Growing in an Unhealthy Climate

Economists, politicians and media types are no longer arguing whether or not the economy is in a recession. Instead most are debating how long it will last.

If recent trends continue, the prognosis is relatively dismal for real estate values, gas prices and the unemployment rate. And as corporations and consumers grow frugal, cutbacks in advertising threaten the vitality of everything from cable operators to newspapers. Internet analysts, wondering about the ripple effect on the industry, offer a variety of opinions. While some think a recession would not have any affect on online advertising and marketing, others feel that it could have a significant impact – negative or positive – on the sector.

Slashed traditional advertising budgets are already apparent. TNS Media Intelligence found that ad spending in the fourth quarter of 2007 declined .1 percent from the fourth quarter of 2006.

But a Direct Marketing Association’s Quarterly Business Review survey in the fourth quarter of 2007 uncovered good news for online marketers: 50 percent said they would increase email marketing, 44 percent would increase database segmentation and 35 percent would increase spending on search engine optimization in 2008. And PQ Media found that spending on alternative media such as social networks, lead generation advertising and consumer-generated media is expected to grow by 20.2 percent in 2008 to $88.24 billion.

These findings reflect a long held belief that there will be a shift of marketing dollars from traditional media to the Web. Some believe this move would protect online companies from feeling the effects of a recession. Standard & Poor’s Internet analyst Andy Liu noted at the company’s 2008 Media Summit that he expects online ad revenues to grow by 20 percent this year – recession or not.

However, not all indicators (or analysts) are so bullish. In March, market researcher eMarketer lowered its estimates for U.S. online advertising market by nearly $2 billion, predicting that it will grow $25.8 billion, as opposed to $27.5 billion, in 2008.

Ability to Measure

Advertisers are shifting online to not only reach their audience, but because Internet advertising costs less and is trackable. Founder of Seer Interactive, Wil Reynolds, predicts a trend where any medium that offers less tracking will lose dollars to areas that offer more accountable results. Effectiveness can be measured by clicks, impressions, registrations and purchases, which are very attractive to bean-counting advertisers.

Brad Waller, vice president of business and affiliate development for, points out that General Motors, the country’s third largest advertiser, announced it is shifting half of its $3 billion budget into digital and one-to-one marketing within the next three years. He claims this is the beginning of things to come, noting that the market online is growing faster than any other spend.

Founder of, Tim Storm, says online advertising can be measured but offline initiatives, like direct mail, can’t be tracked. Online campaigns offer ROI down to the penny – so advertisers don’t wonder where their budgets were spent.

Paying for Performance

Even more appealing during belt-tightening days is performance marketing, where advertisers only have to pay when there is an action that is commissionable or measurable. Storm says he thinks there will be a shift of spending toward performance marketing, as opposed to advertising on a CPM basis. He doesn’t think Internet advertising will be affected by the recession as long as advertisers don’t look at the spending as a budgeted line item – which tips the scales in favor of performance marketing.

Online marketing consultant Sam Harrelson agrees that CPM big budget ad buys will suffer in 2008 and performance marketing will continue to increase its reach, effectiveness and popularity.

In fact, the Interactive Advertising Bureau statistics for the first half of 2007 indicate that "CPM deals" were replaced by "performance deals" as the leading pricing model for Internet advertising. In 2006, CPM deals comprised 48 percent of the overall total while performance deals (such as CPA) were at 46 percent. However, in 2007, performance deals made up 50 percent of deals while CPM fell to 45 percent.

There is evidence that performance marketing initiatives such as paid search are becoming more popular. found that 48 percent of all U.S. online advertising spending in 2007 went toward paid search, and predictions are even higher for 2008.

Paid Search

Although paid search is considered more resistant to cuts than other advertising because it’s performance based, some think it is not immune to decreased spending. Advertisers could reason that people are less likely to surf the Internet for potential purchases during an economic downturn.

In March, comScore, the Internet ratings firm, reported that Google’s paid clicks fell .3 percent between January 2007 and January 2008, even as the number of searches rose 40 percent in the same period. As recently as April, Google’s ad clicks were rising at a 60 percent clip.

The industry panicked that Google, considered a bellwether for the overall sector, was being affected by the cyclical economic forces of the overall market.

It’s possible that Google is tightening the reins on clicks to combat click fraud and generate better clicks in general. And Hitwise found that the percentage of traffic going from Google to retail shopping sites is actually increasing. Since the bulk of paid search advertising is shopping related, the Hitwise data draws a different conclusion than the comScore data.

But cost per click has its challenges – there continues to be big inflation numbers. As more folks jump in, the costs get higher.

It’s possible that there won’t be less activity in paid search but there might be less money spent on bids. Seer Interactive’s Reynolds offers an example: the same number of marketers could bid on a term like "mortgage" but spend less money doing it. So if in the past a marketer paid $1,000 for 10 leads that convert, today that $1,000 dollars would only buy five leads.

Reynolds doesn’t believe this will cause marketers to abandon paid search, but thinks it could cause them to lower their bid to spend $750 for those five bids – reasoning that "smart marketers always will spend up until they max out their ROI." Interestingly enough, Reynolds says the saved $250 isn’t likely to go to buy radio or display ads. From what he has seen, people looking to rein in their paid search move into SEO as their next step.

Reynolds has seen shopping and e-commerce people moving from paid to SEO – and believes the affiliate space might have a good fallout as well because the closer a marketing channel is tied to results, the easier it will be for managers to get funding for it.

Survival of the Fittest

Google has boomed over the past few years because of search engine marketing – so it is possible that search engines will fare well during an economic downturn if paid search continues to be popular. Yahoo, Google, MSN and AOL have worked to become one-stop shops for advertisers by building up ad networks with targeting and tracking capabilities. David Hallerman, eMarketer senior analyst, notes that when "the portal is both destination and network, perhaps advertisers can get all they need without straying – at least that’s what the Big Four hope for."

Many niche sites have flourished while they get better at improving targeting to meet the needs of their clients. Reynolds says that vertical sites, if they can show ROI for marketers (even with less traffic) will start to get dollars if markets like Google become to expensive to play in.

Specific verticals that offer people a way out of a bad situation such as employment sites, job training sites, and mortgage refinance loans and debt consolidation sites like LowerMyBills, could become more in demand. Also well positioned are sites that offer people efficiencies in a weak economy such as comparison shopping engines and coupon sites.

FatWallet’s Storm believes that coupon sites could fare well this year – he points out that some of FatWallet’s best years were during the last downturn of 2001 and 2002. When the economy is in a slump, people gravitate towards being more cost conscious. For example, Storm has read reports that the craft industry does well because people make their own quilts – it is both entertainment and fulfills a need.

So far this year, Storm has not noticed any spending shifts – booms or drop offs – for FatWallet. Electronics and technology continue to be FatWallet’s strong categories as do other categories like Health & Beauty and eBay.

Insurance is another sector well positioned to weather an economic storm. Jon Kelly, president of SureHits, an ad network for insurance and loans, thinks it could increase because consumers are adopting the Internet as a primary means of buying insurance. Even technology laggards, who in the past surfed the Internet to find the best quote but picked up the phone to complete the transaction, are purchasing through e-commerce.

Another reason for Kelly’s bullish prognosis: "When the economy turns rough, people start looking for the best deals on insurance and they turn to the Web to do it." Kelly explains that auto and home insurance look particularly strong over the next few years because consumer demand for them does not drop in a recession – car insurance is mandated by law and home insurance is mandated by mortgage companies.

Kelly predicts that there will be increased Internet spending by insurance companies as the battleground for customers moves online. He thinks the areas where they will increase spending are paid search and affiliate and ad networks with a strong vertical focus like IndustryBrains, Quigo and SureHits Ad Network.

AdJungle’s Waller has seen record growth on its classifieds site, EPage – with 30 percent growth in revenue with January 2008 over January 2007 and an increase in the average revenue per user. He has seen growth in areas that want to get rid of excess inventory and says that in a tight market, people buy more items used than new. Listings for home-based businesses that offer ways to earn extra income are popular – like "how to make money from your laptop."

EPage makes money from advertisers paying for more exposure, as opposed to getting a cut of the purchase price. Advertisers pay to have their ad ranked higher on the page – when advertisers have success; they are willing to pay more.

Conventional wisdom would suggest that real estate would be hard hit in a recession. But Michael Stark, the founder and president of, says that just because the housing market is tanking doesn’t mean there will be a negative effect on the online real estate vertical.

His real estate sites focus on the for-sale-by-owner (FSBO) market, which accounts for approximately 15 percent of U.S. real estate and says that traffic to his sites continues to grow despite the recession because of the focus on enabling the "do it yourself " FSBO movement. In fact, the crumbling prices, slow sales and a credit crunch in 2008 will make the FSBO option attractive to an increasing number of buyers and sellers.

Foreclosures are good for Stark’s sites because more postings mean more inventory, which means more advertising for his sites. Advertisers on Stark’s sites include people trying to sell their house, brokers, agents and lenders looking for new business.

Waller says that lead generation companies like Epic Advertising (formerly Azoogle), XY7, CPA Empire and Leadpiles could do well because people are buying and selling leads for real estate.

Performance marketers should feel confident that their industry is well positioned to weather a recession although things could get a bit tougher. Affiliates might get scrutinized more heavily – marketers don’t want to pay affiliate commissions if they find evidence that a paid search campaign created the sale. "Many marketers are estimating the ‘influence’ of their affiliates and zeroing out commission when other marketing campaigns are involved," Lee Gientke writes on

Some industry watchers say that marketing will move more in-house as knowledge of how to do search or affiliate marketing continues to spread out into wider communities instead of just specialized networks or agencies.

Eastern Promises

Japan’s had it hard. After nearly a decade of stock market doldrums and an economy on the brink of disaster – just as the rest of Asia struggled too – Japan bounced back. Growth happened. Its economy is still a tad slow, but there are many industries looking way up. Online marketing is one of them.

Of Japan’s 130 million people, about 88 million are online. That’s about 68 percent of the population, according to Internet World Stats (Asia), compared with 210 million of the U.S.’s 300 million and 137 million of China’s 1.4 billion residents. Japan’s may seem like small numbers, but the momentum of online marketing and the ever-growing popularity of affiliate marketing in Japan make it a region everyone’s talking about.

Blogging, for example, in Japan is a popular way of getting products in front of the masses. Technorati Japan says that more than 85 percent of Japan’s bloggers write about companies and their products – and that over half of these bloggers have been contacted by companies to extol their wares. Japan’s Ministry of Internal Affairs and Communications says that bloggers totaled about 8 million in that country, making for an in-blog ad market of about $60 million last year.

Expansion on the Way

In the 1990s, the Japanese did not use credit cards much for online purchases, as bank transfers and postal transfers made e-commerce slow and a waiting game. But by 1999, a tech-hungry culture emerged and online spending came with it. Pay-per-performance business models were not far behind.

A leader in this space is online retailer Rakuten and its affiliates – managed through LinkShare Japan, a U.S.-led affiliate company acquired by Rakuten in 2005. Rakuten is the leader in online shopping destinations in Japan, so their penetration made them a default major player. In fact, Rakuten plans to be in about 27 more markets by 2012, according to Atsushi Kunishige, a vice president at Rakuten. He says they will use LinkShare, for example, as a way to "expand our business into the international market. We want to open a full-fledged Internet mall [abroad]."

Rakuten’s 20,000-plus online stores and merchants did about $66 million in operating profit in the second quarter of 2007. With the company traded publicly on the Japanese stock market, that’s a market capitalization of more than $5 billion.

LinkShare Japan has about 68 percent of the top-selling merchants in Japan and is the leader in customer satisfaction, according to a survey by Japan’s Affiliate Marketing Association. Atsuko Umemura, director, corporate planning, of LinkShare Japan, says that their focus on per-sales kinds of merchants has helped make them a leader. "Affiliate marketing has proven to have the best ROI for us," she says.

Late Bloomers

While the U.S. affiliate industry can trace its beginnings to the mid-1990s, the first affiliate providers in Japan didn’t start up until 1999. The U.S. market has had a few years to evolve and grow, whereas the Japanese affiliate space is still considered a "juvenile." There are more than 80 affiliate networks in Japan that cover both Web and mobile platforms. Some of the more high-profile affiliate networks include Adways, Access Trade, LinkShare Japan, Fan Communications (A8), TrafficGate, ValueCommerce and Zanox Japan.

Anthony Torres, president of affiliate marketing program management company MetaFlo Marketing, which is based in Japan, points out that the key difference between the U.S. market and the Japanese market is that the "Japanese affiliate networks can service only Japanese sites. U.S. networks such as Commission Junction operate worldwide due to English being the most popular language for Web content. So, no matter how large the Japanese affiliate industry gets, it will never be as big as the English-speaking networks," Torres says.

He also notes that Japan is still behind the curve in tracking technology and commission sophistication. For example, U.S. advertisers have more choices in how they reward affiliates. Generally, U.S. affiliate networks allow merchants to pay affiliates based on subscription status of digital content and, of course, future sales even if buyer clicks go directly to a merchant store. The U.S. networks also have more payout choices. A small CPA, plus a larger percentage of future sales generated by the lead is a method that hasn’t made it to Japanese network platforms.

Torres notes that the cost of acquisition of a typical online customer is high in Japan. "When you add in customer service and all of the accumulated costs in the sale cycle, you are left with a lower margin per sale," he says. Merchants in Japan are just not used to paying high commissions or lifetime commissions on a customer, he adds. "As the industry matures here and the ability to attract online buyers becomes more challenging, we may see online merchants less reluctant to try more aggressive commission terms." Unique to the Japanese market seems to be the cross-investment of media sites and affiliate networks. In order to increase media coverage, many networks invest in or make their own in-house media sites.

Considered the real pioneer in Japanese affiliate marketing is ValueCommerce (Yahoo Japan took a sizable stake in the company in 2005), started by a New Zealander named Tim Williams. ValueCommerce has more than 50,000 websites and blogs in its network, with about 2,000 advertisers. The company has about $43 million in annual revenue and trades on the Tokyo Stock Exchange. Goldman Sachs veteran Brian Nelson is now CEO, having come on in 2000 as COO. Nelson says that "we focused on our strengths, continued to hire great people, and launched new products and services that kept new customers, especially large brand name customers, coming in to work with us."

Consolidation is Coming

Nelson says that a large product database for shopping and their Web 2.0 applications have kept them in the No. 1 spot. It also doesn’t hurt that there is some consolidation going on in the Japan online marketing space now. "I have been telling people in the market for a long time that consolidation is coming " and it is in full swing now," Nelson says. LinkShare’s Umemura says, "It is a very saturated market right now. There is not enough room for everyone to survive."

Online marketing observers in Japan note that there are just too many networks trying to service the same advertisers. With about 1.3 million affiliates registered with the major networks and the majority of transactions driven by a group of search affiliates and "incentive media sites," there are not enough "quality" affiliates to take on all the offers out there. This means the networks are starting to look at new channels for ads.

