Leagues of Their Own

Since the days of the gladiators, sports fans have had an irrational bond with their favorite athletes and teams. Feats of athleticism evoke eruptions of euphoria or a tidal wave of tears as a game’s final play unfolds.These strong emotions create an indelible brand loyalty that remains long after the season ends.

Marketers are learning to exploit these relationships in new ways by expanding the scintillating sights and sounds of sports beyond television highlights to broad online distribution. By enabling fans to personalize their interactions with multimedia content and by bringing the game to their favorite arena – be it a social website or a personalized Web page – sports leagues are creating new online marketing opportunities that are increasing revenue. Typically, online merchandising of memorabilia and apparel is not handled by sports leagues’ online properties and is therefore not addressed in this article.

Sports leagues and their broadcast partners have historically been conservative in granting permission to use video and audio from games online. This idea was based on the belief that making highlights or live broadcasts available dilutes the value of live games and would reduce advertising revenue and attendance. For example, in the late 1990s, local radio affiliates streamed broadcasts of baseball games online for free. But within two years, Major League Baseball ended the process, allowing audio webcasts to be streamed only through the MLB.com website through paid subscription services.

Baseball continues its policy of charging to listen togames online today. Dinn Mann executive vice president of content for major league baseball, says the league listened to fans and for the 2008 season reduced the price of a season audio subscription by $5 to the former price of $14.95. “We tipped our cap to fans who complained,” he says.

Requiring customers to pay for live audio provides an alternative revenue stream, according to Mann. “Having a subscriber base and not relying entirely on advertising is of strategic importance,” says Mann. Subscriptions,which require submitting an email and physical address, provide an avenue for MLB to pursue online and offline direct marketing.

Major League Baseball also charges for video streaming of live games and restricts viewing to any games that are “out of market” from where the customer lives. This protects the lucrative contracts with cable companies and local TV stations that are the bread and butter of their revenue. Baseball game viewing- despite the lengthy 162 game schedule – remains largely a pay-per-view world, Mann says, because “some things are still worth paying for.”

This year is the first time that baseball fans can watch archived broadcasts of full games for free, something that MLB is”experimenting with,” according to Mann. The archived games do not feature advertising, but MLB is “exploring the right relationship,”Mann says.

Growing the Audience

Sports leagues are now taking a page from online marketers’ playbooks by encouraging consumers to personalize their experience in interacting with content. Instead of going the affiliate marketing route, the digital sports media companies are focused on partnering with social networking sites and other media companies that have established audiences of fans. The strategy is to encourage consumers to link to and save content on the sites where they visit on a daily basis, enabling fans to mash-up multimedia content to create something new from existing content. Marketers who join the roster of their online partners will gain a share of the spoils in growing their audience and reaching a new generation of fans.

At the start of the 2008 season, MLB.com announced a partnership allowing Yahoo.com to stream games and highlights.Yahoo will also sell ads against both pay and free content, although thus far the video has been distributed largely without ads. Through this agreement, MLB.com gets access to Yahoo’s large audience and the two companies share revenue from any transactions facilitated through Yahoo.

Professional and collegiate sports leagues have learned that embracing younger audiences on their home turf is the quickest path to rapidly growing an audience. The NCAA, in partnership with CBSSports.com, opened the video streams of its college basketball championship tournament to a wide variety of publishing partners with great success. This enables fans to see the content where they want it delivered.

Just a few years ago, video streams of March Madness games were protected from the majority of the population as if they were enriched uranium. The subscription service generated just $250,000 in revenue annually. But over time online distribution was proven not to be hazardous to the health of television advertising revenue. Subscription fees were replaced with free streams, and then the NCAA/CBSsports.com embraced social networking (See sidebar).

Free live game webcasts have paid huge returns, according to Jason Kint, senior vice president and general manager of CBSSports.com, which manages the online video distribution of the NCAA tourney. CBS Sports created an embeddable media player that contained multiple advertising locations, in-stream ads, and fixed positions sold to sponsors.

Online “consumption is additive and not cannibalistic”of the TV audience of live college basketball, Kint says.The streams were primarily delivered to people who didn’t have access to TV, including office workers. The media player’s “Boss Button,” which instantly hides daytime viewing at the office, was clicked more than 2.5 million times, according to Kint.

People will continue to watch games on TV if they can,he says, as the final championship game was the most watched game on TV and had the smallest proportional share of online viewers. Industry watchers speculate this type of arrangement may lead to new relationships between those who promote other events, such as concerts or entertainment awards shows and affiliates who can deliver a targeted audience.

Content owners looking to maximize their audience for ad-supported content should also spread it far and wide, Kint says. “Don’t expect users to come to a URL – bring the content to them.”

Like its collegiate counterpart, pro basketball also recognizes that working with existing online communities enhances rather than endangers its own digital efforts. For the past two years the NBA has “embraced the idea of distributing content beyond NBA.com” and is partnering with video sharing and social networking sites, according to NBA’s Vice President of Interactive Services, SteveGrimes.

Grimes says working with video sites such as YouTube, Joost and Hulu and social networking sites such as Facebook, Beebo and MySpace has increased fan engagement. The NBA makes highlight videos available to publishers such as Hulu and Joost to strengthen its brand awareness among younger audiences who are consuming a greater majority of their video online.

The NBA is encouraging fans to create their own highlight reels by mashing up content available only on NBA.com and embedding it on their social networking sites. “Fans that love the NBA will come to NBA.com, but those who like it will visit other sites,” Grimes says.Widgets that enable sharing of content are delivering interactivity to sports media. NBA’s widget page (www.nba.com/widgets/) contains embeddable code for showing highlights, up-to-date-scores and photos. The NBA has sponsorship deals with companies including Lenovo and TMobile for some of its widgets to gain revenue from content that sits on other sites, Grimes says. The league has also launched a fan application on Beebo to reach its audience.

“(Sports) sites are starting to realize the power of how content can be aggregated across the Web (using widgets),” says Tad Greenleaf, the media team lead, for Omniture Consulting. Greenleaf, whose company has measured fan engagement for the websites of all of the professional leagues, says that while some leagues have hesitated on widgets and distributing content to other sites, they will do so as long as they can maintain some control.

By contrast, MLB has not released any widgets as yet because “we haven’t reached the point that the content needs to reside on their (fans) pages,” says MLB.com’s Mann. “… We have taken a long term view and not just rushing to the tool of the day.”

