Advertising revenue flows to search engines more than to Web sites

By Jeff Smith, Rocky Mountain News (Contact)

Published July 20, 2008 at 10:05 p.m.

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Photo by Paul Sakuma / Associated Press

More than 40 percent of all online advertising is spent with search engines, according to a Pricewaterhouse Coopers study. Google, with headquarters in Mountain View, Calif., above, controls roughly 60 percent of that market.

Jamie Poston, media director for Cactus, said the Denver agency's clients spent about 15 percent of their ad budgets online in 2007.

This year, he said that will almost double. "There's a lot of money moving over to the Internet, depending on the client, their goals," he said.

Part of the reason is that clients often can track results, thanks to sophisticated software programs offered by search engines such as Google.

"Clients love that," Poston said. "They can tell you on a daily basis what (search) terms are working and what terms aren't."

Internet advertising has tripled from $7 billion in 2003 to $21 billion last year, fueled in large part by the text ads above and beside Internet search results.

More than 40 percent of all online advertising is spent with search engines, according to a Pricewaterhouse Coopers study sponsored by the Interactive Advertising Bureau. Google controls roughly 60 percent of that market, according to ComScore.

By contrast, only about 20 percent of online ad dollars is spent on display advertising, the banner ads placed on Web sites. Other categories, such as classified advertising and e-mail marketing, make up the remainder.

Given the dichotomy between search and display, many wonder when, if ever, advertising will be able to support the content delivered on the Internet.

Liberty Media Chairman John Malone recently chimed in on the topic with CNBC's David Farber.

"Everybody talks about the Internet and the huge amount of advertising," Malone said. But he said it looks mostly like Google, and to him that isn't advertising.

"That's search. That's direct marketing."

Malone, whose empire now includes DirecTV, and others are skeptical online advertising can support a distribution model generally characterized by small, random audiences with free access to content.

The U.S. newspaper industry is a good example of an industry facing that conundrum. Print advertising is in decline because of the Internet. But an online newspaper's relatively small, random readership hasn't generated broad advertising support.

Newspapers are seeing online advertising instead gravitate to search engines and classified-ad sites like Craigslist.

But Poston of Cactus said both search and display advertising have functions to play.

Search engines attract advertisers because they can target consumers actively shopping for or seeking information about particular products and services.

Display ads on Web sites, meanwhile, are used more to increase consumer awareness of a brand, or educate the consumer about a product or service, Poston said.

Internet software can track the amount of time a consumer spends with an ad, how the consumer interacts with that ad and whether the consumer ultimately buys a product or service.

With search, advertisers generally pay for performance, such as pay per click. An advertiser pays when the listing is clicked and the consumer directed to an advertiser site. There are other Internet payment schemes, such as the advertiser paying only when a consumer makes a purchase.

With display advertising, common payment methods include cost per 1,000 impressions or Web page views, or pay per click.

For example, Cactus is running a campaign for a client that is based on cost per thousand, and another in which payment is made when someone clicks on the banner ad.

An increasing amount of data are collected on individuals and their behavior on the Internet, such as which sites they visit, what searches they conduct, how they use coupons and so forth.

This is leading to a controversial new advertising area called behavioral tarketing, which enables advertisers to deliver a specific ad when a consumer visits a particular site. Some object over privacy concerns.

"To the uninitiated, it sounds Big Brotherish," Poston said. "But it's not as dark as a lot of people make it." Instead, such methods can be used to deliver a more relevant and timely ad to a consumer, he said.

Keith Nyhouse, Qwest's director of emarketing, wouldn't disclose exactly how much the Denver-based telco is spending on online advertising. But he said Qwest's online budget is growing overall.

"One of the great things about online marketing is that there's a lot of information close to a real-time basis and you can determine what's the best use of your marketing dollars," Nyhouse said.

He said Qwest has a team of marketing and product managers who monitor the programs closely, which allow for human and automated decisions.

"It's a very dynamic environment," Nyhouse said. He wouldn't discuss what specific search terms Qwest buys, but he said search engines such as Google, whose rating methods sometimes have been described as mysterious, share information to help advertisers boost their performance.

The dynamic environment is reflected when looking up various search words recently in Google. A Qwest ad on bundled services came up during a search for Dish Network services one day, but not two days later. Text ads for a Qwest-sponsored utility relocation helper called Movearoo.com came up on a number of Qwest keyword combinations, as soon as the new program was announced.

Nyhouse concurred with Poston that both online search and display advertising have functions to play.

"Certainly over time, we will continue to see that ebb and flow between search and display and e-mail marketing," Nyhouse said.

smithje@RockyMountainNews.com or 303-954-5155

By the numbers

Numbers from the Pricewater- house Coopers study for the Interactive Advertising Bureau

* Internet advertising revenues totaled $21.2 billion in 2007, edging out cable TV advertising, $20.9 billion, and radio advertising, $19.8 billion. But newspaper advertising remained on top at $48.6 billion, and broadcast TV ads totaled $31.2 billion.

* The 10 leading online ad-selling companies accounted for 69 percent of total revenues in the fourth quarter of 2007.

* Consumer advertisers represented the largest category of Internet ad spending, accounting for 55 percent of online revenues in 2007.

* Financial services were the second-largest category of online ad spending, accounting for 15 percent in 2007. Computing, 11 percent, and telecom, 8 percent, were third and fourth.

• July 30, 2008

  5:24 p.m.

  Suggest removal

  SEOgirl writes:

  I'm sorry but behavioral targeting is hardly new in the online space. Internet marketers have been using this tactic since the late '90s. I know because I worked on some campaigns for QuickBooks.

  Next time you are looking for an expert, try an interactive or search marketing agency not an advertising agency. They are typically WAY behind the times when it comes to anything having to do with the web.

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