Web ads drawing huge investments – analyst
Now, if they would only start paying off....
Online advertising is now drawing the sort of money that financial analysts notice, much to the delight of ad agencies, and much to the puzzlement of Web merchants who consistently fail to profit from them. Internet ad sales jumped a whopping 35 per cent over last quarter, from roughly $600 million to $935 million, as reported by PricewaterhouseCoopers New Media Group chairman Tom Hyland during a press teleconference yesterday. Spending in the first six months of fiscal 1999 has already exceeded the total spent during fiscal 1998. The leading categories in which companies now burn money on Internet ads are consumer-oriented products and services at 29 per cent; computing at 22 per cent; and financial services at 20 per cent, Hyland noted. The Internet Advertising Bureau, and industry front group, regularly sponsors the quarterly PricewaterhouseCoopers study, and hosted Hyland for the teleconference during its annual meeting in New York this week. There were no surprises in the study results. Investment in Web ads has been growing swiftly and steadily since PWC first started tracking it in 1996, when it amounted to the paltry annual total of $267 million. If the trend continues, fiscal 2000 will see an investment total in the range of $3 billion. Still, it would be nice if merchants were to profit from such sustained capital burns. There are numerous reasons why online sales fail to generate profits, and chief among them is profligate spending in expansion schemes. For example, Amazon.com has invested so much in its distribution network and warehouses that it has yet to enjoy a profitable quarter. Because e-commerce is new, sales revenues have to be rolled over into developing a sales infrastructure, of which advertising represents a significant part. Under the circumstances, Web ads will have to begin paying off. They rarely do: research indicates that banner ads, however ubiquitous they may be, are particularly ineffective, as Web surfers quickly train themselves to ignore them after a quick glimpse, thereby effectively looking around them, and keeping them in the periphery regardless of where they appear on a page. Internet advertising fails to pull its weight for a quite simple reason: it sucks. Rich media ads hold great promise, but the technology is woefully inadequate. "Advertising is limited by bandwidth," PricewaterhouseCoopers New Media Director Pete Petrusky told The Register. "Fewer than a million Americans have high-speed access; it will be some time before Web ads can offer the slickness of TV ads," he said. So there: limits in the technology, not in the evil ingenuity of advertisers or in the exploitative drive of merchants, impede the power of advertising on line, and bore us with insipid banners. Don't blame Madison Avenue: Web ads suck because the Internet sucks. ®
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