Measuring Success

Most of the sports leagues are more concerned about building traffic and fan engagement than selling tickets or jerseys through their partnerships with publishers, according to Ominture’s Greenleaf. His company built a social networking website for the Indianapolis Colts (www.mycolts.net) that greatly increased traffic to the NFL’s Colts site by enabling fans to comment, share content and create their own blogs. The leagues want to measure views of videos to see how they can be used to retain consumers, Greenleaf says. “How much can a piece of content drive people into the site, or are they hitting and leaving?” He says sites want to see if the relationships have “velocity” and are encouraging users to “dive deep” into the sites.

Greenleaf says another strategic play is for leagues to buy keywords about teams, players or about timely topics in the news because the leagues “don’t want them going to other places on the Web.”

“The key thing is that you need to control [the environment] if you are the owner of the content,” says Robert Tuchman, the President of TSE Sports and Entertainment, which develops corporate marketing programs around sports. Tuchman says those who market sports leagues have yet to capitalize on the legion of diehard fans that follow their sport. “They have to get behind their existing market or other organizations will control their inventory.”

Tuchman says while social networking around video highlights is the hot topic today, it should be part of a larger strategy that integrates all media. “Social networking is just one aspect. You need to sell combined media packages” that include TV, print and outdoor, according to Tuchman.

Scoring With Mobile

The days of learning how your team fared by reading the morning paper are long gone. Now fans want to know about scores, injuries and trades immediately, and the league sites are marketing to this perceived need. Through mobile-device enabled websites (WAP) and SMS and text-messaging services, sports leagues including the NHL, NBA and MLB are generating revenue from on-the-go consumers.

For the 2008 season, MLB.com added video alerts to its text alerts subscription service. The alerts highlight great catches or home runs from a fan’s favorite team that will be sent to handsets within three minutes after a play happens. The NBA’s “mobile to go” service offers team and player text alerts as well as a service customized for fantasy league fans.

Quattro Wireless launched the mobile version of the NFL Draft site for the annual draft, which took place in April. The site, which included photo galleries,articles, draft prospect pages, player analysis, and the full draft order, was updated in real-time as the college players were selected by NFL teams.

“The NFL is trying to continue to give their fans more coverage wherever their fans may be,” Lars Albright, vice president of business development for Quattrosays. “The NFL found that the draft is turning into something of an event … It’s becoming a marketable event.”

Sports leagues and news services originally charged subscriptions for notifications to mobile phones and handhelds, but they are starting to shift to ad-supported services, says Eric Eller, senior vice president of products and marketing for Millennial Media. Eller, whose company operates two mobile advertising networks (CPM and CPC) that aggregates demand, says one of the big trends is in-game mobile marketing.

For example, during a game, fans in attendance can be shown messages on their mobile phones that are linked to messages being shown on the big screens that sit high atop the stadiums, Eller says. Mobile phones “will play an important part of sports marketing around events,” he says.

Sports leagues have learned that by making highlights more widely available and engaging on their favorite online destinations, they can grow both their television audience and put more fans in the seats.

The Changing Digital Landscape

2008 has shaped up to be a crazy year for online advertising – the writers’ strike drove people online and the presidential election and the Olympics are causing advertisers to boost spending in a down market. The timing of these factors has altered media behavior – making the business of online media anything but typical for the year.

How the advertising dollars that moved online in 2008 will be spent is a matter of much debate. Reports indicate that because the digital landscape is changing, advertisers are finding that the tried and true initiatives that performed well a few years ago are now considered passe.

As more and more individuals become their own tastemakers, advertisers need to take into account how users consume information. The days of pushing content have given way to users pulling the content that they want – making it tricky for companies to get a hold of their potential consumers.

At the end of 2007, AdTech and MarketingSherpa surveyed 421 Internet marketers about the tactics they would try out this year and where they plan to spend their budget in 2008.

In terms of the initiatives that marketers plan to increase more than 5 percent of the budget on in 2008, 32 percent of marketers cited PPC, 27 percent of marketers said they’ll increase their spend on behavioral targeting and 26 percent will spend it on rich media.

The survey found that viral marketing and advertising on online video sites, mobile phones and virtual worlds are among the emerging trends that marketers plan to check out this year. Marketers say they are encouraged to try out those tactics for the first time by their agencies.

Ninety-three percent say agencies suggested an increase in spending or begin spending on viral video; 87 percent were urged to spend on viral marketing using networking sites; 60 percent were asked to try wireless ads on mobile networks; and 62 percent said agencies advised advertising in games and virtual worlds.

In March, PQ Media reported that total spending on alternative media – including expenditures on online/mobile, lead generation advertising and consumer-generated media – is predicted to grow 20.2 percent to $88.24 billion in 2008.

Clearly, how companies approach their ad budgeting is going through a major metamorphosis. Of course, online marketing plans and their budgets depend on several factors – including the type of company, product, audience and goals.

The Big Trends

In terms of how advertisers budget their marketing plans, three trends have been shaking up the status quo in 2008 – paid search, social media and ad networks.

The biggest change in the last couple of years is that search ad spending continues to increase – it is expected to rise 32 percent this year to $15.5 billion in the U.S, according to J.P. Morgan Chase.

Some industry watchers call search the greatest advertising medium of all time and many marketers agree. However, Jake Fields, president and creative director of Treeline Interactive, warns that marketers need to be careful because it is easy to waste budgets buying keywords. Fields recommends Spyfu.com, a tool for finding competitors’ keywords.

The rise of social media is one of the dramatic differences between 2007 and 2008. Although a recent Forrester Research report indicates that spending is still relatively small, companies are benefiting from what it offers: consumers contribute brand messaging as opposed to only passively receiving communication from marketers.

There are many ways for new publishers as well as established brands to leverage social media. They could create buzz on a social network before the site launches or do some ad buys on social networks sites, which are cheaper than buys on traditional content like CNN because traditional advertisers are weary of social networks.

The Northern California ski resort, Northstar at Tahoe, has a campaign that encourages customers and staff to post videos and photos with the tags “Northstar, Tahoe” on social media sites such as YouTube and Flickr – with the prospect of being featured on the Northstar site or even the possibility of winning complimentary services. Fields explains that this initiative enabled Northstar at Tahoe to quickly expand its presence within these social media sites from a couple hundred entries to thousands of social media posts that positively represent their brand.

