" is already here, and the only barrier to mainstream acceptance is consumer technology. To view these high-technology sites, Pentium personal computers, Windows 95, high-speed modems, and multi-media systems are required. Many consumers recently upgraded to such systems and can experience high-technology advertising. Another barrier is high-speed data transfer rates. These sites are highly graphical and almost require an ISDN line to fully appreciate. However, within the next 1-2 years, high-speed data transfer will be commonplace in consumer homes which actively utilize computers. The true power of Internet advertising will then be realized. Summary of Directions in Internet Advertising:
Valuation and Measurement
Industry Converging on CPM, For Now We previously examined the current debate within the advertising industry regarding the applicability of CPM valuation to Internet advertising. While the two sides continue to discuss philosophical differences, the industry is moving towards a CPM methodology for passive forms of Internet advertising, at least for now. By doing so, a standardized valuation platform is evolving, enabling comparisons across web sites. However, leading Internet advertising agencies believe that eventually this valuation methodology will evolve into a better measure. According to Bob Colvin, " CPM measurement is a solution for the near-term; it is in the comfort zone for publishers and media buyers. However, it is just the beginning." According to Anthony Manson, "I don't know if traditional CPM will ever be totally comparable [to Internet CPMs], or if it has to be. Eventually, a valuation model will be developed that will be right for the medium and right for the advertiser. The onus is on this new industry to make a more accurate measurement system." Improved measurement technology will enable improved valuation methods that will be comparable both within the Internet medium and across other advertising mediums.
Going Forward, the Response Rate will Become More Important How might valuation methodology evolve? According to Jeff Dickey, "CPMs will be cross-tabbed back across their rate of response. Response rates will become more important, especially as the web broadens." Mr. Dickey sees Internet advertising moving more towards a direct mail model, which focuses more on consumer purchasing habits, versus demographic profiles. If the evolution of Internet advertising dramatically increases response rates, the industry may move towards a "pay for performance" model, based on click-through yield. Already, tracking technology is being developed to track traffic between web sites, to enable the measurement of click-through rates. Other options may include hybrid rate schedules, in the form of a base fee, plus commission model. For example, an advertiser would pay the publisher a standard fee in return for several thousand guaranteed impressions, and in addition, a royalty, such as a few cents for every user that clicked on the ad, instead of simply viewing it. Another possible model might include a commission for leads generated. This begins to shift part of the advertising burden onto the publisher, who is incentivized to influence consumers to click on the advertisement. Measurement Methodology Will Improve How will the advertising effectiveness of an advertiser's web site be determined? Currently, this form of analysis is strictly internal. However, tracking firms will establish databases of this information across websites to provide benchmark data for advertisers. Advertisers will be able to determine the success of their site, based on comparable statistics for other sites in their industry category. Advertisers will use improved tracking software to determine the characteristics of their site visitors: their demographics, site usage and product purchase patterns. Measurements to determine the marketing effectiveness of a site might include: Increases in the number of visitors or time spent at their site, or direct response measurements, such as the number of database searches, for a dealer location, for example. Effectiveness will also be measured by the number of leads generated, or by actual sales. Sales will be tracked back to web sites through product registration cards, customer satisfaction surveys, or through the redemption of coupons or direct response offers or coupons available only through the Internet. The Industry Will Work Towards a Solution Teaming efforts within the Internet advertising industry are already occurring. The CASIE coalition is actively developing guidelines for industry standards and methodology. In addition, the development of an Internet Advertising Bureau is being discussed in industry inner circles. According to Anthony Manson, some form of an Advertising Bureau will be necessary to standardize advertising rates and formats, to enhance the effectiveness of advertising and to market the medium to more advertisers.