One of those new channels is mobile, a platform that has performed very well for Japan. Because the Japanese adopted 3G standards fairly early, more than three-quarters of all cell phones in Japan have smooth Internet access. This means delivery of interactive content and ads to about 86 million cell phones (compared with 31 million in the U.S.). There are more than 48 mobile affiliate networks in Japan, with names such as Moba8, Pocket Affiliate and Smart-C. In 2005, the Japanese spent more than $3.8 billion on purchases over cell phones – 57 percent over the previous year. In addition, the CPA-based mobile affiliate provider model does much better in Japan than in the U.S., where CPC or CPM models prevail. It’s been said the culture in Japan plays a role in this since there are so many more commuters in Japan – leaving more travel time for the Japanese to experiment with their cell phones.

And with greater mobile traffic comes the opportunity to serve more Internet phone search advertising. Local search engines like Goo, Nifty and BigGlobe get a share of those eyeballs, but the leaders are Yahoo Japan (with about 63 percent of searches), Google Japan at 23 percent and about 14 percent left to split between MSN and the regional engines. Yahoo Japan is also the biggest local player in Internet auctions, Web email, mobile content and broadband.

Search Challenges

Japanese online marketing agency and search specialist Sozon sees challenges in the search marketing arena. One area in SEO that is unique to Japan culturally speaking, says Andy Radovic, VP of strategy and planning at Sozon, "is its variety in language used. Essentially, there are four methods of writing – kanji, the character system borrowed from China; hiragana, a more simplified form of kanji; katakana, the Japanese expression for foreign words; and romaji, which is the alphabet," he says. "Depending on what you intend to communicate, you may use just one or a combination of these. This greatly impacts the keyword planning stage of your SEO program. Another major difference is Japan’s reliance on Yahoo as the search engine of choice."

Radovic notes that Japanese-run companies are the leaders in services and customized solutions. "There are very few successful, market-leading international companies in the online space," he says. The international companies that operate in Japan tend to do so with a local partner. The exceptions, he says, are technology- dependent products, where some U.S. companies are in the lead, such as in search (Google) and bid management and Web analytics tools (like Omniture). "Some of the Japanese homegrown companies in the mobile, travel and insurance space are getting more sophisticated in their online marketing programs and are tracking to off-line sales," he says.

Scott Neville, COO of Sozon, says that, creatively speaking, ad messages need to really know their audience. "International ad concepts simply will not work most of the time," he says. "Text is definitely king here. More information is better and creative is often very busy with multiple propositions." He says you will need to provide as much detail as possible in your campaigns – that Japanese users will definitely read your privacy policy. He says that text email is the standard and somewhat limiting in terms of email marketing campaigns that may rely on HTML. Flash and graphic-centric sites tend not to work that well at either an advertising or a site-campaign level. He says that Flash campaigns "are not really supported by major portals for media buying and tend to be not that well received." Also, comparison campaigns are not generally used in Japan and "culturally not respectable to run."

While online ad agencies in the U.S. are slowly starting to synergize their off-line traditional ways and the brave new web of interactive display advertising, the Japanese banner ad companies are not doing too well. Two online ad agency leaders, Cyber Communications and D.A. Consortium, actually had negative growth in recent years.

The Network View

Aside from the few U.S. companies acquired or now run by Japanese companies, there are few pure U.S. players in this market and there are not likely to be more anytime soon. Observers note that U.S. networks just don’t have the Japanese-language support. While LinkShare and ValueCommerce have a bilingual platform interface, they are the only two out of dozens. One of the U.S. networks to gain a measurable foothold in Japan is DTI. They host affiliate programs for Japanese adult sites, but since most networks in Japan won’t handle porn ads, DTI has found its niche in this area. Some experts point out that one opportunity for U.S. companies would be to acquire small- to medium-sized networks and re-brand. LinkShare’s Umemura says that in Japan, U.S. companies could have come in at an earlier stage, but that "starting now from scratch would be pretty difficult whether you are a U.S. or European company. There are some smaller U.S. networks that do quite well here."

In terms of what hasn’t been popular in Japan’s affiliate programs are third-party management vendors. Currently, only a handful of the affiliate networks have management services, mainly because they are pushing their own media. However, experts say, tool and service vendors could eventually find a market in Japan. Keywords tools such as Wordtracker, recruiting tools such as Syntryx Executive Solutions and competitive keyword research tools such as the makers of KeyCompete could enter the market fairly easily.

Perhaps the best indicator that the online marketing landscape in Japan is maturing is the formation in May of 2006 of the Japan Affiliate Service Kyokai, an association that started to draw up guidelines, educate the public and monitor ethical behavior in online marketing. The six major networks in Japan founded the association when they felt that "shady affiliates" were starting to encroach on the growth of the business.

A learning curve, however, still applies. Sozon’s Radovic says that "everyone is struggling with how to market in a Web 2.0 environment. The Japanese blog and peer consumer trust are major drivers of consumer purchase. So this is an ongoing challenge." And solutions to the challenge will certainly add up to a better marketing landscape.

Shine a Light

It’s been seven years since interactive agency Razorfish embarrassed itself on national television. When reporter Mike Wallace of CBS’ "60 Minutes" asked the agency’s co-founders what the company does, the answer was none too clear.

Jeff Dachis, co-founder of Razorfish, said to Wallace, "We’ve asked our clients to recontextualize their business." Asked for clarification, he added, "We’ve recontextualized what it is to be a services business." Wallace didn’t understand the answer. "We radically transform businesses to invent and reinvent them," Dachis explained.

Even though Dachis couldn’t seem to come up with an answer to satisfy Wallace, earlier in the program Dachis said of interactive agencies: "This is absolutely real; this is a revolution; we’re packing rifles; and this is going to be something that’s going to change the course of the way the world is functioning."

On that point he seemed to be right.

Razorfish, now known as Avenue A/Razorfish, owned by aQuantive, survived the ensuing dot-com crash and is currently ranked among the top 10 interactive agencies. Avenue A/Razorfish has even flourished, counting a roster of clients that includes Best Buy, Coors, Starwood, Wal-Mart and Weight Watchers. The company has reinvented itself from a Web design firm into a metrics- and response-focused house.

The majority of the top 10 interactive agencies in the U.S. have taken that mantra to heart, spinning out digital firms from their more traditional agency parents and combining Web design with a myriad of client services and metrics-based programs.

While this focus on the end-to-end as well as the most creative solution has indeed changed the way the digital agency functions, there are still lingering questions about who all this change is good for. The two tiers of interactive agencies – the digital arms spun out of traditional Madison Avenue powerhouses and the independent firms that got purely into digital about 10 years ago – are doing fairly well. Still, one faction points to the other a slacking in the forward-thinking bright ideas that will increase innovation and profits in the next phase of Internet advertising, mainly the social Web and search.

"Marketing on the whole still favors the traditional agencies," said Mark Kingdon, CEO of independent agency Organic. "But interactive is coming into its own. How do we work together, is the question." Organic emerged in 1993 as one of the first digital agencies and weathered the dot-com crash to thrive as an agency that specializes in deep customer profiling.

Big vs. Boutique

Organic may call itself an independent, but it is actually owned by giant Omnicom Group, which also owns, Tribal DDB and Tequila in the interactive field. WPP owns Grey’s digital marketing arm and Ogilvy Interactive. Interpublic owns MRM Worldwide, R/GA and DraftFCB. The top 10 digital firms earn between $92 million and $235 million annually, according to AdAge. Avenue A/Razorfish leads the interactive pack with revenue of about $235 million in 2006. Omnicom is currently the holding company with the most revenue from its advertising units- about $11.4 billion worldwide in 2006. That’s about $6.2 billion in the U.S. It has also done well on Wall Street. In February of this year, its stock hit $106.90 per share, about 50 cents short of its all-time high in December of 1999.

While Organic is considered a smaller player, with revenue of about $102 million in 2006, Kingdon says that "marketing is under enormous pressure right now." He says that "people want to create a war between traditional and interactive agencies. "War may be a strong word, but the perception is that while independent digital agencies get all the "fun" work, bigger houses spun out of the traditional agency environments are still coming to terms with how to handle search marketing and the impact of social media. Spun-out digital agencies say they are best equipped to scale and meet all the client’s needs, be they digital or older media.

"Traditional agencies started to niche themselves," says Rohit Bhargava, vice president, interactive marketing at Ogilvy Public Relations Worldwide. "They broke themselves into search and email marketing, etc. Now you have social media agencies. But the traditional agency is in real trouble now. With word of mouth, search and social media all coming from interactive agencies, traditional agencies don’t do that well, yet. "

Interactive agencies that came from the ranks of traditional agencies haven’t been hurting. DraftFCB, for example, earns about $95 million a year, and is the fairly recent marriage of FCBi and Draft Digital. FCBi was an outgrowth of traditional agency Foote, Cone & Belding. DraftFCB’s mantra is to stay response-driven but with the added value of more and better data. "In the past decade, the terrain went from silly money to accountability," says Brad Kay, executive vice president, executive director, digital, at DraftFCB. He says that the team has become younger and younger to help stay on top of innovation in thought and technology. The shop also has an elaborate intranet where employees can post "cool" stuff they encounter on the Web. This helps the "stay fresh or die" attitude, Kay says.

The small boutique shops may get a lot of adventurous creative work, but that’s how it was in the purely traditional agency universe in the days before digital. The two-man firms always got the regional business where your ad could feature grandmas in tattoos or precocious babies driving Harleys. "Sure," Kay adds, "some business goes to the boutiques and we’ll just have to get used to it." He says to help win new business they need to take on more people – something they do to stay abreast of innovation and the "hip factor."

The benefit to bigger traditional agencies is their deep pockets. To build a digital house from scratch seems to be a thing of the past. Buying a digital firm is easier. WPP Group has put Schematic, 24/7 RealMedia and Blast Radius in its corral. Publicis back in January doled out $1.3 billion for Digitas and also bought Web agency Business Interactif to bolster its presence in France, Japan and China. Omnicom, as mentioned, owns, Tribal DDB and Organic, and continues to grow existing digital assets by taking a 50 percent stake in EVB, based in San Francisco.

Even among some of the independent shops, there is consolidation of the players. The big advertising parent companies now own a mix of big and small digital firms. Omnicom, Interpublic and Publicis, to name a few, own big earners who began as offshoots of traditional agencies and smaller companies that started as two guys with a little Web coding experience. "You don’t need to streamline everything across an agency anymore," says Ogilvy’s Bhargava. "We’re going to use JWT for billing and Ogilvy for PR because it is the same parent company."

Trevor Kaufman, CEO of Schematic, has said that in a case where Schematic is bought by WPP, the intent is to "help change the DNA of the operating company and make them inherently more digital." He says in the case of his company, "it’s a way of leveraging specialized skills over the entire network. It has been successful because, in the end, it is providing better, more integrated solutions for clients."

The CMO Factor

Chief marketing officers may need some convincing. A recent study done by Sapient said that more than 50 percent of chief marketing officers believe that the traditional, large advertising agency is not prepared to meet their online marketing needs. It said that one in 10 CMOs expected to align with traditional agencies for their online marketing, stating that traditional advertising firms have a hard time thinking beyond traditional print and TV media models.

A report by Forrester done in February 2007 said that "agencies struggle to help clients capitalize on emerging channels and technologies. In the meantime, marketers are diffusing agency power by turning to a portfolio of players in search of specialized expertise. As marketers select new agency partners, they must revise their evaluation criteria to build an integrated marketing team."

And a March 2007 study by the Chief Marketing Officer Council said that 54 percent of marketers surveyed stated they plan to quit one of their agencies this year. The study summed up by saying that "marketing is undergoing substantial changes due to a mandate for CMOs to improve the relevance, accountability and performance of their organizations."

A brand may know what they want but have a hard time finding it. "Most interactive agencies have a hard time getting human resources together," offers Robert Tochterman, interactive brand manager for Ralston Purina. "Some agencies don’t know who’s going to be on an account until the work begins. You’re really buying into the confidence of the people at a director level." Tochterman looks for a team that "has rigorous methods for measuring the impact of a campaign, keeping an eye on return on investment. That’s the kind of discipline we’re looking for. Most agencies don’t talk about that. It’s comforting when they do."

Getting in the Network Game

Some big agencies are attempting to streamline their synergy by creating their own networks. The Omnicom Group, for example, announced it is erecting a "digital creative network" to be called Redurban. The aim is to globalize marketing and creative in an Amsterdam-headquartered endeavor out of recently acquired Redurban agency of the Netherlands. Euro RSCG, owned by Havas, also recently announced that its 4D digital arm would be moving into its New York office, with "integration" as its intent. Publicis, headquartered in France, has taken three of its agencies to create what it calls a "central services operation" named The InsightFactory. Leo Burnett, Starcom MediaVest Group and Digitas will contribute labor and technology to The Insight Factory, making a full-service mix of their media, digital and creative services.

This news comes after Omnicom’s push to integrate TBWA/Worldwide agency and failed. TBWA was put in charge of in 2005 and they just never made it work, according to news reports. In addition,’s Dallas office announced it would close down completely, putting half of its small staff on the streets. founder Chan Suh returned to the company in April as chief executive after CEO David Eastman held the top spot for less than a year.

Organic CEO Kingdon still maintains that there are some things the bigger digital companies can’t do that they do – what he calls a "client contact strategy." He says the client wants to know not the "what" of defining the traditional brand but the "how" of the digital approach. "Interactive agencies can handle the pace of innovation," he says, "but digital is always changing, so pure digital agencies know no differently. They were there when HTML first came along and when there was no money and they learned to thrive through Flash and Ajax and all that."

A case in point is the vanishing campaign microsite – websites built around a specific product. When Coca-Cola recently launched a new character for its Sprite drink, it did not launch a microsite, but set up the character on Facebook, complete with videos, music and discussion pages on the profile. Microsites are now seen as the "old model," shifting instead to where younger audiences gather – Facebook, MySpace, widgets and mobile applications. Adam Lavelle, chief strategy officer at iCrossing, points out that campaign sites tied to short-term promotions or products consistently rank low on search engines. "I don’t understand how, long term, a site builds brand equity," he says, "and with search, I don’t see that having long-term visibility."

The quandary for some brands, then, is do they sign up with a hot new interactive agency or do they stick with their shop of record? Ogilvy’s Bhargava believes the "top 10 are taking low-hanging fruit," with the bigger clients getting "a lot of follow-on business from other unit business. It is not cold calling. It is qualified leads." Lavelle says there is no monopoly on the best ideas, a sentiment that seems clear from the success of some independent interactive agencies. He says the "most important thing for marketers to think about is, ‘as I move more money from traditional into digital, does this agency have the capabilities that I want? Are there types of activities online, in mobile devices or other things I could be doing?’"

"You’re in trouble if you’re just building websites," says Bhargava. "We don’t want any one type of thinker," adds DraftFCB’s Kay. "The channel changes on a minute-by-minute basis. "We want to compete with the pure-play and the behemoth."

And Razorfish’s Dachis? Has he recovered from his embarrassment on national TV? After the dot-com crash nearly killed Razorfish, he left the company and formed Bond Art and Science, a consultancy that he says is not in the ad business even though reports seem to indicate it covers at least some of the same ground as Razorfish. Evan Orensten, a partner at Bond, says the company does "experience design," which sounds like an interactive agency.

Searching for Alternatives

It was a cold night in Pennsylvania when Leila Crooks was on, the community-based popularity site, and came across a story about a "slanket" – a fleece blanket with sleeves that offers the freedom of arm movement so people can play video games or surf computers while snuggling under a blanket.