Also gaining traction in 2008 are advertising exchanges, which allow advertisers to bid for impressions on a CPM basis. Cam Balzer, vice president of emerging media at DoubleClick Performics, explains that ad exchanges bring the benefits of search marketing to display advertising – namely, the ability to test a large number of placements (an ad of a particular size on a particular site or even site section) dynamically (no minimum or locked-in budget), to bid more for placements that are driving strong ROI and less for placements that aren’t working.

More and more display inventory of an increasingly high quality is becoming available via advertising exchanges, and this trend should continue as publishers get comfortable with selling inventory in this way.

Balzer says that for a minimal investment, companies can test various approaches to building awareness of their brand. They can secure a large number of impressions at a low CPM to increase reach. If they are also selling advertising on their site, they could sell ad inventory via an exchange to improve the CPM yield of their site.

Regardless of whether companies attempt to leverage one or all of the big online marketing trends for 2008, the ever-evolving interactive space is moving away from cookie cutter campaigns that seem too inflexible to yield results.

To rise above the clutter, companies need to aggressively try the latest tactics like product placement in games and paid ads on networking sites. Mixed approaches are required – recent research finds that when search and display advertising are combined, clicks increase after people see the display ads.

Because there is no silver bullet, marketers need to constantly analyze and optimize their mix. Fields says that campaigns are all a matter of trial and error – it is important to try, pull back, measure, analyze, and then try again.

Ad-Supported Nation

There’s no doubt that popular websites such as video clip destination Metacafe continue to be strong players because visitors know that when they come back again and again, they can be treated to fresh content to inform them and tickle their funny bone. They can play the short clips over and over again and send the links to friends without having to pay for visiting the site. Every page of Metacafe has a small, unobtrusive ad that helps support the site financially.

This is nothing new. In a world where Google’s Ad- Sense text ads can be added to any kind of website, the idea of monetizing any and every site on the Internet is a foregone conclusion. What media companies have come to realize is that in the fragile Web environment, your popular digital destination today can be a retread tomorrow if the revenue streams become too thin. Metacafe has to compete with the 800-pound gorilla YouTube, as well as Revver, LiveLeak.com, Dailymotion and a variety of other free video sites.

When AdSense can only do so much in terms of monetization, the notion of seeing, hearing or downloading an advertisement to view free content is gaining incredible momentum. Once afraid of ad backlash before they had even thought of trading ads for content, media companies, artists and even software developers are jumping on the ad-supported bandwagon. So many different kinds of online media and marketing efforts are dipping an ad-supported toe in the water, that it begs the question: Will everything eventually be ad-supported?

The Ad Landscape

In 2007, marketers spent more than they ever had on TV, radio, print, outdoor, movie theater and Internet ads – $175 billion, according to ZenithOptimedia. That number is up 5 percent from 2005. If you add direct mail and other direct-response-type ads into the mix, that’s $269 billion. Also in 2007, companies spent $13 billion on Internet classified, search and display ads, and that is expected to double to $26 billion by 2011.

“In mass media history and as media fragments, the ad model will continue to be popular for eons,” says Jack Smith, senior vice president of strategy at 24/7 Real Media. “Consumers really like free content – they will pay for HBO, but mostly they like free stuff. Bigger media is always ready to play. There’s plenty of supply right now, and demand will have to catch up.” 24/7 Real Media recently integrated its search marketing efforts with Baidu.com, China’s most popular search engine. It specializes in targeted Web advertising globally, with a strong mobile capability.

Smith says that as emerging countries keep seeing an increase in Web users, there will be ad-supported Web services opportunities, especially in places like China, where PCs are not pervasive in the home. Microsoft has made a bid to enter that game by introducing two ad-supported Web services – its popular Windows Live and Office Live. The applications and surrounding services are available from the Web, without having to download the applications themselves.

Microsoft’s plan has both free and paid versions of Windows Live and Office Live with ad-supported basic services. The company then tries to sell add-on services. The ads are served up through its recently developed AdCenter advertising system. Some experts speculate that a completely ad-supported Windows-based operating system that would live on the Web and not on your computer is not that far off from becoming a reality.

In the ad-supported software category, it’s been argued that the first wholesale successes were email-based programs – such as Hotmail and Gmail – that used ads to completely cover the cost of the free, Web-based programs where none of the information, email files or address books are housed on your computer. In the world of systems management, even, there are companies such as Spiceworks, which is a free, ad-supported network monitoring software for network management for small businesses.

“But small businesses should read the fine print,” says Jay Hallberg, co-founder and vice president of marketing at Spiceworks. “The free use of the application is usually a hook to get people to buy,” adding that these are usually “sales gimmicks” and not truly free applications.

Big companies are also experimenting with ads for content. AT&T is testing its “1-800-YellowPages” service in Bakersfield, Calif., Oklahoma City and Columbus, Ohio. It provides free directory assistance for callers who listen to short audio ads. The ads are targeted by the category of the number being asked for. Its technology provider Apptera will do the targeting and ad serving.

In the video category, viewers have already said they will definitely watch an ad to get to the good stuff. A recent survey by the Associated Press and AOL said that 71 percent prefer to watch an ad for free video. Only 23 percent said they would pay a fee for ad-free video. Currently though, demand for ad-supported video has not provided enough inventory. “As we get more and more people finding video through AOL, we’ll create more inventory through that process,” VP of AOL Video, Fred McIntyre, said to ClickZ News. YouTube is still testing small ad bricks that scroll or pop up over the lower portion of the video window.

Ad Overload?

Worrisome to some big media marketers is that the barrier to creating and posting ad-supported Web content is so low, the ensuing glut will bring down online ad rates and spoil profit margins, leading to the demise of struggling Web ventures. “Free media is a good thing,” offers Dave Morgan, chairman of target marketing firm TACODA Systems. “With off-line media, distribution is expensive – think papers and trucks and postal costs. ” It was a nice model for the media companies, but not for the consumers. Web and Internet distribution of ad-supported publishing means much more free content and more diversity of content for many more people. That is good, not bad.”

Music companies and ventures that offer digital music and ringtones have discovered the benefit of ad-supported freebies. MySpace, for example, as it starts to lose market share, is pushing its music-sharing deals and shifting to free, ad-supported downloads in conjunction with more than a few major recording labels.

Other major music companies that launched ad-supported streaming music recently include Sony BMG, Warner Music Group and EMI. All three use San Francisco’s imeem as their streaming service, which plans to share revenue with the labels. “The music industry needs big ideas because small incremental improvements won’t change anything. For example, nobody has tried some of the crazy revenue shares we are trying on imeem,” says Dalton Caldwell, founder and CEO of imeem.