Crooks was intrigued, bought one, loved it and sent the link to three of her friends who all bought them. At $50 a pop, the maker of the Slanket was benefiting from Digg. The number of sites for finding information online – that are alternatives to search engines – is growing and the traffic to them is increasing. People go to them for different reasons: to find experts who can provide the best possible information, to have material presented in a different way, to see what other users value as important and to find information they know will be relevant to them specifically.

The Slanket example illustrates the difference between search (or "recovery") and discovery. Search (or recovery) is when you are looking for something specific – a confirmation of information that you know already exists, such as information about the governor of New Jersey or a recipe for meatloaf. Discovery is when you find something you were previously unaware of, weren’t specifically looking for or didn’t know that you’d have an interest in. It’s akin to reading additional stories in the newspaper because of the proximity to the article you wanted to read.

Amanda Watlington, founder of Searching for Profit, says social media sites like or are organized to present information in different ways, which can appeal to people "depending on how their brains work." Users go to the Most Popular section of these sites and check out what others deem to be interesting.

Internet marketer Carsten Cumbrowski says he passes time on, a browsing engine, to find sites that other online marketers find useful as well as to find sites that entertain him. He says it has a good filtering system – "if I say I don’t like something, I never get anything similar again."

Online marketers that want to leverage StumbleUpon can try its advertising system, which includes the link of the advertiser’s website in the regular StumbleUpon rotation. When a sponsored site is shown, a green button on the toolbar appears. However, some advertisers who have placed requests to get visitors in their category have received notices from StumbleUpon that there are not a sufficient number of people to view the ad in the category selected. Skeptics wonder if this is because StumbleUpon does not want to deal with a low ad spend or if they are overstating their traffic numbers.

Cutting Through the Clutter

As users become savvier in locating information, they realize that search engines are heavily monetized and loaded with nearly as many marketing messages as sought-after information, and they seek out alternatives, according to Sam Harrelson, general manager of the East Coast U.S., for Clicks2Customers.

Others agree that "less noise" and the struggle to find relevant information on search engines often lead people to alternative sites.

For example, if users are looking for tax help, they might go to Digg and read an article like "five ways to get your taxes done" rather than entering "tax help" into a search engine, which yields promotional sites about tax services, according to Chris Winfield, president of 10e20, an Internet marketing company.

Users often go to review or opinion sites to find information to complement what they have found on search engines. Winfield says he will search Google for a dentist in New York to get some names and then go to to look at their reviews. Searching for Profit’s Watlington says she searches for hotels in New York and then goes to for the reviews.

Tim Mayer, vice president of product management of search at Yahoo, explains that when users don’t find the answers they want on search engines, they can ask a question on The site includes 4 million answers from publishers, original content created by its editorial team, community-contributed articles from Wikipedia and answers from

WikiAnswers is collaboratively written by volunteers "in the spirit of growing information for the public good," according to its website. For contributions that users find to be worthwhile, users vote with Trustpoints, which are indicators of how trusted the last contributor is as a member of the WikiAnswers community (as opposed to a measurement of how much you can trust the actual answer to a question). Trusting a user’s reputation is vital to not only WikiAnswers but to all social sites where users provide information or indicate the value of information (such as through tagging, bookmarking or ranking).

Just like in off-line world, the value put on information depends on who is giving it, and for this reason, users’ profiles can be weighty and influential. If you are reading an article about JavaScript on, you look to see what other articles a user has saved – it gives you an understanding of that person’s knowledge base. It is similar to looking at someone’s book or record collection – it lends credibility and perspective.

Trust Me is one of online marketing expert Jim Kukral’s favorite sites because it decides what news is important as opposed to a site that simply aggregates feeds. "Techmeme saves me time. There is no need to go to a ton of blogs to figure out what is going on. That’s power to me," he says.

Techmeme works differently than other news sites. GoogleNews, a news aggregator site, uses its own software to determine what stories to display, but the sources are selected by a team of editors. Similarly,, the online version of the San Francisco Chronicle newspaper, also features stories decided on by editors. Techmeme creator Gabe Rivera explains that Techmeme uses a proprietary algorithm, which changes frequently, to analyze posts to determine what Web pages are being discussed or cited most often on the Web.

Blogger Robert Scoble ( explains that Rivera started by selecting 1,000 of the world’s top tech bloggers, put them in his server, studied their linking behavior and created a "fabric" that now includes thousands of blogs and websites. When Apple’s iPhone came out, high-profile bloggers in the fabric such as Michael Arrington (, Guy Kawasaki ( and Scoble were all blogging about the new device. Because of this, the iPhone headline stayed up on Techmeme almost 24 hours a day over the summer. Scoble says he believes that information from a site like Techmeme is more valuable than information from Google because it’s more SEO-resistant – it is much more difficult for its links to be bought. For these top bloggers to link to each other, they must trust each other. "If I trust Arrington and he trusts Kawasaki and he trusts Joe Smith, then I am going to infer that I trust Joe Smith because my chain has trusted him. It would be very hard for a search engine optimizer to break into this chain," he says.

Dana Todd, president emeritus of SEMPO and SiteLab co-founder, says that she thinks it’s rather limited thinking to assume that all SEO is harmful and that SEO is the only market manipulation tactic on the Internet. "In any market, there are marketers – and they do exactly what marketers do. They attempt to find hype-holes in the system and exploit them." She notes that it took about 15 minutes for users of Digg to start manipulating the results. The findings of a September study by the Project for Excellence in Journalism (PEJ) warn that just because a news story is popular at a website (or within a certain community) does not mean that it is the most "important" story.

The PEJ study compared the headlines of user-driven news sites (including Digg and Reddit), and Yahoo News, which offers an editor-based news page and three lists of user-ranked news (most recommended, most viewed and most emailed), and compared these with the news agenda found in mainstream news outlets.

The study illustrates how the news looks different when audience members pick what story they want to read or recommend, as opposed to when a professional journalist makes the selection. The study found that the most popular stories on user-driven news are more fleeting and often draw on a controversial list of sources and reflect the interests of the participants in the community – stories on Digg and tend to be more about technology, which is why they are popular among online marketers.

User-driven news isn’t new – in October the site Slashdot celebrated its 10-year anniversary as a site where users could scrutinize science, science fiction and technology- related news. It is credited for being one of the first sites to provide forum-style comments alongside user-submitted news stories. Just like, you wouldn’t go to Slashdot to find out information on the latest U.S. billion-dollar defense policy bill.

In a post on his blog, Gaping Void, Web 2.0 writer/cartoonist Hugh MacLeod posits that if he were looking for a Vietnamese restaurant in Phoenix, he could Google "Vietnamese restaurant Phoenix" and possibly end up at a bad restaurant. Or as a blogger with a good-sized audience, he can ask about his dinner plans on Twitter or and get a couple of good recommendations within minutes. "Because I know these folks, or at least, they know me " there’s a certain amount of trust and bonhomie that comes with the recommendation," says MacLeod.

Social networking site Facebook has received lots of buzz and high financial valuation because of the "social graph" – a reference to graph theory that models the connections between things. Facebook founder Mark Zuckerberg says Facebook is not a social network but a tool that facilitates the information flow between users and their connections. It is the ability for users to get more out of their connections that people find compelling.

The Power of the People

According to Scoble, Facebook, Techmeme and Mahalo – a human-powered search engine that creates comprehensive and spam-free results for the most popular search terms – will kill Google in the next four years because users will get their information from these types of sites where trust is more than what algorithmic search results provide.

In October, Facebook added Facebook Flyers, which offers two different advertising options to the social network. Flyers Basic enables marketers to run ads on a $2 CPM with targeting based on age, gender and network. Flyers Pro lets marketers use pay per click with a minimum of 1 cent per click. As with other PPC ad buys, a higher max price per click increases the chance your ad will be shown. Online expert Kukral says Facebook Flyers "is basically Google AdWords within Facebook." He says that as an online marketer in Cleveland, this gives him the ability to do things like drill down to specific demographics with Facebook and target those users for a local "event."

"I can create an event in Facebook and then look at all the people on Facebook that are in the area and maybe have certain political or religious beliefs [based on their Facebook profiles] and then invite them to participate in an offer or event," Kukral says. "That is powerful and it could be the next big thing."

Part of trusting someone’s advice or being receptive to marketing messages is awareness of users’ tastes. David Rodnitzky, vice president of advertising at Mercantila – a collection of hundreds of online specialty stores selling to U.S. and Canadian consumers – says StumbleUpon and movie site are popular because they leverage collaborative filtering.

Here’s an example of how collaborative filtering works, according to Rodnitzky: Two users rate 200 movies on Flixster, and 90 percent of the time the ratings of the same movie are consistent (user A gives "Star Wars" a 10, user B gives it a 10). So if user A wants to see a Chinese-language movie but has never seen one before, and user B has seen five of them, the odds are good that whichever Chinese-language movie user B ranked a 10 will also be a movie that user A likes. When user B types in "best Chinese movies," the results are tailored to his specific likes and dislikes.

"Over time, if a collaborative filtering engine gains enough information about an individual user, it’s possible for the results to be very powerful – and far more accurate than what you get by just doing a search on a search engine," Rodnitzky says. However, the collaborative filtering engine first needs to have enough users to make those ratings viable. is a popular search alternative that has garnered enough users to make it worthwhile. It reached 2 million answers in the English-language version in September 2007. Since starting in 2001, more than 100,000 registered users have made at least 10 edits each to Wikipedia articles. It is in the search toolbar in the Firefox browser and the sixth-most-visited network of websites worldwide. Internet marketer Cumbrowski claims Wikipedia is exceptional because it lists references – users can find out what experts think are the best resources for a topic – which obviates the need to research a topic any further.


Finding the best information from the most informed user base is driving the growth in specialized communities and vertical search engines. Cumbrowski says there will be more specialization. As good examples of that, he points to for the affiliate community and Danny Sullivan’s community for search information.

The explosion of content available on the Internet is fueling this specialization. Although Web 2.0 has made creating connections easier, it has made searching for information more difficult than ever. Because users’ queries are usually ambiguous, Google cannot serve the needs of every user. In turn, that has brought about an increase in the number of vertical properties, which restrict the scope of a search (see sidebar, Page 46).

Stephanie Agresta, a founder of the Conversation Group, says social networking sites such as Facebook and Twitter fill in the gaps. They allow individuals to tap in to different levels of networks of people to get information from someone who knows about a particular subject. Sites such as Mahalo and enable users to view information through a specific user’s lens – the movement now seems to be toward a custom feed based on an individual’s friends and context, and away from algorithms.

But SEMPO’s Todd says it took only about 20 minutes for her to get bored with Facebook "because of all the ridiculous plug-ins and faux human interactions." She says that search engine optimization is not really the issue here. Google dominates that area because it caters to the very lowest common needs of users, and does so very elegantly. "It’s a tool, not a destination."

Moving forward, more of these types of sites are expected to pop up. Mixx, a new social news site – a cross between LinkedIn, Reddit and MyYahoo – is a social network that lets users find and share news based on their interests and location.

Another social network service is Ning, an online platform for creating social websites and social networks. Ning helps Web publishers create social networks around their content – more than 100,000 sites have used Ning’s tools to add their own networks. The sites range from a network of family members sharing content and photos to large networks such as Indiepublic, a social network for independent designers and artists.

Social sites are limited to certain topics, as several industries don’t have enough people using them yet and it’s tough to find any long-tail information on social sites, according to Web strategy consultant Cameron Olthuis. He expects that search engines and "alternative sites" will be completely necessary for people to continue to find information.

Video Goes Viral

Thanks to social networking sites such as YouTube, online video has quickly become an everyday part of the online experience. While marketers have been slow to capitalize on video so far, the low cost of producing content and potential for increasing reach will make it essential to performance marketing.

The audience that watches Web video skews younger, but nearly everyone online is doing it. According to market research firm comScore, nearly 75 percent of U.S. Internet users watched video during the month of May, viewing more than 8.3 billion video streams. Consumers are interacting with video more frequently in a wide variety of destinations, from “newspaper” websites to social networking to blogs. The most popular viral videos can garner millions of views, and video ads have proven to be more effective than their static counterparts in prompting user actions.

In 2008, more than half of the total U.S. population will be watching video online, according to eMarketer, and advertisers will spend more than $775 million in 2007 on video ads, up 89 percent over the previous year.

Since interactive video will catch and hold viewers’ attention longer, marketers are beginning to use the technology in four ways: on their primary websites; on microsites designed for specific campaigns; syndicating them through advertising networks; and releasing them to video search engines in the hopes that they go viral. The first step is to create professional and compelling content.

The Medium and the Message

Video starts with a camera, and MiniDV (digital video) is the industry-standard format for recording video on tape. MiniDV or hard-drive-based cameras are the best match for transferring video to a PC. To make it easy to transfer the video to a computer for editing, the camera should be able to record in MPEG 2 or 4 format and pass it through a FireWire (also known as IEEE 1394) or USB 2.0 (universal serial bus) connection.

These cameras range in cost from a few hundred to several thousand dollars depending on the features, including optical zoom; size of the LCD panel to preview the video; and the technology used to steady the image. Sony, Panasonic and Canon offer high-quality digital video cameras at a variety of price points and options.

For companies that want to tell a personal story in a vlog style, Jim Kukral, who blogs about using video at, recommends purchasing a set of lights that cost between $150 and $400 and a photo background (or green screen) that sells for approximately $50. Kukral, who produces videos and distributes them via YouTube, also recommends buying a tripod to provide a steadier image than with handheld shooting.

Kukral says videos about a company provide a more personal experience than blogs, and posting them on YouTube can drive traffic to your website. Publishers can “engage customers and illustrate things with video as opposed to [relying on] bullet points,” he says. Kukral posted videos on YouTube with tips on creating videos that generated new clients, several of whom commented that from his videos they “got the feeling that I knew you.”

Editing software ranges from free to more than $1,000, depending on the sophistication of the special effects. Macs include the intuitive iMovie, which provides basic functions for cutting and splicing together clips, adding titles and controlling sound. Similarly, Windows Vista PCs include a drag-and-drop video-editing application, Windows Movie Maker 6.

QuickTime 7 Pro ($29.99) is available for Mac OS X and for Windows, and includes more sound- and video- editing features, including the ability to export videos to iPhones. SimpleMovieX ($30) from Aero Quartet is a QuickTime competitor for Macs that works with more formats and larger files.

Marketers willing to learn more sophisticated programs so that they can add effects such as modifying the lighting, integrating multiple audio tracks and working with more file formats have several not-so-inexpensive options (see sidebar on page 048). Adobe Flash is becoming ubiquitous as a browser-friendly application that enables publishers to integrate interactive elements into their videos.

Kukral says the biggest mistake companies make in creating videos is insufficient branding. Videos should introduce the company at the beginning and reinforce the brand within the content.

For videos that are distributed outside of a corporate website, adding the URL in a title card at the end of the video is recommended. The videos should also be tagged with the URL and contact information, and keywords should be added to optimize the videos for search engines.

Marketing videos can range from a few seconds to several minutes in length depending on the type of content and target audience. Keeping the message short is essential to retaining the viewer, according to Michael Hines, the U.S. manager for network Zanox. Videos that are to be distributed as ads “can’t be 30 seconds long,” Hines says. He recommends that video ads be no longer than 10-15 seconds in length, while videos that introduce a company or illustrate a technology can be longer.

Publishers looking to create video marketing content without investing in editing software or expertise can refine their videos with a drag-and-drop online tool. Launched in August, Digital Canvas is a Flash-based service from Flimp Media that integrates interactive elements into a marketing microsite, according to company CEO Wayne Wall. These customized pages, also called flimps, can be shared as viral content, and built-in tracking mechanisms enable measuring their effectiveness, Wall says. The videos can tell the story of a company, or be used as an interactive component of marketing collateral, he adds.

Companies that lack video expertise or desire the highest-quality production values should consider using a video production service familiar with the optimizing content for the Web. Many of the companies that produce corporate training videos or video news releases are adding online services, with costs ranging from a few hundred to a few thousand dollars depending on the complexity of the shoot.

Putting Videos Online

Putting videos online that have been created on a website is not difficult, but finding an audience for them often requires manually uploading them to other sites or hiring someone to do so for you. Videos in the most common formats (MPEG, QuickTime and Windows Media) can be embedded on Web pages with a minimum of coding. As a more sophisticated alternative, embedding a Flash player on a site provides access to multiple videos and enables publishers to link to other interactive components or Web content.

For publishers with substantial traffic, adding videos provides an opportunity to retain visitors and to satisfy those who would rather watch than read content. If the videos become a runaway success, however, you may need to purchase additional bandwidth from your Internet service provider. Although the video quality can be compromised, uploading videos to YouTube and embedding their video on your site can reduce Web-hosting costs, according to video guru Kukral.

If you want videos to drive traffic to your website, they need to be optimized for search engines and syndicated through a growing number of video-hosting and search sites. As part of the upload process for submitting videos to search sites such as You- Tube, Revver, DailyMotion and, and syndication sites including Veoh, Brightcove and Maven, publishers fi ll out forms on each site and enter tags, descriptions and keywords. This painstaking process can take hours to reach just the most highly trafficked sites.

Companies such as TurnHere and Medialink work with networks of local video production companies to create the content and will also take care of the upload and submission process to sites including Google, AOL, MSN and Yahoo.

Through a partnership with RSS distribution company Pheedo, Turn- Here distributes content to sites looking to add video, including blogs such as BlogCritics and AlarmClock, and publishers including Slashdot, Red Herring, InformationWeek and ABCNews, according to CEO Brad Inman. Inman says travel, automotive companies and book publishers are among the early adopters marketing through online videos. TurnHere client Simon & Schuster has created hundreds of videos with authors talking about their latest books, and Inman says the top authors’ videos are viewed 50,000 times per month.

Local publishers are beginning to experiment with using video to tell their stories directly to customers. Superpages and CitySearch have recently introduced videos into their local listings. Marketing videos are “… really about long tail – not about a million streams, but [marketers] want 100 relevant streams,” Inman says. He recommends local business owners get in front of the camera because “no one can tell their story better.”

Getting the media and bloggers to write about or incorporate your videos can create signifi cant brand awareness and drive traffic to your website. Medialink, which has more than 20 years of experience in connecting companies with print and broadcast media, has video distribution services that start at $2,500. Medialink will host and present a video online and distribute it to local and national media including bloggers, and will also distribute the videos to aggregation and syndication sites, according to COO Larry Thomas.

In the fall of 2007, Medialink is launching Mediaseed, a Web platform that hosts and optimizes corporate marketing and communications materials for distribution. The platform contains tracking features for measuring a video marketing initiative’s reach online as well as on broadcast TV.

While accurately labeling videos will increase exposure on YouTube and the other top video sites, how to optimize content for video or general search engines remains largely a mystery. Google’s incorporation of video results into its universal search will increase the exposure of videos, but search engine marketers are still catching up.

Browsing videos and referrals from other users remain the most common methods by which people discover new videos. Being found on video search engines is not that easy, according to TurnHere’s Inman. People had a “false sense several months ago that ‘I can create a video and have it go viral on YouTube and it will go big,'” according to Inman. The reality is that most videos submitted to video sites will languish in obscurity. “The key is to start creating and experimenting,” he says. Search engines will take 18 months to catch on to the importance of video and properly index the content, according to Zanox’s Hines.

This fall Zanox will launch, where publishers can post videos that will be used to attract partners. “The intent is to allow publishers to do an alternative to a text ad to encourage people to join as an affiliate,” says Hines. The video ads will likely pay on a cost-per-action basis, with Zanox and publishers sharing the revenue, according to Hines.

Ad Networks Monetize Video

Advertising networks are matching content companies with publishers large and small who are looking to use video to increase their audience. Startup video ad network is betting on a new video advertisement form opening a door into affiliate marketing. The borderless videos hover next to content and feature an actor or actress pitching a product or service. Since the video ads reside in the pixels along the edges of a Web page, publishers don’t have to give up their existing ads, according to president Chris Skretvedt.

The videos, which range in length from 30 seconds to 5 minutes and will be paid for by, are created to prompt user action such as generating leads or making a purchase, Skretvedt says. The ads launched in August and are to be sold on a CPA basis. The company is pursuing relationships with the major affiliate networks.

Tremor Media has combined forces with video distribution company ClipSyndicate to match content with relevant advertising. Tremor Media inserts in-stream ads with videos from sites such as and making the content available to publishers, according to vice president of publisher relations Daniel Scherer.

Scherer says online video is hampered by a lack of technical standards in how to publish content. De facto standards for formats exist, but there is “no standard that supports integration of in-stream dynamic advertising,” he says. Content owners today are stuck in the struggle between controlling the advertising and monetizing their videos, according to Scherer. “The big puzzle is the upside-down reliance on You- Tube,” he says. If you want a video to be popular, put it on YouTube, but then you can’t monetize it; and if you want to control the ads, then you can’t put it on YouTube, says Scherer. Within the next year, You- Tube parent Google is expected to roll out a new video advertising service to address this problem.

Another opportunity for monetizing videos is to make them interactive so that the products featured within can be highlighted and sold via performance marketing. VideoClix provides technology that makes areas of a video clickable, according to Brent Stafford, the vice president of business development. “If you don’t make [your ads] interactive, you are underutilizing the medium,” he says. VideoClix has created ads for Levi’s and Honda, and shares revenue through CPA, CPC or CPM campaigns.

Once the science of increasing the search rankings of video has been significantly refined, publishers will rapidly increase their efforts to acquire or produce videos to place on their website. This strategy will be similar to how images of celebrities or top search terms are currently used to attract an audience, and will assure video’s place in the spotlight.

John Gartner is a Portland, Ore.-based freelance writer who contributes to Wired News, Inc., MarketingShift and is the editor of

The Desire to Acquire

The new geography features auction-based ad exchanges and conglomerated companies with divisions that buy, sell and distribute ads: something that would have been unthinkable a decade ago.

The emergence of these new entities with intertwined relationships has the potential to streamline the media marketplace and drive costs down and return on investment up. Consolidation will likely enable the biggest players to increase their market share while also growing the demand for independent agencies and networks that operate outside of their reach.

Fast and Furious

To recap: In a shorter span than is required to complete the NHL playoffs, Google gobbled up DoubleClick, Yahoo lassoed RightMedia, Microsoft acquired aQuantive, WPP Group won 24/7 Real Media and AOL absorbed Ad:Tech AG.

LinkShare, a subsidiary of Internet services company Rakuten, purchased lead generation company Traffic Strategies in June. Rival Commission Junction is owned by potential acquisition target ValueClick, and Performics is a property of Google’s DoubleClick.

The acquisition frenzy has made tracking industry relationships as challenging as keeping up with the latest Hollywood romances and legal tangles. For the first time the largest media companies own ad networks and/or agencies, one of the largest agencies owns a network, plus countless smaller players also work on both the buy and sell side. (To untangle the web, see page 49 of the July/August 2007 issue.)

Consolidation, shakeout, maturation of the market: Whatever you want to call it, investment banker John Doyle of Peachtree Media Advisors says there are precedents in TV and print industries for large media companies doing a “land grab” to acquire related businesses. “It’s like getting a bigger bucket to stand under a waterfall,” he says. Advertisers are expected to greatly increase their online spend during the next few years, so it is not surprising that the top media companies attempt to expand their reach by buying companies offering related services, he says. Doyle expects the consolidation to continue as it adds value for buyers, and more midsize companies will likely want to increase their heft by scooping up smaller competitors. However, after the biggest deals are done, the largest players are unlikely to buy smaller shops, as it “won’t move the needle” in increasing their market share, according to Doyle.

Questions of Perception

The distinction between interactive/ creative agencies, advertising networks and media companies began to dissolve through smaller acquisitions during the past few years, but now the potential for conflicts of interest are as clear as they are abundant. That agencies, ad networks and publishers are owned by a single organization has many in the industry uncomfortable. “Most of the rules of online advertising are broken …” says Russ Mann, CEO of search marketing company SEMDirector.

By comparison, how would investors feel if one entity ran the stock market and owned an analyst firm and a brokerage? Not too comfortable, most agree. Not surprisingly, in May, the Federal Trade Commission began an antitrust investigation of Google’s purchase of DoubleClick to identify aspects of the deal that could limit competition.

Publishers might be reticent to partner with companies owned by a competitor, according to Dana Ghavami, CEO of CheckM8, which sells software to manage rich media campaigns. For example, ad networks could prioritize placement based on the needs of their corporate family of publishers. “My worry – if I am a media company such as Viacom or Fox [which have used DoubleClick’s ad network] – is who is looking after my interest?” says Ghavami.

Interactive agencies with ties to networks and media companies have the most at risk as they are likely to undergo the most scrutiny to remove any doubts that they are putting clients first. Trusting agencies to buy “in-house” is akin to “asking students to grade their own tests,” according to John Ardis, vice president of corporate strategy at ad network ValueClick.

Advertisers looking to optimize the return on investment from their media buys will want assurances that purchasing decisions aren’t compromised by a need to unload excess inventory from a sister company, CheckM8’s Ghavami says. That’s not a comfortable discussion for those sitting on either side of the table. These “umbrella” companies will have to institute internal safeguards to prevent the possibility or even the appearance that their actions are being influenced by other divisions of the company.

Advertisers may be unwilling to place their confidential and sacrosanct data about campaign performance in the hands of companies with divisions that are their direct competitors. For example, a liquor company might hesitate before signing on with a network that is part of the same company as an agency that represents a competing brand (see BT story on page 52 of the July/August 2007 issue).

Similarly, a media giant may not want its top advertisers’ performance data to be in the hands of a competing company. “Everyone has seen what Google is capable of when they have too much control – they start setting the rules,” says Ghavami. Giving the enemy the intelligence used to form your battle plan isn’t a strategy for success.

The Upside of Acquisitions

While organizations that span multiple aspects of advertising increase concerns about conflicts of interest, they should be able to increase efficiency and lower the cost of buying and selling. In theory, agencies would be able to buy from sister networks without the need for the sometimes lengthy approval process that slows insertion orders. Also, ad networks and their subsidiaries could combine campaign performance data with real-time analytics from their publisher properties with an ease and granularity not possible today.

“Microsoft [as one example] would be able to create bundled solutions that are more cost-effective and provide more value at the same price,” says Dema Zlotin, vice president of strategic services at SEMDirector. Advertisers would save time by working with one-stop shops and could better adjust campaigns by getting real-time site-by-site performance to complement their networkwide data.

Agencies, however, may have to rethink their fee structure if the purchase is made from elsewhere within the company. Charging a hefty commission when buying from its own network and properties won’t fly with some advertisers. Agencies that are part of other entities will have to work harder now to prove that their intellectual capital is worth paying the premium, according to ValueClick’s Ardis.

Greg Stuart, the former CEO of the Internet Advertising Bureau and co-author of the book, What Sticks, says online advertising was ripe for change. The buying and selling of interactive ads is costly and inefficient, according to Stuart, and consolidation and greater transparency will benefit advertisers. “Shame on the industry for letting it go for so long,” he says. “I am appalled at some of the things that go on,” says Stuart, stating that the failure rate (47 percent) of ad campaigns reflects poor performance by agencies.

While data sharing between organizations can simplify more “routine” buys, advertisers will continue to work with agencies for more complex purchases. The potential for conflict of interest could prove a boon to independent agencies. Some advertisers might be inclined to work with smaller but experienced shops whose allegiance can’t be questioned.

Though purchases through a single company might be more efficient, advertisers happy with an agency could go with networks from competitors, according to SEMDirector’s Mann. “Online is still best-of-breed world,” he says, adding that the various divisions of a one-stop shop might not be the best choice individually.

Rise of the Ad Exchanges

In this consolidated online environment, advertising exchanges that use auction bidding to sell ads and directly connect advertisers and publishers will see increased interest because of their transparency. Exchanges enable advertisers (either companies or networks working on their behalf) to bid for type of ad and the demographic that they would like to reach. Publishers set a minimum price for accepting the ads, and the exchange automatically matches buyer and seller.

Ad exchanges recently changing hands include Right Media, which was acquired by Yahoo, which previously owned 20 percent of the company, and an exchange being developed by DoubleClick that will become part of Google. Microsoft is said to be developing its own exchange, and independent exchanges include AdECN; Turn, Inc.; and ContextWeb.

Bill Urschel, the CEO of AdECN, says exchanges are differentiated from advertising networks because of the auction pricing, the transparency, and because the exchanges guarantee payment to the publishers. “[Exchanges] are taken from the stock exchange model,” says Urschel. AdECN’s exchange has signed up 28 ad networks since it launched in March of this year.

This transparency will attract publishers concerned about intertwined relationships since the services are (at least in theory) neutral to the source of the ad. While publishers and advertisers who compete with Google, Yahoo, etc., may not want to hire their agencies or networks, the exchanges can provide access to their sites.

Because of the negotiations involved in securing media buys, many large publishers such as The New York Times and The Washington Post often have 20 percent of their ad inventory unsold, according to CheckM8’s Ghavami. “Remnant inventory will be marketplace-driven,” he says.

Once they gain experience in using an exchange, some publishers and advertisers may bypass the ad networks and trade directly through the exchanges themselves. Ghavami estimates that 70 percent or more of major publishers’ inventories could be sold directly by exchanges. Ad exchanges will most directly compete with remnant networks such as Blue Lithium and Traffic Marketplace.

Exchanges may accelerate the shakeout of the weaker advertising networks, but they are unlikely to dominate the larger networks. Exchanges make sense for large publishers who have considerable unsold inventory, but publishers are likely to continue to get their highest CPMs through traditional sales channels.

Just as online stock trading didn’t cause brokerages to become extinct, the automated selling advertising is unlikely to replace networks. “There is a sliver of people who will be comfortable with the auction model, so auctions will have a place,” says ValueClick’s Ardis, whose company does not participate in an ad exchange, “but they won’t set the industry on its ear.”

The New Landscape

The current wave of industry consolidation will likely continue, enabling larger companies to become more powerful while at the same time providing opportunity for third-party auditing companies.