File-sharing companies that traffic in a good deal of music are trying to monetize their networks by running ad-supported versions. Atlanta company Intent Mediaworks says that 60 percent of its users are willing to endure pop-up ads. Intent Mediaworks has technology that adds advertising to streaming music on file-sharing programs. Other companies such as Qtrax and Nettwerk also aid in the streaming of ad-supported music downloads.

Some critical opinions doubt the ad-supported model will pay for website operations, let alone see profits. “I have yet to see the model that makes me feel good they’ll get enough money out of advertising. The question is, can they get enough mass to lower the royalty?” says David Card, a senior analyst at JupiterResearch. Allan Klepfisz, CEO of Qtrax, says the challenge is to “demonstrate that ad-supported peer-to-peer is lucrative enough that everyone is going to be happy. The real issue for the industry is that right now there are all these people paying nothing for music.”

The artists themselves are getting in the game, not to be left out of the loop by their labels. RCRD LBL, a network of ad-supported online labels, deals in independent bands unaffiliated with the big record labels. Their downloaded MP3s and streaming music both carry ads. Like David Bowie before him, who was early in his use of interactivity and the Web in the ’90s, rock star Peter Gabriel recently launched We7, a free ad-supported music download service. Ads are sent to users based on demographic information they provide on the site that allows for better targeting by advertisers. The ads are heard at the beginning of songs and albums.

Ads on the Move

Mobile marketers are also showing a huge attraction to an ad-supported model. Avot Media launched its mV mobile video service that promises better video quality in conjunction with viewing an ad. Rhythm NewMedia cut a deal with Vodafone in Spain to send ad-supported video to its more than 4 million handset subscribers. Interspot has an SMS service that will provide free text messaging. The text messages come with ads that can be geo-targeted. Mobile coupons will also be offered as part of the service. Start-up Blyk will offer free calling in European countries by listening to ads first. Though Finland-based, the service will start in Britain and spread out to other European countries from there.

CBS television said it will launch a high-speed wireless network in midtown Manhattan that can be connected to by cell phones, laptops and other personal devices by going through the CBS ad-supported landing page. The program also allows voice over the Internet (VoIP) calls. The ad-supported page will include content such as breaking local news and national news. Broadband hotspot platform AnchorFree is just one of the wireless providers that are offering free broadband connections by viewing an ad.

Not to be excluded, the world of gaming upgrades to a mobile platform through Hovr, which is an ad-supported free mobile gaming community. Through the service, consumer websites, mobile portals and carriers can offer users hundreds of free mobile games. The games can be wrapped around a specific brand and still carry Hovr’s ads.

MySpace isn’t going to be left out of the mobile surge either. It has launched a free, ad-supported cell-phone-ready version as its parent, News Corp., rolls out mobile versions of FoxSports.com, gaming site IGN, AskMen and local TV affiliates – most in ad-supported environments.

Instead of being annoyed by the flood of advertising rising from the ad-supported mobile programs, people are proving to have an open mind. “If you ask mobile users if they want ads on phones, 78 percent will say, ‘Not really.’ But if the ad comes with something for free, the survey result flips the other way,” says Brian Suthoff, senior director of business development at Third Screen Media.

Also in gaming, video gaming network G4 is testing video ads in their games. The video ads are delivered by YuMe Networks, specializing in IP-based video ads. YuMe executives have said that the company expects to do more business as user-targeted video ads employed by sites such as BitTorrent sign more “deals with publishers that want to experiment with ad-supported downloads.”

Even in the off-line world, seeing an ad can lead to your daily coffee fix. A company in Japan markets an ad-supported coffee vending machine. If the buyer watches a 30-second ad, he gets a free cup of joe. The cup it comes in has an ad as well.

24/7 Real Media’s Smith believes “we will better understand the consumer with more ad-supported companies.” He says the “gold standard is seeing the measurement that comes in that environment. We will value it more.”

As the final piece of evidence that the ad-supported model may indeed be ubiquitous, Freeload Press has made a deal to send out ad-supported electronic textbooks to students at 38 universities. Perhaps the age of the highlighter pen is truly over.

They Can Hear Us Now: Q & A with Laura Marriott

The president of the Mobile Marketing Association says that ads on mobile devices will only get better, more widespread and easier to create and measure.

Laura Marriott is president of the Mobile Marketing Association (MMA) and spearheads efforts to get mobile marketing adopted worldwide. The MMA is a global nonprofit trade association with more than 500 members in 42 countries. It works toward removing obstacles to market development; establishing standards and best practices to sustain growth in mobile marketing; and being an evangelist for the mobile channel. Marriott was previously director of marketing for Intrado, and the director of business development at Cyneta Networks and Cell-Loc Inc./Times- Three Inc. Senior Editor Eric Reyes asked her some pertinent questions about where mobile marketing is going.

ERIC REYES: What is the history of the MMA? When and why was it formed?

LAURA MARIOT: The Mobile Marketing Association was initially formed in 2000 as the Wireless Advertising Association (WAA), a New York-based nonprofit trade association. In 2003, the WAA and the Wireless Marketing Association (WMA), based in Europe, joined to form the Mobile Marketing Association. At that time, the MMA had only 10 member companies, which included companies like m-Qube, Mobliss, The Weather Channel, Carat Fusion and Vindigo. The chairman in Europe at that time was Cyriac Roeding, who is our current global chairman, and in the United States, Jim Manis. The MMA remained around 10 to 20 member companies until 2005. At the same time, mobile marketing, in the United States, began to take off – we had interoperability among the carriers, a short code system for ease of consumer experience and a supportable revenue model. The MMA also established four national chapters in Europe in 2003 to 2005 – Austria, Spain, the U.K. and France.

The key differentiator for the MMA is that we have representation from across the mobile ecosystem – working in a collaborative, trusted manner to educate the marketplace and build guidelines and best practices for the mobile marketing industry. Members include handset manufacturers, wireless operators, technology enablers, aggregators, media companies, brands, agencies, market research companies as well as any organization focused on marketing via the mobile channel.

ER: Last year was supposed to be the year mobile marketing hit critical mass. This year, mobile marketing still seems to be finding its way. What are some of the indicators that mobile marketing is continuing to gain traction?