Google, Microsoft, Yahoo and Time Warner and their affiliated companies will have their hands in each step of the marketing chain, enabling them to increase the revenue generated from each client. The potential promise for advertisers is that these companies will be able to better target customers and increase by matching demographic and target data with real-time campaign analytics.

“The move away from AdSense to networks that are better at interpreting content” and matching it with advertisers makes sense, according to author Stuart. Advertisers would have greater control in distributing content to their target audience, such as being able to launch a campaign that is instantly delivered to a specific demographic (e.g., males between 18 and 35).

Though many of the sizable agencies and networks have been swallowed, the consolidation will likely continue. Networks such as ValueClick and smaller competitors could also be acquired. But analytics firms such as Visual Sciences (formerly WebSideStory) and Omniture are likely to be at the top of the media moguls’ shopping lists because of the additional insight they provide in maximizing revenue, according to Stuart.

Media companies are also likely to continue acquiring search and mobile properties (such as the recent acquisitions of Third Screen Media by AOL and ScreenTonic by Microsoft) during this continued consolidation, according to AdECN’s Urschel.

Advertisers and publishers may pressure multiservice companies to allow third-party auditing and oversight to ensure that ad buying, selling and placement are all completed without prejudice. Independent auditing firms could verify transactions between related organizations, or advertisers could request that purchases be made from outside networks and publishers. Industry groups will likely establish voluntarily privacy rules or codes of conduct to limit potential conflicts.

Exactly how companies will adapt with new services and systems to increase the efficiency of online advertising is uncertain today. But we can be sure that now that the rules have been changed, there is no going back.

John Gartner is a Portland, Ore.-based freelance writer who contributes to Wired News, Inc., MarketingShift and is the Editor of

The Web, Take Two

Like new confections spilling out of Willy Wonka’s chocolate factory, the brain trusts at Web companies big and small over the last three years or so have spun out a brand new Web. Like candy, this version of the Web is flashier, full of speed, comes in a cool wrapper, has good stuff inside and is highly addictive.

But unlike the dot-com crash of six years ago, it seems these new companies (and some old ones thinking in new ways) have figured out how to make the Web user king, keep the eyeballs and make money.

Think about what has happened since 2001: Google has put search front and center; online affiliate marketing was born; smaller computer programs on websites have made shopping and collaborating easier; and user-generated content has redefined entertainment and online marketing. With redefinitions come labels, and since 2004 these innovations in the Web experience have been called Web 2.0 – to mean a second generation of Web-based services and technologies.

Angel Djambazov, marketing and business development manager of affiliate management tool Popshops, says, “Web 2.0 lends itself to more interactivity between the user base and the site.”

Web 2.0 also has been called the “participatory Web” that involves consumer action, not just reaction to your website or message. Web 2.0 has been called the explosion of video – homemade and commercial video slathered freely and easily across the Web. Web 2.0 has also been called the rapid rise of blogs (highly personal websites), widgets, RSS feeds and the podcast.

Web 2.0 is really all these things. Tim O’Reilly – founder of O’Reilly Media, publisher of technology books – coined the term and in essence meant it as a perceived shift in the Internet as platform.

He has defined it this way: “Web 2.0 is the business revolution in the computer industry caused by the move to the Internet as platform, and an attempt to understand the rules for success on that new platform.”

Where 1.0 was HTML Web pages you read like a book, 2.0 is Ajax-coded pages where mini-programs are swirling away on your desktop telling you the weather, what to eat, showing you videos or – most important to marketers – reporting your traffic. YouTube, MySpace, Facebook, Flickr, craigslist, Wikipedia, Digg, Photobucket and would all be considered Web 2.0 sites.

Adapting for the 2.0 World

For online marketers, now is the best time to be in a Web 2.0 world. There are hundreds if not thousands of companies who claim their technology or service is Web 2.0-enabled. Pundits say it’s not just another bubble. Venture capitalists are expressing their confidence with their checkbooks, sending $844.4 million into Web 2.0 companies last year, according to Ernst & Young and Dow Jones VentureOne. Advertisers are also coming on board and they are predicted to spend $1.5 billion on online video alone by 2009, according to eMarketer.

Mike Moran, author of Search Engine Marketing, Inc., says there are three main changes for marketers and advertisers in a Web 2.0 world: You can now target even the smallest group; you can measure every single message’s effectiveness; and you must change your message in response to what customers say and do. Fortunately, he says, Web 2.0 helps you do all of these.

The most recent Web 2.0 lightning rod is the widget or Web widget. It is a kind of mini-program that can be embedded into a Web page and operates separately from your website. Widgets can contain anything from updated weather to interactive ads, videos and photo slide shows, to calendars, feeds to games and polls. Widgets are often Adobe Flash or JavaScript, which make them lightweight and easy to embed.

Because widgets are transportable – meaning a thousand folks can place the same widget with the same information on a thousand different websites – marketers are nervous of the threat to their business. “Widgets allow for individuals to take or use parts of the content from a marketer’s site and apply that content to their own Web page,” says Sam Harrelson of “Of course, that can be threatening to a large segment of online marketers.

“For those marketers attempting to monetize their sites or programs with page view metrics, it should be threatening.” He says that YouTube did not become a major Web property and bring a billion-dollar price tag because it just had funny clips of people doing funny things.

“It provides a perfect example of how a company can grow quickly, in terms of numbers of users and advertising dollars, through the use of these democratized or decentralized ways of serving unique content.” Harrelson adds that marketers should be on the cutting edge anyway, looking for ways to measure what is going to happen on the Web, with or without widgets.

Currently there are thousands of widgets available – most of them free – on the Web and some that are embeddable media players come branded with advertising. Recently banned the use of most kinds of widgets that come with ads in them from being placed on MySpace profiles. Critics said the move was made so that MySpace could control the ad messages to its 90 million monthly visitors.

Making Technology Work (Well)

Another Web 2.0 technology in search of scale is the RSS feed. An RSS feed is a format that allows certain content to be pushed to your computer. Newsletters, favorite blogs or columnists and news sites use it when they have frequent publishing schedules. Users can subscribe to a feed and receive only that information they sign up for. Usually, Web users must install a feed reader to subscribe to the content. While use of feeds is popular, Feed aggregator FeedBurner also sees great potential for the ad market in feeds. “There are a lot of blog authors creating great content on a variety of topics, but advertisers are challenged to find flexible and scalable deployment of a blog ad campaign,” says Brent Hill, vice president of business development at Feed- Burner. While FeedBurner continues to extend its ad network for RSS feeds to include ads on blogs, Hill says that advertisers need to realize that quality sites, reach and effective placements of feeds will help drive advertisers to the well.

As companies are adapting their messages for the cell phone, so is Web 2.0. Mini-blog site Twitter, for example, is making it easier to use connected mobile devices to add to Twitter threads. Twitter basically only allows 140 characters to be posted at a time. This limitation seems well-suited to the legions of text-messagers already sending short notes to each other. In addition, Twitter now has a short code or abbreviated message system where the word “weather” and your ZIP code will get you back the information you seek.

This is just one example of the user-centric mobile Web experience that’s exploding. Companies such as Mobio, SoonR and Loopt all allow cell phone users to receive specific kinds of information directly to their mobile device, usually event or dining listings, physical locations of friends in your network or data pushed to your phone.

All these technologies are part of the greater social Web or social media; usually video, audio or other content that users can interact with. Web 2.0-styled social media applications can be found at sites such as Wikipedia, Second Life, Digg, MySpace. com and Flickr. The media can usually be shared, rated and oft times edited by visitors. This is also called user-generated content and is defined as content on the Web influenced but not necessarily created by visitors to those websites.

Consumers = Participants

The impact of user-generated content on marketers has been great. As Moran points out, Web 1.0 users were considered consumers by marketers; now with Web 2.0, they are participants. He says that now readers “comment on your blogs, change your wikis, create blogs of their own, create hate sites if they don’t like your products and produce ‘mashups’ of your content and functions.”

This sea change has given rise to the term “social media optimization”; what Rohit Bhargava, vice president for interactive marketing with Ogilvy Public Relations Worldwide, calls “changes to optimize a site so that it is more easily linked to, more highly visible in social media searches on custom search engines and more frequently included in relevant posts on blogs, podcasts and .” He says that while that sounds a lot like search engine optimization, the difference is that Web 2.0 will make it easier to get your message out through tagging and bookmarking sites, widening your linkability, helping your content fit onto more niche websites and blogs and encouraging users to blend your message with other messages, or what is called the mashup.

On a participatory level, wikis are the exemplar of social networks that don’t require fancy technology. Wikipedia, for example, has taken the concept of building an online encyclopedia that every visitor can contribute to and made it very successful. Now there are wikis devoted to paleontology, linguistics, Swedish and Russian textbooks, law-student life, Star Trek, maps and collaborative novels, just to name a few.

While blogs and podcasts (downloadable audio shows) are also considered Web 2.0 innovations, the blog or Weblog technically has been around since just before the dot-com crash. Blogs and podcasts are beginning to be embraced by marketers also. Blog tracker Technorati reports that as many as 75,000 new blogs are created every day. While sites such as have made it easier for marketers to simply pay a third party to create a blog about their product, the effectiveness metrics are absent in that arrangement. Recent research has begun to balk at the reach of podcasts. Pew Research released a study that said only 12 percent of Internet users have downloaded a podcast and Forrester Research says that as few as 1 percent of all North Americans have downloaded a podcast.

A Web 2.0 spin on broadcasting information on the Internet is a company such as Userplane that enables webchats, webcasting and instant messaging. They sell themselves as a very Web 2.0 sort of company. Michael Jones, CEO, says that “Web 2.0 companies I come across all started as Web services companies. We saw an interesting need to have an online communication tool, and we started to say maybe there is an interesting way to turn on the lights in these rooms.” The company is beginning to host live webchat town halls with political candidates, which they hope will grow as the political season heats up.

Ad network MIVA also identifies itself as a very Web 2.0 company and has even outlined trends for 2007. Seb Bishop, president and CMO, has stated that mobile video sharing will offer an even greater level of immediacy than the Web, that mobile search will become localized – meaning mobile search will be less about browsing and more about fulfilling a need in real time and that advertising will become “democratized.”

Some critics have said that Web 2.0 is nothing but a marketing slogan itself. Russell Shaw, a columnist for, has simply said that Web 2.0 “does not exist.” He says that things labeled Web 2.0 “are forward lurches of various standards and technologies; some compatible, some not, some revolutionary, some evolutionary, some impractical. Some are collaborative; others are highly competitive with each other.” He agrees with skeptics who say that the term is essentially meaningless and irrelevant.

CostPerNews’ Harrelson, however, perceives loads of relevancy in the new Web, especially as it relates to marketers. “Once marketers realize that the inventory available on publisher and affiliate sites is growing at near exponential rates, they will realize that metrics based on limited inventory such as CPA or CPC are increasingly inefficient,” he says. “That, more than anything, will lead to a re-examination of traditional marketing methods online and move the equation of metrics toward something more 2.0-ish.” He adds that “attention data is the new black. ” My practical advice to companies is to start developing attention metrics. That’s where the next black gold lies.”

Do Your Metrics Measure Up?

Steve DiPietro is amazed at how frequently he listens to prospective clients parroting clickthrough percentages, Web traffic statistics and conversion ratios with great enthusiasm but little-to-no understanding of their value to their organizations. Increasing a conversion rate from 12 to 15 percent can become a goal unto itself as marketers immersed in number crunching can lose sight of the fact that sales aren’t also growing.

Making Sense of Metrics

ALGORITHM: A set of mathematical equations or rules that a search engine uses to rank the content contained within its index in response to a particular search query.

ANALYTICS: Technology that helps analyze the performance of a website or online marketing campaign.

BENCHMARK REPORT: A report used to market where a website falls on a search engine’s results page for a list of keywords. Subsequent search engine position reports are compared with that.

CHARGEBACK:An incomplete sales transaction that results in an affiliate commission deduction. For example: merchandise is purchased and then returned.

CLICK & BYE: The process in which an affiliate loses a visitor to the merchant’s site once they click on a merchant’s banner or text link.

CLICKTHROUGH: The process of activating a link, usually on an online advertisement connecting to the advertiser’s website or landing page.

CLICKTHROUGH RATE (CTR): The percentage of those clicking on links out of the total number who see the links. For example: If 20 people do a Web search and 10 of those 20 people all choose one particular link, that link has a 50 percent clickthrough rate.

CONVERSION RATE: The percentage of clicks that result in a commissionable activity such as a sale or lead.

CONVERSION REPORTING: A measurement for tracking conversions and lead generation from search engine queries. It identifies the originating search engine, keywords, specific landing pages entered and the related conversion for each.

HIT: Request from a Web server for a graphic or other element to be displayed on a Web page.

IMPRESSION: An advertising metric that indicates how many times an advertising link is displayed.

KEYWORD: The word(s) a searcher enters into a search engine’s search box. Also the term that the marketer hopes users will search on to find a particular page.

PAGE VIEW: This occurs each time a visitor views a Web page, irrespective of how many hits are generated. Page views are comprised of files.

RANK: How well a particular Web page or website is listed in a search engine’s results.

UNIQUE VISITORS: Individuals who visited a site during the report period – usually 30 days. If someone visits more than once, they are counted only the first time they visit.

“It’s sad and somewhat surprising that after all this time there is a pervasive lack of understanding … of how these numbers correlate with how to make money,” says DiPietro,who works with clients large and small as the president of the Marlton,N.J.-based DiPietro Marketing Group.

Many marketers continue to rely on basic campaign performance data as the primary or even sole metric for measuring success, according to DiPietro. People often get caught up in the measurability of online campaigns and miss the ultimate corporative objective of a marketing campaign – to increase profitability.

Despite many marketers’ incomplete understanding of how buying keywords affects the bottom line, search marketing spending continues to grow rapidly. According to a survey conducted by the Search Engine Marketing Professional Organization (SEMPO), advertisers in the U.S. and Canada spent $5.75 billion on search engine marketing in 2005, up 44 percent from 2005. Search engine marketing spending in North America is projected to reach $11 billion per year by 2010.

Some marketers whose careers started in the brick-and-mortar world have seemingly become spellbound by the top-level data for measuring marketing campaigns and forget their “old-school” fundamental tenets about increasing sales and stockholder value, according to DiPietro. Finding methods of doubling the conversion rate of a keyword campaign is admirable, but who cares if sales don’t grow? Estimating the value of a keyword purchase by focusing on clickthrough rates or increasing traffic to the website is an easy way to justify spending, but may be totally meaningless, DiPietro says.

The clickthrough ratio is analogous to the batting average in baseball – it is easy to compute and understand, and therefore is the most relied-upon statistic. However, during the past few decades, baseball executives such as the Oakland A’s Billy Beane, who probe deeper into statistics, have learned that other metrics – such as on-base percentage – are more directly related to achieving the objective (scoring more runs). The A’s have managed to succeed while spending considerably less than competitors, and many fellow baseball executives now are looking beyond the batting average. Similarly, marketers who identify the metrics that more closely correlate to their specific goals can increase their success.


Getting customers to your website is an important first step in increasing revenue, but determining the return on the investment requires analyzing what happens after they arrive at your doorstep. “You must have an action attached to [increasing traffic] or the campaign is useless,” says Douglas Brooks, vice president of consulting firm Marketing Management Analytics.

Before embarking on a campaign, marketers must define the objective – be it increasing leads, sales or brand recognition – and apply the appropriate metric, according to Brooks. The most appropriate metric may depend on whether the company is focused on e-commerce sales or if sales staff is usually involved in any transaction. Different yardsticks are appropriate for companies that use their website as a direct sales channel than for companies who are focused on generating leads that are converted off-line, he says.

Companies that rely on sales personnel should look at the volume of leads a campaign generates, according to Jerry Moyer, manager of analytics at interactive agency Refinery. Moyer says he tells his media clients – many of whom continue to focus on clickthrough rates – that tracking leads is a more effective barometer of campaign performance.

Campaigns that drive traffic to a website that cannot identify where visitors came from may be over- or underestimating their effectiveness, according to Moyer. By using first-party cookies and analyzing all of the activities that occur over time, advertisers can better understand the value of the leads generated.

Using cookies enables marketers to identify the unique visitors, according to Andrew Hanlon, who owns advertising agency Hanlon Creative. Cookies enable companies to track how many times a visitor was exposed to messaging during an entire campaign, as well as counting the total number of interactions on a website before visitors enter personal information and become a lead. “Unique visitors is the most raw level of success; you have to consider how many [leads resulted],” Hanlon says.

For example, Designer Linens Outlet implemented first-party cookies and saw revenue from returning customers increase by 45 percent and shopping cart conversions increase by 20 percent, according to Web analytics firm WebTrends, which managed the campaign.

Measuring the quality of leads is as important as the clickthrough ratios or total Web traffic generated by a campaign, according to Hanlon. He says many of his Hatboro, Pa., agency’s clients ($20 million to $1 billion in sales) “rarely know what they are asking for” when trying to gauge the impact of campaigns on sales.

He stresses to clients the importance of tracking leads throughout the entire sales process. “The client has to be able to act on the data – what happens with the lead after it is collected,” he says. The ability of keywords to generate leads varies widely, says Hanlon. Marketers should use metrics that create quality leads versus those that merely drive traffic.

If branding is the goal, then measuring increases in traffic can be appropriate since many keywords generate low-quality leads, Hanlon says. Companies looking to reinforce messaging through multiple media should consider several online metrics, according to Jason Palmer, vice president of product strategy at WebTrends.


Some campaigns are incorrectly viewed as ineffective because of low conversion rates, according to consultant Hanlon. Landing pages that were not designed to entice visitors to delve deeper into a website could turn away potential leads, so their effectiveness must also be evaluated. Landing pages should have interesting content such as blogs or unique offers to encourage clickthroughs, says Hanlon. Companies should measure conversion ratios after visitors hit a landing page, and if they are shown to be “dead ends,” they should revise the landing pages to add more content, he says.

Software companies including WebTrends and are developing applications that zero in on landing-page performance. For example, Webtrends Dynamic Search evaluates the effectiveness of the landing page and keyword in matching specific company objectives.

Tweaking the content of a landing page can increase the percentage of clicks converted to leads by as much as a factor of 10, according to Kraig Swensrud, senior director of product marketing at Tracking and improving landing-page conversions is equivalent to increasing money spent on Google AdWords, he says. “Everything is interconnected – as soon as you have visibility on [landing-page] conversion rate, you can impact change,” says Swensrud.


The best metrics link gains in Web traffic or clickthrough percentage to the overall business objectives – increasing sales, profitability and effect on the stock price. Consultant DiPietro recommends the break-even sales analysis is applied to off-line marketing should be applied online. Companies should calculate how many sales – based on the profit margin per average sale – would have to be generated to determine whether or not a campaign is a good investment.

“Whether it’s participating in a trade show, setting up an affiliate program or a PPC campaign, work it back to break-even sales,” DiPietro says.

Connecting the dots between Web analytics and sales data has been largely a manual process for DiPietro, who spends more hours than he would like handcrafting spreadsheets to complete his analysis.

Web analytics firms such as WebTrends, Omniture and WebSideStory are addressing this software void with applications and services that can link Web and sales data to simplify calculating the return on investment. These applications can incorporate Web data such as traffic analysis, email marketing and search marketing performance with customer relationship management sales data.

Accurately gauging the value of a campaign to a company’s bottom line, tracking a visit as it becomes a lead and until the sales cycle is completed is what should be measured, according to WebTrends’ Corey Gault. Web data should be combined with higher-level key performance indicators (KPIs) such as cost per visit, cost per lead and cost per sale, he says. “KPIs can also be combinations of various metrics, such as revenue dollar per marketing dollar spent, or percent of orders from repeat purchasers,” says Gault.

Measuring the lifetime value of online branding campaigns is challenging for companies that also sell off-line, as the ability to automate the process ends at the desktop. Refinery’s Moyer says customer surveys are an efficient method to link online with offline impressions. The surveys incorporate data collected by contacting customers about their behaviors before and after campaigns, and factor in both online and off-line (broadcast, print, outdoor) impressions. This enables companies to calculate how the campaign contributed to the overall sales effort, he says.

Metrics should factor in all of the times a company interacts with the customer, not only the most recent, which can skew performance data, according WebTrend’s Gault. “Many marketing analytics solutions credit the conversion to the last campaign touched, effectively undervaluing all the programs that initiated awareness and consideration.”

Vendors are also re-engineering their products so that sales data can automatically be integrated with Web analytics to complete the campaign-to-revenue analysis.

“The ability to tie marketing metrics with sales metrics is one of the biggest problems that customers have,” according to’s Swensrud. To address the difficulty in understanding the impact of keyword purchases on sales, the company introduced Salesforce for Google Adwords late in 2006. The software, which is sold as a service, traces the leads generated by keyword purchases and follows them through the sales process to determine their return on investment.


Although comparing current campaign- to-revenue performance with historical data is informative, marketers should create a baseline of return on investment so that they understand the relative value of each type of online campaign.

The cost per thousand of a keyword campaign may seem relatively low when compared with cost of an email marketing campaign. However, determining the return on investment of each can justify what appear to be higher costs per customer contact, according to Marketing Management Analytics’ Brooks. He says calculating the individual return on investment for each type of online campaign enables an apples-to-apples comparison.

For example, the lifetime value of a customer acquired through keyword buys might be a fraction of that of someone originally contacted via email. After factoring in revenue, marketers can better decide the best marketing mix for their collective media expenditures.

The volume of statistics contained in monthly Web analytics reports can make it a challenge to interpret the metrics that matter most. The bottom line: Don’t forget about the bottom line.

JOHN GARTNER is a Portland, Ore.- based freelance writer who contributes to Wired News, Inc., MarketingShift, and is the editor of

Online Is Sweet

Food has recently been called everything from the new theater to the new porn. Regardless of how you think about food, you certainly can’t avoid it.

Food has become America’s No. 1 obsession and food companies – from providers of high-end gourmet goodies to those feeding the fast-food nation – are battling to get on the dinner plates of today’s consumers.

And because everybody has to eat, the opportunities are enormous. Consider this: Americans spend 10 percent of their disposable income on food. The typical American household spent an average of $2,434 on food purchases away from home.

The channels for reaching this lucrative marketplace are just as vast. Recent buzz suggests that food companies are spending or planning to spend less of their advertising budget on traditional forms of media in favor of the Internet. But just how much of food companies’ advertising budget will be allocated to online initiatives and how quickly that will take place varies depending on the brand, the brand’s audience and who’s responding to the question.

Tom Vierhile, executive editor of Datamonitor’s Productscan Online, which covers the release of new merchandise, thinks that the CPG (consumer product goods) industry, which includes food, is getting away from traditional advertising because of rampant media fragmentation, something it considers to be a major problem.

Gene Dillard, president of FoodWise, a marketing communications agency that has worked with clients such as Borden Milk and Tyson Foods, agrees that traditional forms of advertising like print are declining because “there are too many different publications that have divided the market so much.” He says advertisers are using the Web because it is more targeted and cost efficient and says there is a trend of moving more ad dollars online. He recommends his clients should “spend 15 percent of their budget online at the minimum.”

Joseph Jaffe, creator of the popular new marketing blog, Jaffe Juice, and previous director of interactive media at TBWA/Chiat/Day, says that food companies are using the Internet more but not leveraging it to its full potential.

“Food companies and CPGs have always prided themselves on their analytical marketing mix modeling and want to be able to look to what has worked for them in the past and repeat it,” Jaffe says. “But this will not work anymore because the industry is changing so quickly and exponentially and there is much that is not predicable.”

New Recipe For Success

Although food companies lag a bit behind other industries, Jaffe says he believes they are increasing their online advertising spending based on two main reasons. One is that Internet display advertising rose 18.9 percent for the first half of 2006 over the first half of 2005 according to TNS Media Intelligence (this does not include paid search advertising.) Jaffe says he believes that spending by food companies accounts for part of this substantial increase.

Reason number two: Many food companies have increased their overall advertising budgets in the last year and Jaffe believes this includes online spending. October’s Advertising Age’s Top 200 Brands found that for the first half of 2006, Campbell’s advertising spending was up 63.8 percent, Kellogg’s increased by 17.8 percent and M&M’s spent 11 percent more than in 2005.

Lisa Phillips, an analyst who covers the CPG space for eMarketer, says food companies are spending more online recently but not at the same pace as other industries such as cosmetics or pharmaceuticals.

“When it comes to product launches for food, companies are still using television.” For example, according to Nielsen//NetRatings AdRelevance AdAcross, for the period of August 2005 to July 2006, Sara Lee spent 52.3 percent of its advertising budget on network and cable television (see chart below).

Nielsen//NetRatings AdRelevance found that large food companies spent relatively small percentages on Internet display advertising (in this case, image-based impressions, which include popups, banners that scroll by, etc., but do not include sponsored search link ads or other types of Internet marketing). Altria, the parent company of Kraft, allocated 1.1 percent; Sara Lee spent 1.5 percent; while Heinz’s ketchup allocated 2.2 percent and McDonald’s spent 22.7 percent.

It’s hard to get specific numbers as analysts don’t break out food advertising separately from CPG advertising. JupiterResearch defines CPGs as food, beverages, alcohol, household products, cosmetics and beauty aids, and personal care products. Analyst Emily Riley of JupiterResearch says “CPG spending makes up only 5 percent of total online spending. Currently about 90 percent of it is display advertising such as banners, sweepstakes and sponsorships.”

However, JupiterResearch predicts that CPG spending will increase substantially in the next three years and that compound annual growth will be at 10.5 percent between 2005 and 2010 for display advertising, from $385 million to $632 million.

Aside from display advertising, what else are food-related companies doing online? Phillips says, “Food companies are still figuring out how to use the Web ” and they are definitely spending a lot of money trying to do it.” Online initiatives that attract, engage and retain users such as coupon and recipe downloads, features that foster community and sites that position themselves as information resources are among the most popular.

These bells and whistles seem to be effective ways to drive traffic. According to comScore Media Metrix, approximately 38.2 million Web users visited food sites in September – up 15 percent from last year. Comparing July 2005 with July 2006, Food had a traffic increase of 21 percent; is up 51 percent; and About Food increased by 44 percent. Many of these websites are e-tailers and are leveraging the Web with good results.

One of them is Omaha Steaks, which has been online since 1990 with CompuServe, then with its own site since 1995. Omaha Steaks’ communication director, Beth Weiss, says the online part of their business is the fastest growing and credits their aggressive affiliate campaign, which is run by LinkShare and had 2,800 active affiliates for the month of August 2006.

Weiss explains that as a direct marketing company, 97 to 98 percent of its budget is spent on things that go directly to the consumer, like sending catalogs and emails to their 2.2 million active customers who buy regularly.

“We do very little newspaper or television – only a small amount to promote for the holidays and we do no radio because historically it has not worked for us,” Weiss says. “Our target demographics are differently structured depending on where the customer shops. If they mail order or use the 1-800 number, they tend to be older; younger customers tend to be online. The thing that crosses over all the marketing channels is that because our products are high end, we market to affluent people ” they travel and read, and most are in their late 40s and above.”

What the Big Kids Are Eating

It seems that affluent people in their late 40s or older are the sweet spot for many high-end online food purveyors.

Richard Gore, president of Culinary Entertainment Group (CEG), says “food entertainment space” is driven by boomers who go to three-hour restaurant meals as an evening’s entertainment. “Boomers don’t want to stay out late to go to a concert; they have the money to spend, and they are much more interested in food than earlier generations.”

CEG’s March 2007 introduction of Food University – high-end cooking events with an accompanying website – is targeted at boomers. To reach boomers with an estimated split of approximately 60 percent female and 40 percent male in regions such as Chicago, Jacksonville, and Houston, Gore says they are using a mix of print, local radio and local cable, with “events like celebrity chef tours, where the public can mix with their favorite chefs, and provide companies involved with a huge array of experiential marketing opportunities. People see a product and how it’s being used, sample it and they’re hooked,” he says.

Food University, through a partnership with Wyndham Resorts, will engage the American public in learning how to cook more adventurous fare by providing access to celebrity chefs like Martin Yan and Sara Moulton.

Benefiting from this exposure to celebrity chefs are many high-end food purveyors, including two e-tailers, and Both have realized revenue increases in the past year;’s by 50 percent. Marketing manager of Kari Taylor explains that “the popularity of celebrity chefs and food television has driven awareness and increased demand of cooking products”; some of their more popular products include high-dollar items like Zojirushi bread machines, Calphalon cookware and Capresso coffee machines.

Tracy Chesman, vice president of sales at, a purveyor of 700 cheeses and hard-to-find specialty foods such as Douwe Egberts coffee, says there has been an increased interest in gourmet foods due to the accessibility that consumers have to cooking media such as cable television and the Internet.

“We got a lot of increased traffic when Emeril was on the Food Network and talked about Maytag cheese,” Chesman says.

She adds that saw an increase in sales of a specific type of walnut oil when a magazine article recommended it, which showed the company there was a direct reaction from communication in the media.

The Search For Food

Both companies – igourmet and – credit affiliate marketing and search marketing as key drivers of their business. has an affiliate program run by Commission Junction and their top affiliates include eBates and Upromise. has outsourced its affiliate program to outsourced program management company since 2000 and says that since its launch, sales have increased every single year.

“A huge part of’s success is due to the affiliates – who are essential,” says Michael Jones, COO of Pepperjam. Through’s LinkShare program, they can see that the amount of producing affiliates is increasing. Pepperjam says’s top “affiliates are loyalty programs like Upromise, Ebates, MyPoints and American Airlines AAdvantage, as well as the niche gourmet site, BacchusSellers.”

Jones adds that has very active and aggressive campaigns on Google, Yahoo and MSN and that search generates a large part of their business. Jones claims is the No. 1 listing for “gourmet cheese” and they “maximize campaigns organically on the natural listing through search engine optimization as well as through pay per click.”

Women In the Kitchen and Online

Both and say women make up the majority of their customers. For, their target audience is 35-to-65-year-old women with an interest in cooking, or empty nesters or mothers with younger children. The bulk of’s customers are mostly middle to upper class and clustered in metropolitan areas on the East Coast with a higher percentage of females (55 percent).

The 55 percent figure is in step with findings from comScore Media Metrix. They found that in July 2006, affluent females were the most popular demographic segment among food site visitors, with a 54.4 percent share.