LM: Absolutely right! The number of campaigns that we see launching has grown into the tens of thousands worldwide. Indicators in the United States include: short codes listed on traditional and digital media as an integrated element of the overall campaign. For example, on billboards, magazines, television, etc.; membership in the MMA doubling year-over-year since 2005; the number of award submissions in the MMA award program growing from just over 100 last year to more than 260 in the 2007 program; brands and agencies establishing mobile divisions and hiring mobile specialists within their organizations; mobile has become a line item in the advertising budgets of many very large brands; mobile is being integrated into not only the verticals that want to be in front of the consumer all of the time, i.e., financial services, travel, entertainment, CPG, QSR and automotive, but we are now seeing mobile move even into durable goods and other segments; the growth of text messaging in the United States, increasing from 7 billion a month in 2005 to over 30 billion a month in June 2007; and an increase in number of short codes – the 5- to 6-digit number which helps to facilitate ease of interaction between brand and consumer – issued on behalf of the CSCA has climbed to over 2,600 in 2007.

ER: What has mobile marketing enabled marketers to do better?

LM: Mobile marketing has enabled the brands to develop a conversation of engagement with their consumer – a dialogue about their products and services and a means to effectively measure and evaluate this dialogue. Mobile also enables brands to target their consumers, anytime and anywhere, through their most personal device: their mobile phone. Consumers are in the driver’s seat on encouraging and defining the interactions with their brand – wherever and whenever.

ER: Some say the real gold mine in mobile is m-commerce (to make purchases directly from your mobile device). What is the MMA doing to enable this ability?

LM: The MMA has established a mobile commerce committee that is working on guidelines for digital and physical goods transactions, mobile couponing/ticketing as well as other issues having an impact on the ecosystem. The goal is to always ensure a positive and consistent experience for the consumer.

ER: What do you do to help brands enter into and perfect their mobile marketing initiatives and campaigns?

LM: Education. The key so far has been helping to educate the brands on the role of mobile in their marketing initiatives – and how to integrate a mobile call to action into the overall integrated marketing campaign. The MMA publishes a broad set of mobile case studies, white papers, glossaries and so on, to help to educate on how to use the channel most effectively and to learn from the experiences of other brands that have tried before them. The MMA also runs Mobile Marketing Forums at www.mobilemarketingforum.com, which is our key event series to educate and evangelize on the mobile channel. These are held in every region around the world, four or five times a year and have become the premier event for mobile marketing.

ER: What do you do to help mobile marketers establish better customer metrics in their mobile efforts?

LM: The MMA has launched a measurement initiative, in June 2007, to define the metrics in a consistent manner for the industry. Measurement will be one of the key issues facing our industry in 2008. The MMA and the GSM Association are working together to ensure consistent measurement and metrics solutions for the industry.

ER: Does the MMA help establish best practices for mobile marketers? What are some of those practices initiated by the MMA?

LM: Yes; this is the foundation for the MMA – and we have been leading in the development of cross-carrier mobile content guidelines and best practices as well as mobile advertising guidelines since 2005. Current best practices/guidelines include: consumer best practices for cross-carrier mobile content services; mobile advertising for mobile Web; and mobile advertising for downloadables. The MMA has also published a number of best practices documents which include mobile couponing, mobile search, mobile promotions and sweepstakes, and so on.

ER: What does the MMA do to help streamline mobile search? Do you suggest standards?

LM: To date, the MMA has not suggested standards for mobile search; however, we have published two thought leadership pieces which include an introduction to mobile search and mobile search use cases, which outline the best practices and options for offering and evaluating a mobile search solution. These are published through the MMA mobile search committee and include the participation of leaders across the mobile ecosystem and our membership.

ER: Do you track innovations in mobile marketing strategies and mobile technology? How is that knowledge integrated into the mission of the MMA?

LM: Yes; the MMA is at the forefront of defining and participating in the initiatives which are helping to shape our industry – and works with our members to ensure we continue to self-regulate industry developments and stay in front of the trends. The MMA is an action-oriented association designed to clear obstacles to market development, to establish standards and best practices for sustainable growth, and to evangelize the mobile channel for use by brands and third-party content providers. The MMA has helped to guide the development of a sustainable ecosystem to ensure consumer privacy and protection is assured.

ER: What does the MMA do to fight mobile spam?

LM: Unsolicited messages, overall, are prohibited according to the MMA guidelines. The MMA guidelines ensure that mobile is always an opt-in experience for the consumer. This means no push-based campaigns – all consumer pull. The MMA also defines rules which prohibit the selling of third-party lists, so that the mobile channel does not experience the issues that we have seen in other digital media types. Our consumer best practices have become the base set of rules for messaging, mobile Web and IVR transactions in the United States, and have been integrated into wireless carrier contractual agreements so that all vendors in the ecosystem adhere to these guidelines. The industry has also launched a monitoring initiative which tests each short code campaign to ensure compliance against the consumer best practices guidelines.

ER: Is it difficult to convince brands of mobile marketing’s viability?

LM: Historically, there has been a belief that mobile is complicated. We encourage brands to first define their strategic objectives for their campaign and then determine which mobile solution will work best to achieve their goals. Once a brand starts their first initiative and sees the results, they generally continue to deepen their experiences with the mobile channel. Success rates in mobile have often been more significant than those you see in other media. The numbers speak for themselves.

ER: Are interactive agencies prepared to scale for mobile campaigns? If not, what do they need to do?

LM: Yes; 2007 saw a significant shift in how agencies are handling mobile. Many agencies have spun out digital divisions, i.e., AKQA Mobile, while others have ramped expertise internally by establishing mobile groups or mobile experts. In the early days, mobile was treated as a portion of the interactive business; for mobile to truly take off, it needs to be treated as its own business and own line item. Mobile is not the Internet. There are five very distinct media types within mobile, which include voice, downloadables, mobile Web, video/television and messaging. Mobile expertise is essential to ensure the media types are integrated effectively into a cross-media initiative. The other trend has been the development of a large number of mobile agencies in that companies are specializing in mobile creative and campaign development. These agencies are having a significant number of successes worldwide. A proof point of that success was Omnicom’s purchase of mobile agency, ipsh!, in 2006.

ER: Is there a difference in best practices standards between the U.S. and the rest of the world? Is there a push to get the whole world to practice the same standards?

LM: Yes; every market has its own regulatory and legal considerations which need to be considered. The goal of the MMA is to develop global guidelines, where possible, regional guidelines where necessary and local as required. A global brand is looking for ease of market entry when they are launching a program, and consistency is key. Many campaigns today already cross regional and local boundaries, so a consistent set of guidelines is ideal. Perhaps the best example is the mobile Web advertising guidelines which have been launched by the MMA. There is consistency in formats and creative across NA and EMEA – and the hope is to bring the APAC guidelines to the same formats by early 2008. The MMA has also published a global code of conduct which protects the consumer’s experience, privacy and protection being paramount.