However, vice president of research for BIGresearch, Joe Pilotta, warns that food companies should not jump to conclusions about who uses the Internet to shop for food. He said that in August 2006, BIGresearch did a survey of 15,000 people about the media influences for purchasing food and found that “the normal kind of intuitive thinking is not correct.”

Pilotta says that people who have a lower income use the Web a lot to comparison shop online before they go shopping. For example, a budget-oriented mother of young children will go online to check the food prices for items such as chicken and crackers at Safeway versus Albertson’s while preparing her shopping list before she gets in the car.

Many food sites are targeting Gen-Xers including CNET’s, which is aimed at 25-to-45-year-olds, whom they believe are passionate about food but possibly not very skilled at preparing it., which launched in September 2006, includes the popular discussion boards of and video tutorials on subjects like how to dice an onion, as well as recipes, restaurant reviews, party tips and coverage of food marketing.

SlashFood, a blog that is part of, is another food site whose audience is primarily 25-to-45-year-olds. Sarah Gim, editor of SlashFood, says the site has easily built up traffic month-over-month since it launched in August of 2005. She says that their team of paid bloggers covers a gamut of topics, from food news to restaurant reviews to food culture, and credits the site’s popularity to the fact that “food in general is more popular than 10 years ago and many readers are motivated by issues concerning health.”

The Food Network is the most exhaustive example of a television and Web channel that has experimented with targeting everyone from foodies to newbies. The Food Network reaches 90 million homes in the United States and the core audience is 25 to 54, more female than male.

However, male viewers increase and the average age of viewers falls in the evenings, which is why shows that are similar to competitive sports, such as “Throwdown with Bobby Flay,” succeed. “Iron Chef” is one of Food Network’s most popular, attracting many from outside its normal demographic – in particular, the core 18-to-49-year-old male demographic.

In October 2006, a 20-part series and accompanying website called “Gourmet’s Diary of a Foodie” kicked off on PBS. It introduces viewers to exotic ingredients and in-the-know chefs on an international level. According to an August 2006 Nielsen Media Research poll, 38.7 percent of PBS viewers make more than $60,000 per household and 30.8 percent have a four-year college education.

So how can food marketers reach such a wide swath of users online – who range in age, gender, education and geographic location? Because of the abundance of websites, Jupiter’s Riley says “food companies typically use interactive agencies to plan their media spending for them. The agencies will often partner with well-known content sites using demographic targeting information.” While many food companies want to drive potential customers to their websites, Riley says the ultimate goal is to provide an engaging brand experience. Food companies seek to do this through a variety of interactive components.

Interactive Is On the Front Burner

One effective component that Sara Lee used for its “Soft & Smooth Whole Grain Wheat Bread” campaign was word of mouth, which was created by to reach mothers of school-age children., which also provided the campaign’s recipe feature, created a custom consumer panel where qualified home cooks were invited to try their new product for free.’s vice president of marketing and partner affairs, Esmee Williams, explains that “an invitation was advertised in areas of the site where influencers were most likely to spend time.” Influencers (members who submit content and share opinions) were asked to fill out a short survey; those who fit the defined target profile were provided with online coupons good for 70 to 100 percent off a loaf of the bread.

More than 15,000 people participated, most of them in the target market. Seventy percent of the audience downloaded the coupon, and 40 percent redeemed it.

“Those who agreed to participate in the ‘taste test’ panel were also provided exclusive access to a co-branded microsite where they could share their feedback, submit recipes utilizing the product as an ingredient or forward product recommendations accompanied by a product coupon to friends,” Williams says.

Many food companies have microsites, which create environments that foster a relationship between a specific brand and audience. Among the most successful is, which frequently has been the No. 1 branded food domain during the past five years. According to Jupiter’s Riley, it has become a full-fledged destination site with recipes that incorporate Kraft products to appeal to busy moms as well as community message boards where users can swap ideas, and which Kraft can respond to and monitor.

Paula Sneed, Kraft’s executive vice president of global marketing resources, said in her keynote speech at the DMA conference in October that interaction with customers is imperative.

“We need to talk to consumers to find out their underlying motivations ” to succeed, it’s all about customer insights,” Sneed says.

eMarketer’s Phillips says food companies read user-generated content in blogs and message boards “to see which way the wind is blowing before they launch a product – it is an online focus group that offers feedback.”

In October 2006, Kraft partnered with MSN to launch Chef to the Rescue segments, which are four-to-five-minute videos that can be downloaded on demand, so users watch them at their convenience. They feature celebrity chef Cat Cora creating meals based on recipes from and are a way that Kraft serves its target audience of time-crunched mothers. Sneed explains that this is “the type of next-generation advertising that adds value to its core customer.”

Kraft Foods, along with Masterfoods USA and Sheraton Hotels & Resorts are among the initial sponsors of Yahoo Food, a section that Yahoo launched in November that offers visitors recipes, food-related articles, blog posts, celebrity interviews and video.

Intended for sophisticates as well as casual cooks, Yahoo Food offers original and syndicated content including articles from the magazine Every Day with Rachel Ray, recipes from Epicurious, original posts from 13 food bloggers like The New York Times writer Ed Levine and video from Martha Stewart Living Omnimedia. The site also will include a Yahoo video show, “Cheap and Easy,” with clips advising users how to make dishes for not more than $5 in less than five minutes.

Diners Eat Up Video

Videos and webisodes are now de rigueur components of many food-related websites with the hopes that these elements will become viral. eMarketer’s Phillips explains that the goal is to have users find it authentic and pass it to each other, and says that today it is easy for companies “to post something on YouTube and see if it goes viral.” She says a great example that was sent to her is Smirnoff’s Tea Partay video, which is a send-up of a gangster rap song, set in Greenwich, Conn.

Another viral marketing campaign, “Long John Silver’s Shrimp Buddy,” is about a guy going on a road trip with a man in a shrimp suit. It has received good and bad critiques from online users, which exemplifies the dangers of viral marketing campaigns that lack credibility. One blogger wrote, “It’s the weakest viral campaign I have seen” and another criticized that “It’s about as genuine as Coke’s summer road trip commercials with a bunch of teenagers encountering spontaneous poetry reads and magic shows.”

Perhaps the most well-known viral campaign for a food company is Burger King’s Subservient Chicken site, which had a million hits within a day after being released, and received 20 million hits within a week. Users could control the movement of a man dressed up like a chicken by typing commands such as “do jumping jacks,” “dance” or “watch TV.” Joseph Jaffe explains that this type of engaging interaction with customers is incredibly valuable because it is more of an opt-in media versus TV, which is mass media that everybody sees. Jaffe says the average user of the Subservient Chicken site spent 7.5 voluntary minutes there. “That’s 15 30-second spots and I bet that’s worth 50 30-second spots because the viewer is engaged the whole time, he says.”

A Web campaign that includes a podcast or user-generated content requires the person to register and therefore guarantees interactivity. And by engaging with users, companies are building awareness and keeping their brand top of mind. Food companies like Burger King and Campbell’s Soup are not trying to sell Whoppers or cans of tomato soup over the Internet – they are trying to build online relationships with users with the hope that the brand experience will follow them off-line and make them brand loyalists. eMarketer’s Phillips says companies will use every interactive angle possible to engage with customers – from word-of-mouth campaigns, to ringtones, to sweepstakes, to advergames.

eMarketer’s James Belcher predicts that advergames and in-game advertising are “small but growing and important” and points to Microsoft’s 2006 purchase of Massive, a maker of in-game advertising, as proof of the momentum.

In-game advertising places targeted ads inside video games – such as on billboards as a player skateboards down a street – and serves different billboards to different users depending on their geography and age. The technology is now attracting deep-pocketed corporate sponsors who see video games as a great way to reach desirable audiences such as young males.

Sara Lee, department store Kohl’s and chip maker AMD are experimenting with in-game advertising with the sponsorship of a series of online games called “The Flushed Away Underground Adventure” that launched on AOL in October. The game called on players of all ages to solve a series of challenges that feature characters from the movie “Flushed Away.” Sponsors have an online presence in the games as well as plug their products in customized pre-roll video ads and banners.

Marketers will be interested to know that according to October’s comScore Media Metrix’s Game Metrix, a study that analyzes gamers’ cross-platform behaviors, 37 percent of heavy gamers agreed that featuring actual products or companies in games makes them feel more realistic, and half of heavy gamers believe that it is inevitable and will be in all or most games in the future. The study also found that video games appeal to not just teenage males or children – on average, gamers are 41 and have an annual income of $55,000; females account for 52 percent of the gaming audience.

A July 2006 report by the Kaiser Family Foundation, based on analysis of 77 branded food websites that are targeted at kids, found that 73 percent of the sites contained advergames, ranging from one to more than 60 games per site. McDonald’s has pages for kids to color, and, which promotes the Quaker Oats cereal, offers screen savers.

M&M’s has launched advergames designed for all ages. In October, they introduced the advergame “50 Dark Movies Hidden in a Painting,” which features a Brueghel-style painting with a series of visual riddles where players move around the screen and find the 50 movie titles represented by the characters in the painting.

Another advergame, the M&M’s Trivia Game, asks questions like, “Who drives the NASCAR M&M race car?” which for most users require them to search for the answers. Kevin Ryan, CEO of multichannel advertising agency Kinetic Results, explains that CPG companies like M&M’s are incentivizing users to search on their brand for the answers. “It is all about building an experience,” Ryan says. “It is not likely people are going to buy M&M’s online – they just want people to interact with the brand. It is a prototypical experience.”

The Search For Sustenance

Ryan believes, “There is a tremendous amount of opportunity in using search as a brand conduit ” it is the foundation for growth in the next couple of years,” he says. “There is a big value for search beyond direct response.”

Search is a very effective way of valuing and measuring the impact of investments in other types of media; for example, marketers can use search as a way of monitoring the effectiveness of a TV campaign, as they will see spikes in search activity immediately after the campaign launches.

Cam Balzer, vice president of strategy planning for Performics, agrees that search is helpful for branding efforts. He says that initially some food marketers and CPGs did not see the value in buying keywords if they did not convert, but marketers are starting to understand that consumers are not always looking for immediate gratification. “Marketers are realizing there is value in buying a keyword like ‘turkey’ because although a user might not be ready to buy a turkey at that moment, they might be searching on the word while they think about the kind of turkey to prepare for the holidays.”

Of course, some keyword buys do convert well. “Some of our clients are in the food-gifting business so they buy terms like ‘holiday pears’ and ‘holiday popcorn basket.’ Those words get costly but they convert very well and the high costs pay off. It is the direct market companies that leverage those,” Balzer says.

For the most part, it seems that food companies are just starting to realize the potential of search to engage their audiences. Balzer says, “A lot of food companies are strictly promoting their brand online and they need to reach beyond people who know about them to engage new consumers. For example, there are not many players for search terms like ‘healthy snacks’ or ‘healthy meats.’ Those words are not used by the household brand names like you would think and that is where the opportunity lies.”

Performics has worked with a meat-related food company and says that contextual targeting has performed well for building awareness of its product. Balzer says, “We have seen success with what they call ‘flavor conquesting,’ which means that one brand buys another brand’s keywords. For one client – if we were buying for a turkey product, we would buy ham in the content-targeting network so if someone is reading an article about ham sandwiches, the turkey ad pops up. We know the reader is interested in a similar food product [in this case a deli meat sandwich].”

Jupiter’s Riley says over the next few years, CPG spending on search “will grow a lot,” from $40 million in 2005 to $128 million in 2010, a compound annual growth rate of 26 percent. Search is by far the most lucrative area, accounting for 40 percent of the total online ad spending in the U.S., according to JupiterResearch.

For food companies to take advantage of search, they need to have good search engine marketing programs that are concerned with both paid and organic listings. Gary Angel, CEO of SEMphonic, a search engine marketing analytics consultancy, says, “Organic listings are an incredible value since they are essentially uncharged exposure. In addition, more clicks come from organic listings than paid; so organic listings are the No. 1 potential traffic source.”

Angel claims that paid listings provide coverage across a breadth of terms that can’t possibly be highly rated organically, scale programs to drive traffic beyond organic levels as well as allow companies to control the landing page and message given to consumers.

He says many companies have shifted significant resources into organic optimization in the last year – since this was an area that was significantly underutilized. He says that paid advertising really skyrocketed two years ago and has remained very strong – but many companies have essentially reached a plateau.

Online Offers Steak and Sizzle

Search is one of the channels through which Niman Ranch, a premium brand of meat, is acquiring new customers on a pay-for-performance basis. Niman Ranch pays its online marketing agency, LSF Interactive, only when new Web visitors buy – not for visitors that browse but don’t buy (leads) and not for existing customers that purchase again (repeat customers).

The comprehensive campaign includes search, email, banner advertising and comparison shopping engines such as Shopzilla and Yahoo’s shopping comparison tool.

Daniel Laury, CEO of LSF Interactive, explains that because they are compensated on a pay-for-performance basis, their job is to get the best conversion rates, which they do by tweaking the ad copy and landing pages and by fine-tuning their targeting. He says that recruitment through email and banners enables them to target users better.

According to Kinetic Results’ Ryan, companies have to foray into advertising on multichannels in order to reach audiences who are increasingly not only online but multitasking while they are online. Today people are on their computers instant messaging, while emailing and playing a video game. They have the television on in the background while they talk on their mobile phones. While they flip through the newspaper on the bus, they are listening to the radio or to their iPods. To reach these multitaskers, food companies have to develop campaigns that integrate several components.

An example of this is “Sara Lee’s Joy of Eating” campaign, which is being promoted on Sirius Satellite Radio’s Martha Stewart Living Radio channel and with an interactive presence on the Sirius website. The campaign also includes television ads, a Sara Lee microsite, online advertising, point-of-sale and visuals on packaging and bakery delivery trucks.

Some think that the Internet will never be a main channel for major food brands to reach customers. Datamonitor’s Productscan Online’s Vierhile believes that “There is no real compelling reason for consumers to visit food company sites except for recipes, which are really a one-off.” He believes that if anything has changed over the last 20 years, it is that food companies “have to get the products on the shelf.” To accomplish this, Vierhile thinks that food companies are focusing more on product packaging and in-store promotion.

In-store promotion includes free samples, shelf-edge talkers, in-store coupons, advertisements on conveyor belts, messages on the floor as well as in-store media on TV monitors. According to an August 2006 BIGresearch Simultaneous Media Survey of over 15,000 people, the top media influences for purchasers include in-store promotion – with the most significant influencer being coupons (see chart below).

A Mobile Feast

BIGResearch’s Pilotta says that “Coupons are still very effective even though approximately 1 percent are redeemed.” According to a Prospectiv October 2005 study, approximately 10.5 percent of consumers get their coupons from online sources, about 30 percent of consumers said they would like to receive coupons through online channels and more than half would like to receive coupons online if they were tailored to their interests.

A growing alternative to sending coupons inserted in newspapers is to send them in email newsletters. Email Data Source says that supermarkets that send email newsletters are successful in driving traffic to their Web properties. Supermarkets’ weekly newsletters offer specific targeting, can be personalized and include recipes, online specials and links to weekly ads.