ER: How is a successful mobile marketing campaign measured?

LM: Today success is generally measured by interactions, but these have varied according to operator and vendor. The MMA has a measurement committee working to define a consistent set of ad currencies, reporting criteria and cross-media effectiveness measurement in order to gain the best insight into mobile.

ER: How is the consumer being enticed to view mobile marketing?

LM: Mobile has become an integrated element of traditional and digital campaigns today. Mobile promotions and sweepstakes have been driving interactions with the consumer particularly through participation TV programs like “Deal or No Deal” or “American Idol.” Providing the consumer with exclusive information, coupons, opportunity to win, etc., have all helped to drive the interactions between brand and device. And, the consumer is receptive.

ER: Do marketers need new models to gain mobile marketing success? How does the MMA help to discover these new models?

LM: Initially, brands were repurposing content from other media for mobile, and while this does work, creative made for mobile content and solutions is key to long-term success. MMA research has shown that consumers are most interested in interactions that deliver information exclusively to them on their device, information that they cannot get through any other channel. The MMA helps brands by sharing case studies of what has worked successfully in markets around the world.

ER: What does the MMA do to help streamline the total mobile Web experience?

LM: Education is key. Reach is currently an issue with the mobile Web, so educating brands and consumers on how to use their mobile device will be critical to long-term success. Operators play a key role in encouraging mobile Web adoption by providing attractive data packages and compelling content to help encourage consumer adoption.

.mobi for All

Neil Michel bought .mobi top-level domains as soon as they were available without consulting his bosses. As eMedia Director of Prosper magazine in Sacramento, Calif., he saw it as his duty to claim ownership of the mobile domain names before anyone else could capitalize on the company’s brand name. He managed to snag ProsperMag.mobi and ProsperMagazine.mobi but not Prosper.mobi.

“At the time I registered them, no one knew .mobi existed,” Michel said. “I just did it and told [my bosses] we did.” The .mobi names went on sale on September 26, 2006, but only recently has awareness of the top-level domains become more pervasive. But even as the domains are being registered, there is still some doubt about their relevancy in an iPhone world where the full Web-browsing experience is finally coming to the cell phone.

The .mobi (also known as dotMobi) company is the informal name of the mTLD Top Level Domain firm appointed and approved by the Internet Corporation for Assigned Names and Numbers (ICANN) and is backed by mobile operators, Internet companies and device makers with investment by companies such as Ericsson, Google, GSM Association, Hutchison, Microsoft, Nokia, Orascom Telecom, Samsung, Syniverse, T-Mobile, Telefonica Moviles, TIM, Visa and Vodaphone.

While the idea for .mobi domains was a Nokia brainstorm that dates back to 2000, it wasn’t until March 2004 that 10 companies signed on to a .mobi consortium. In July 2005, ICANN approved the top-level domain and in May 2006, select big brand companies were invited to buy their domains before this was open to the general public.

A typical .mobi website is supposed to be formatted for easy display on a mobile phone. That means, in most cases, simple text, few if any graphics and content that is in an easy-to-read summary form. Ads can be placed in a .mobi environment – sometimes as a page before the content, sometimes placed between pages of content. More image-friendly banner ads for .mobi can be employed, as advertisers CNET, The Disney Channel, Zagat and the wildly popular “High School Musical” have done.

Michel says that buying the domains is “nothing – developing it is another story.” And that seems to be the hang-up right now with the .mobi explosion. While around 700,000 .mobi names have been registered so far, people like Michel are developing them for a very slow rollout. In the case of Prosper magazine, the publication in the last year redesigned its print magazine and its website and went through a hiring spurt before they could even think about their .mobi properties.

Finding Mobile Footing

Their .mobi dilemma is a case study in grappling with a .mobi strategy that fits in with a company’s overall business plan and vision of what they want to deliver to their customers versus what can be monetized over .mobi. “The game is changing under our feet,” Michel says, “because of the new more realistic browser experiences coming from the iPhone and others like it.” He wonders if the iPhone will allow them to do something in a more traditional Web browser environment, or if it would be better to cater to the 200 million handsets in America that may have limited browser capabilities.

Since Prosper is a regional magazine aimed at the Sacramento Valley area at large, Michel wonders what will be valuable to that audience in a mobile environment. It won’t be a 2,000-word article, he says. Plus, Prosper’s main website has a lot of video on it. “In a handheld, the video is a joke,” he says. “We can’t put our video into the .mobi domain.” In terms of mobile advertising, they are focusing on the mobile ad banner for now. “Until advertisers themselves have a .mobi strategy, we don’t have anything.”

Some mobile commerce networks are glad .mobi is around but don’t see a huge impact on their business yet. Dan Wright, CEO of mobile commerce portal mPoria, sees visibility gaining. “If the retailer sees value in .mobi and the customers do, then it does impact our business,” Wright says. He adds that “a good portion of our merchants are using .mobi. If they ask us if they should use it, we say it certainly is good to have. At least you can be found on mobile.”

Wright says that right now mPoria powers m-commerce sites on the mobile Web to help them sell their stuff. They provide the front end and the back end and the hosting for the sites. Medio is their mobile advertising partner. Wright says mPoria has seen 300 percent growth quarter-over-quarter using their current model, and that if .mobi helps their merchants’ marketing, “then that’s good for us.”

On the software side, some companies are still trying to decide what the mobile customer prefers. GoWare, makers of custom software for mobile publishers, perceives a disconnect. Jason Thibeault, CTO and co-founder of GoWare, says that “among mobile software providers that are dedicated to the mobile Web, there is a big disconnect. There are a lot of different Webs right now. The desktop user is very comfortable but the mobile Web user wants quick, efficient access [to content].”

He says that while .mobi is still in its infancy, GoWare is doing its best to integrate coupons and ads into a .mobi platform. “We are getting the targeted marketing messages to your mobile phone,” he notes. Yahoo, he says, is just serving banner ads. He wonders, who wants a banner ad in a .mobi environment? Thibeault believes .mobi is not visible enough right now. “The content sites are not sure they want to commit the research – not to the .mobi bandwagon right now.” He says he knows a lot of sites that are using their main top-level domain to serve up their mobile websites and not conforming to the simplicity of presentation the .mobi Web would seem to promise.

The folks at .mobi itself are proactive in their quest to put a spotlight on the possibilities of the domain. James Pearce, VP of technology at .mobi, thinks that as far as Web relevance, .mobi prevails even now. “A lot of people are not brave enough to type in an arbitrary dot-com Web address because the content will be irrelevant to them when they’re out and about with their phone.” He’s convinced .mobi will be automatically relevant and faster no matter what kind of browser your phone has. His current mission is to make .mobi part of the “consumer vernacular,” because he admits to a certain chicken-and-egg conundrum at the moment where content needs to be built out ahead of the platform but marketing it will be needed too.

Going Mobile

Mobile ad networks such as start-up AdMob are seeing tremendous growth without customizing for .mobi. They showed more than 1 billion mobile ads in just 28 days last summer. Companies such as AOL and Microsoft are acquiring mobile ad companies to add to their offerings. Microsoft is also expanding its mobile search efforts in a partnership with Sprint to allow easier Web searches on mobile phones.

And while developing for the .mobi experience on phones has been seen as a complex ordeal, executives at .mobi have also been proactive in quashing rumors about the new domain. Various blogs have dismissed .mobi as nothing more than a way for .mobi investors to get more money. The rebuttal: Investors are building out platforms and tools but it all takes time because huge companies such as Google don’t turn their product life cycles on a dime, and many initiatives inside these big companies are pretty confidential until launched. New tools are available at the dev.mobi site and they are pushing their mobile phone database and a content directory.

Others complain that .mobi is not releasing their premium brand and generic names to buyers yet so they can drive up the prices. In fact, the first load of premium names went on sale in September and the schedule was always to sell those names on the one-year anniversary of .mobi in bursts from September to January 2008. Some have said that waiting too long to auction those names has hurt the .mobi market, but executives at .mobi state that they always had the “long-term view” in mind, and essentially waited for the good content-making tools to be released. In fact, Google recently announced the launch of AdSense for Mobile, a campaign to encourage ad placement for sites designed specifically for mobile phones. Yahoo and AOL Time Warner have similar mobile- centric ad networks.

As far as the criticism that too many .mobi sites are still dark, it is true that parking pages are out there (the ProsperMag. mobi page is still unfilled), with about half of the .mobi registered names still not hooked up to DNS servers, but real sites are coming live every day. The .mobi people say they also provide free tools to help content get live as easily as possible. They say that there are about 5 million pages indexed on Google with .mobi addresses. They add that big brands such as ESPN, BMW, BusinessWeek, Amtrak, AAA and Fox News, to name just a few, all have .mobi presences.

.mobi’s Pearce indicates that with the high profile of the iPhone, the realities of surfing the Web on your phone look more attractive. But he cautions that it’s the diversity of handsets that is holding developers back. And while the iPhone’s browser is a full browser, the network is slow and won’t get any faster until sometime later in 2008 when the phone is likely to be 3G-ready. Yet the idea of a “cool” Web experience on your phone is largely due to Apple’s product. And while Apple sold 1 million iPhones in its first three months of selling, that’s still a far cry from the 200 million-plus handsets in use in the U.S.

Some detractors have also stated that the need for .mobi is completely unnecessary because sites can detect whether a Web page is being called by a phone (and in some cases what brand of phone), and serve up a more mobile-friendly dotcom landing page especially designed for handsets. The folks at .mobi argue that if dot-com domains fulfilled every surfer’s demands there wouldn’t be any need for .org, .it, .de, .fr or .biz.

For those in a quandary over whether to .mobi or not to .mobi, there is a .mobi Advisory Group that is independent of .mobi the company – financially and agenda-wise. The group gathers feedback and suggests initiatives to .mobi developers. Currently they are looking at such issues as mobile advertising, PPC, mobile commerce, browsing, mobile email and the mobile Net for developing countries.

Pearce says that since operators are beginning to flatten their tariffs and open out the access, the stage is set for the “culture, sites and services” over .mobi to explode. “We’ll look back on this as the time the mobile Web found its feet, like in 1997 when flat tariffs enticed a mass of content onto the fixed Web.”

In the meantime, Prosper magazine’s Michel has until December to ready a .mobi site to be part of an Apple demo, and appreciates the deadline pressure.

Ringing IN and Hanging UP

In the old days, a telephone came in two designs and had one ring. With the rise in cell phones, the styles are endless and so are the types of rings you can make the phone chime. There are master tones, ringback tones, polytones, monotones and they all have a price. Users can download them over the Internet and program a ring to sound only when mom or that special someone calls. Users can also send a ring out to someone to let them know who is calling. But they aren’t cheap – as much as three times the cost of one hit single from iTunes. But that hasn’t stopped people from buying the tones in droves.

The music industry loves that users will pay a premium for the 30-second melodies and still come back for more. What the industry doesn’t like is the Florida Attorney General office, which has it in for certain ringtone sellers over the Internet. Whether or not Florida officials can make a civil case for deceptive practices, the damage is done. When sites such as Blinko.com, Jamster.com and DirtyHippo.com are accused of bait-and-switch tactics by offering supposedly free ringtones that are not free, every ringtone seller over the Internet takes notice, as do consumers.

Ringtone affiliates, sites that sell ringtones and networks with ringtone sellers in their lineup are all concerned about the black eye a few misbehavers are leaving on a growing sector of the digital music revolution.

“No reason for one very bad apple to ruin it for everyone,” Steve Richter, president and general counsel for Media Breakaway, says. Media Breakaway owns CPA Empire, a network that was at the center of a ringtone firestorm a few months ago when it was discovered that an affiliate’s website offered free ringtones when, in fact, they were not free (the free tones only came with a paid subscription). CPA Empire noted that within an hour of identifying the affiliate’s website, it was pulled down. “We had no idea that this was running,” says Richter. “We took a pretty severe action against this affiliate. Any of our affiliates that are discovered to violate our terms and conditions, we take action immediately.”

Tarnished Reputation?

Matter closed. Or so it would seem until another online network is targeted. The coverage this issue has received sheds light on the power a few individuals have on the whole reputation of a budding digital music phenomenon and how hard it will be to police the vast reaches of cyberspace.

“It’s a highly competitive market and a burgeoning industry,” says David Haverly, senior executive, Mobile Vertical, at MIVA. “It’s very hard to break through.” He says that, “technically there are no free ringtones. But websites must be clear that to get the free ringtones you must buy a few; say 10 or more.”