Another innovative way for food merchants to deliver coupons and offers is through mobile marketing platforms including ipsh, VeriSign’s m-Qube, Motricity’s GoldPocket Wireless and MobileLime’s Mobile Rewards.

“Mobile advertising is better than online advertising – it is much more targeted,” says Bob Wesley, president and CEO of MobileLime. “The merchant can communicate with their customers before, during and after each purchase transaction, directly influencing buying behaviors at the point of sale. It is the ultimate in one-to-one communication because a person’s cell phone is a unique ID that is portable.”

For example, Chevy Chase Supermarket is using MobileLime’s Mobile Rewards platform to offer its patrons information-based alerts and instant savings on items store-wide through their mobile phones. Chevy Chase Supermarket was able to tell its customers that they were having a limited- time offer on Edie’s ice cream. This drove a large crowd of customers to stop by the store for the ice cream and also helped to increase loyalty sales on other items for which Chevy Chase sent alerts while shoppers were in the store.

In September 2006, Go-Tan, an Asian food brand, ran a marketing experiment in a supermarket in the Netherlands. Customers shopping in the supermarket (and anyone walking within a 100-meter distance) who had an open Bluetooth connection were reached by a contact request from the Go-Tan device about discounted Go-Tan products available in the store. More than 25 percent of Dutch mobile users leave their Bluetooth with an open connection, which means that Bluetooth could prove to be an appealing channel to establish direct and immediate communication with end users.

Food seems to be a natural match for the Internet. People love to talk about food and share food with others – and foodrelated sites are capitalizing on this social nature by offering various social media tools. It is predicted that food-related sites will continue to grow as interest continues – Yahoo indicated that they launched Yahoo Food because they saw it as a big opportunity and anticipate that CPG companies as well as health and diet companies will buy inventory in the section.

While the Internet is not the No. 1 channel for reaching consumers, most everyone agrees that it is vital for food companies to have an online presence. The URL is featured along with the 1-800 number on Kraft’s brand packaging, in their advertising and in Kraft’s Food and Family magazine. If food companies want to reach consumers with a multichannel campaign, Kraft Foods’ Sneed points out that all of the disciplines have to be integrated to maximize the potential for effectiveness.

For example, in 2006, Kraft Foods employed many marketing channels when they wanted to target Easy Mac macaroni and cheese cups to college kids instead of mothers. Kraft Foods used print ads, television spots and built a youthful and innovative website called Scam Some Mac, which includes short videos, an advergame and a viral element that lets you ask others to send you some mac & cheese.

Consumers can expect to see more pioneering online campaigns as food companies increase their spending on Internet initiatives in hopes of engaging users. With the growing amount of traffic to food-related sites, food companies will throw money at their online efforts although some will wonder if online exposure leads to off-line conversion.

Jaffe points out that people can tune out a television commercial with a remote control and ignore a magazine ad by turning the page, but to watch a video or participate in a sweepstakes online, users are required to register. Jaffe says that, “People are always trying to measure the value of an online campaign but maybe people should be trying to validate the value of an off-line campaign.”

In the end, it is finding an optimal mix of media, including Internet initiatives, which will move a company forward. Kraft Foods’ Sneed says, “Companies should not be afraid of trying new and innovation online campaigns – they need to be leaders, not followers.”

The Mobile Marketing Monster

Tony Phillip will tell you the exact moment he knew that mobile marketing and advertising – predominantly via cell phones – had crossed over into the mainstream.

It was when American Idol, the extremely popular TV singing contest, allowed viewers to vote for their favorite singer via text message – and more than 50 million did in 2005 versus 21 million in 2004, according to the CTIA – The Wireless Association. Also in 2004, 46 percent of text messaging votes for a new pop star sent in was from wireless subscribers using text messaging for the first time, CTIA figures state.

Less than a year before, UpSNAP had a deal with ABC to allow text-message voting during the Academy Awards. It was basically a disaster, according to UpSNAP CEO Phillip, who notes, “If viewers didn’t have text messaging, they weren’t going to use it.”

What a difference a year makes. There is little doubt that mobile marketing – that including text-message ads displayed with a mobile search or via opt-in, coupons sent via cell phone, video and display ads interwoven with downloads or streaming from cell phones or other handheld device connected to the Internet – has arrived.

More major brands, agencies and start-up companies are putting their energy and dollars into exclusive campaigns and technologies aimed at mobile marketing, and for some it is already big, big business.

As people in the U.S. become more reliant on their cell phones, mobile services such as mobile search and Web surfing will become commonplace. Consider the following facts according to The Pew Internet & American Life Project:

  • 52 percent of adults have their cell phones turned on 24/7.
  • 30 percent of adults say they want to Web-surf from their cell phones.
  • 47 percent say that mobile maps and driving directions are a must on the next phones they plan to purchase.


Mobile marketing adoption is shooting through the roof. Worldwide mobile ad spending is expected to top $870 million by the end of this year, according to Informa Telecoms & Media. Meanwhile, The Shosteck Group predicts mobile marketing will be worth $10 billion in the U.S. by 2010.

Furthermore, 43 percent of U.S. marketers are using or about to use mobile marketing in the next 12 months, according to Forrester Research. And nearly 90 percent of major brands plan to market to mobile phones by 2008, according to a survey by Airwide Solutions.

“It’s happening faster than anyone expected,” Laura Marriott, executive director of the Mobile Marketing Association (MMA), says. “2006 is certainly a year that more and more brands are getting involved but so much more can happen. Response rates from mobile are very high. There’s great engagement from the consumer.”

That sounds like a giant wellspring ready to gush, but the U.S. is not even in the lead here. Most of Europe is slightly ahead in the adoption of text messaging because of the availability of cheaper cell phones. In March, mobile phone users in Britain sent more text messages than they ever had before – 3.19 billion or about 103 million per day. That’s a region with only about 60 million people in it.

In Japan, NTT DoCoMo recently pulled in $2.5 billion in the first quarter of 2006 in non-voice revenue. About 35 billion text messages are sent each month in China, where about 426 million people have cell phones – that’s like giving one and a half phones to every person in the U.S.

Pay per text has also taken hold in the U.K., where users can request a text message of a phone number when calling directory assistance or have directory assistance send the number automatically. Phone numbers and special-offer text ads are sent when directory assistance is asked for a keyword such as “travel.”

“[Mobile marketing] can be a big cash cow for any company,” Holger Kamin, country manager USA for Germany-based Zanox, a multichannel commerce provider, says.

The ease with which so much of the world outside the U.S. has embraced handsets to communicate in ways other than phone calls means the choice for advertisers is simply how to reach out to them. Of cell phone functions available, the surprising choice for marketers so far has been the simple text message.

“We always go back to what the consumer knows,” says Marriott of the MMA, “and what is already available in handsets.” She says text messaging has made a pretty natural rise to the top, but also wants to make sure “we don’t get ahead of ourselves in technology.”

While Americans may own 200 million cell phones, marketers wonder if all these people are using even the simple functions on their phones. While 75 percent of U.S. teens (age 15 to 17) own a cell phone, according to eMarketer, only 36 percent ever send or receive a text message. These conflicting statistics are what may be holding back the really big advertisers from designing campaigns for mobile en masse.

It was only two years ago the CTIA – The Wireless Association introduced cell phone short codes, which are 5-digit numbers that text-messagers use to send their message instead of a standard 10- digit phone number. The short codes were designed to help marketers reach out to brand customers via mobile phones. Anheuser-Busch, Dove soap and Daimler-Chrysler are just a few of the major brands that ran successful short code campaigns to get customer feedback via cell phones.


That will not stop the innumerable mobile ad companies from vying for your attention.

MobileLime CEO Bob Wesley, for example, thinks of it as developing a one-to-one relationship. “This is all viral now,” he says. So far MobileLime has used radio ads to get opt-ins and serve coupons to cell phones. It is not only paving the way for m-commerce (paying for an item through your cell phone), but gathers rich data for the advertisers, such as if recipients opened the coupon, when they did, what they used it for and for how much, Wesley says.

Currently, some companies such as Bango enable payment via mobile phones through a deal with PayPal, but the selling merchant must sign up for Bango’s service to allow the capability. Other companies such as JumpTap aim at launching a mobile search index to challenge Google. Carriers join the search index and online auction platform and serve it to their customers.

Of course, in the online world, coupons are big business and they are not being left behind in the mobile arena. Mobile coupons are making great inroads to the electronic platform because of the “sheer inefficiency of paper coupons,” says Peter Sealey, CEO of consulting firm The Sausalito Group. He says with redemption rates for paper coupons at only 3 percent, advertisers realize they save more cash going electronic. The marketer pays only when someone prints a coupon, eliminating distribution costs. “Marketers after the 2000 dot-com crash said, ‘Thank God that’s over,'” Sealy says. “We can go back to TV and radio.” Now, mainstream marketers are embracing the full bloom of mobile marketing again, he adds.

Sealey predicts that within five years, the paper coupon will be as good as dead. Search giant Google recently said it would start to offer local coupons in conjunction with using Google Maps. Online coupons in general have already taken hold with as much as 50 percent of online coupons being redeemed, according to some estimates. Companies such as CoolSaving, Coupons, Inc. and Zixxo do well marketing coupons over the Internet. Sealey says as more marketers accept electronic devices as a viable vehicle, the better adoption rates will get.

Some mainstream advertisers and companies are already rolling out robust campaigns to cell phones. Strawberry music stores on the East Coast are text-messaging promotions and deals to mobile handset users who sign up to receive alerts and geographic-based special deals. While Strawberry has relatively few stores in its network, Starbucks with thousands of locations has run a scavenger-hunt-style loyalty promotion where cell phone users signed up to get questions via text messages, the solving of which could send five chosen players on a vacation to Costa Rica.

Recently named No. 2 carmaker Toyota spent $10 million on a mobile campaign targeting Hispanic cell phone owners to watch funny hidden camera clips on their phones featuring the 2007 Camry. And Google is undertaking significant testing for its own mobile ads on its mobile search results and to launch a version of AdWords for mobile. Google is testing the search ad in the U.S., the U.K. and Germany.

Popular eateries McDonald’s and Subway are also getting their feet wet by offering some promotions via mobile phones. Even Net vet AOL has had its Mobile Search Services up since December 2005 with search, a shopping comparison module and a Yellow Pages feature.


Firms with mobile technology know-how are not the only ones seeking to cash in on mobile marketing. AirG, for example, sets up social networks on its platform and has found great success in sending mobile promotions to its base of users. They worked five years to get 5 million users and in the last eight months that has bounded up to 10 million. AirG’s display ads and ad-sponsored games for handsets capture detailed demographics and consistently get a more than 28 percent response rate. Receiving the ads can be turned off and on at will and are all opt-in.

Along the way, AirG discovered they had a significant Hispanic demographic, so they customize certain promotions to target only those groups. Frederick Ghahramani, AirG co-founder, says he can find the Latino males in New York City who are single and send only them an appropriate promotion or coupon electronically.

“What’s been lacking isn’t the enthusiasm [for mobile marketing],” he says, “but the ability to target the active base of customers.” They share personal information with each other and find like-minded people. AirG brings relevant targeting to the table, he says, noting, “The industry has had the ambition but now is waking up.”

There is nearly universal agreement that the key element for the continued success of mobile marketing is targeting. Third Screen, the largest U.S. mobile ad network, got the jump on everyone when it started four years ago and has only recently said that targeting mobile ads has finally reached a kind of maturity. The company has stated that the next achievements in mobile marketing will be privacy standards for all carriers, predicting more detailed demographics from broad information and more and better mobile ads based on real-time location of the handset user.

With the popularity of buying and downloading ringtones and entering online auctions via cell, companies like Ad Mob want to make sure you can reach users based on their region, platform, device capabilities and even manufacturer. If you want ads to reach only Nokia users on MIDP 2.0 devices in Europe, AdMob, who also has polyphonic ringtone support, states they can do that. Of the many companies that now have a mobile marketing component, better targeting is their crown jewel, the company claims.

Some companies have come up with original ways to engage people via cell phones. Vibes Media has its Text-2- Screen that invites concert-goers to text to the Jumbotron screens at stadium-sized pop concerts. The text they send to the screen is displayed on the branded screens with messages such as “Get ready 2 rock!” and “Happy birthday, Sarah J.” Irvine, Calif., company go2 recently launched go2 SpeedPoll, which conducts surveys sent via cell phone that ask about attitudes toward certain brands – with results viewable in real time.


Affiliate marketing powerhouse LinkShare won’t be left behind. President of LinkShare Steve Denton says its parent company Rakuten of Japan is having considerable success with mobile commerce. He says that at LinkShare Japan, a significant percentage of affiliate purchases are coming from mobile commerce.

“Our customers live and work and play in a world without boundaries,” Denton says, “and we must find ways to exchange with our customers, and then we need a platform for that; then mobilize.”

Japanese m-commerce is exemplified by someone shopping in a mall who finds a cool jacket, takes a picture of the UPC code on the tag, sends that to a browser and makes the purchase via cell. In addition, that customer can mobile email the code and a picture of the jacket to as many friends as he or she thinks would also like to buy it.

Denton says he has no doubt that “affiliates could plug this into their business models very quickly. But the infrastructure is not there yet.” He adds that publishers have great house lists but are not using text or cell phone numbers from their customers. “Cell phone numbers will be more valuable than email addresses in five years,” he says, adding that LinkShare in the U.S. will have some key additions to mobile in the near future.

But even as the adoption numbers keep steadily rising, there are still some gray clouds out there. For example, for a country with so much Internet usage, only 16 percent of U.S. mobile phone subscribers use their Web-enabled phones for the Internet. Some ad networks only work with certain brands of cell phones and even companies that say their platforms work across all brands and telecom networks can’t guarantee that the service will work for consumers consistently.

While marketers are very eager to reap the financial benefits mobile promises, some critics have said that not enough is being done to erect coherent marketing strategies. In the rush to go mobile, some companies are grabbing whatever firms are offering and not building their own goals, figuring out how to follow the metrics, putting up privacy standards or discovering a solid plan to get people to opt in. “Some companies are so decentralized,” says Zanox’s Kamin, “that they don’t even know they have [offices] in Europe.”

Other critics say a patchwork of partnerships keeps true standards from emerging. In the realm of mobile search, a giant like Google can go out on its own with few partnerships because most go to Google anyway, but other search companies (Yahoo, MSN and others) must become allies with a carrier to get the best traffic. These kinds of deals can shut out some cell phone owners from getting the right information when they want it. There are also bandwidth inconsistencies as there are with general cell phone reception depending on location and interference. SEO firm Oneupweb has noted that the myriad of technical issues with mobile commerce and advertising will smooth out for the next generation of mobile surfers and searchers because the interfaces will gradually become less technical. It will be like operating your TiVo or your iPod.

“Unlike a year ago – the early days,” says Phillip of UpSNAP, “search [via mobile] didn’t make a lot of sense, but now they will do what is relevant to their mobile lifestyle – comparison shopping, for example, before you get into your car.”

Marketers are also just beginning to realize that the mobile lifestyle cuts across socioeconomic barriers. Most people in the U.S. – even some of the most poor – have a cell phone. With 200 million handsets out there and growing, the young and old and rich and poor and racially diverse pretty much covers everyone who can participate in mobile marketing.