That is what caught the attention of the Florida authorities. The alleged bait-and-switch tactics – when a seller never intends to sell consumers the advertised thing so that it can sell them a more expensive other thing – are pretty much illegal in most states. In the case of Florida, its civil investigation means that the upshot will probably not lead to criminal charges for the companies under the microscope, but can lead to accusations of fraud, which means if someone wants to sue the companies, they could have a pretty good case.

“The content provider industry has guidelines to not blur what they are getting,” says Haverly. “Sometimes, in fine print you see that if you sign up, you get the free ones.

Our goal is to give a quality experience. We have to say when an affiliate is not clear.” With a ringtone affiliate reaping as much as $15 for every new customer, the incentive is there to cut corners.

If more investigations in other states are opened, the reputation of all of digital music sales over the Internet could take a beating at a time when the ringtone market is at an all-time-high. Revenues for ringtones have more than doubled year-over- year, says JupiterResearch. Ringtones brought in about $420 million in 2006 and JupiterResearch predicts the pot will grow to $724 million by 2009. In 2005, more than 24 million people downloaded ringtones to their cell phones; that’s about 13 percent of cell phone users, according to eMarketer. IDC predicts that more than 54 million people will download a ringtone by the end of this year.

An Alternative for Record Companies

For the record companies, this is good news in the wake of its falling sales of music CDs since 2000. When Nielsen’s SoundScan launched the tracking of mastertone sales in December of 2006 (mastertones are portions of the original recording, whereas polytones are just the melody played by usually a keyboard. SoundScan has tracked polytones since 2004.), the numbers surpassed the sales of single-track songs, and in many cases at three times the price. When the first polytones numbers arrived in 2004, Geoff Mayfield, director of charts at Billboard, has said he was “floored.” The ARC Group in London has predicted that global sales of ringtones will surpass $5.2 billion in 2008 – that’s more than 10 percent of all digital music sales. Internationally, the numbers are equally big. The Wireless World Forum estimates there will be 28 million Indians under the age of 24 with cell phones by the end of 2007, and nearly 15 million in the U.K. That spending on ringtones comes to $23 million by the end of this year.

Also, with artists and their labels pulling in less from pure CD sales, other means have to be explored – such as ringtones. David Bowie was one of the first to release unique music to subscribers over his Bowie.net network. Some artists are dipping their toes into ringtone-only releases. Snoop Dog releases ringtones on his website, to name just one artist. “[CD] sales are so down and so off that, as a manager, I look at a CD as part of the marketing of an artist, more than as an income stream,” artist manager Jeff Rabhan recently told The Wall Street Journal.

Yet some vocal affiliates continue to be wary of the return ringtones offer. One forum poster stated that “I really don’t trust most of the merchants that offer ringtones; their websites have that spyware feel.” He also stated that he had “recently checked my stats and I had a measly amount, which was less than the meager $10 I made last year.” Other voices on the Internet second that sentiment. “Making money with ringtones has never worked for me,” a forum entry states.

“I’ve tried the high-paying offers; I tried the low-paying offers. I bought ads with PPC through AdWords and AdBrite and still lost money.”

In the short term, affiliates say, the term “free” always gets a higher place in a search engine result and that alone will make it hard to rid the ringtone universe of the “few bad apples.” One affiliate states that “this is actually good for some of the little ringtone affiliate players out there like myself. I always hated complying with the [terms of service] by removing the terms ‘free, no cost,’ etc., from an ad when my competition clearly wasn’t following suit. Makes it a little harder to compete and slims the margins up for a lot of markets.” Another says “all these guys are at the top of search results because their ads get much higher [clickthrough rates] than publishers that are doing the right thing and are staying away from using the word ‘free.'”

Leads from ringtones are also at an all-time high, offering no incentive to “fly by the rules.” Some affiliates in 2006 generated as many as 1 million clicks and 100,000 leads through ringtone keywords. The payout per lead has fluctuated anywhere between $5 and $15 per lead.

The Search Effect

The continued battle for high-ranking ringtone search results has had an impact. Antivirus maker McAfee rates the keywords “ringtone” and “free ringtone” in the top 10 of the most dangerous search terms to use, just after “free screensaver (per chart pg. 62)” and “Kazaa.” Clicking through to sites resulting from these searches is more likely to send the user to questionable sites or install adware or spyware, McAfee states. One of the most popular “scams” is a “free” tone site that checks a terms of service box for you when you enter your phone number. The terms of service state somewhere that you agree to a subscription price to receive the free tones. When users try to uncheck the box, they can’t.

Some ringtone affiliates have said that when they use Yahoo Search Marketing, the titles and descriptions in the ad are sometimes changed to what Yahoo Search Marketing perceives is still an accurate description. The affiliate may bid on the term “free realtone” but submit copy that leaves the “free” out. Then Yahoo Search Marketing will reinsert the “free” since that was in the keywords they bid on. The affiliate doesn’t see the change until it gets served up. In some of these cases, the affiliate will immediately cancel the campaign when they see the mistake. Sometimes, not.

Other questionable techniques include using a ringtone company’s images and logos to build a unique landing page that goes to a completely different destination when consumers go to sign up. Some advertise MP3 ringtones that are, in fact, lesser monotone files.

Ron Czerny, CEO of PlayPhone, has had experiences with bad ringtone affiliates on his network. “We are very active,” he says. “We are constantly monitoring our affiliates. We take action in 24 hours if we find bad apples and we will report them to the carriers.” The cell phone carrier may pull their short code, he says, which means that the connection between the affiliate’s ringtone servers and the customer will be cut off. “This kind of thing happens in all entertainment areas,” says Czerny.

Government Intervention

It happens with piracy in movies and music, he says, adding that the slowdown in ringtone sales in Europe in 2005 and 2006 was because of “bad customer experiences” with fraudulent ringtone sellers. What was done in a lot of European countries was the carriers imposed regulations that sellers were required to meet before they could sell ringtones. Czerny says the market over there has bounced back.

“[Regulation] is not going to happen in the U.S.,” he says, “because companies like ours are taking that right action,” adding that the bigger companies have a stake in making it work. He says that consolidation is playing a role in weeding out the troublemakers. “We will see consolidation in the top 10 businesses,” he says. “A lot of small ringtone companies are using the backbone of larger ringtone companies and are just simply giving up.” He says the larger market will be in China. Brazil and Mexico have proven they have many willing to pay for tones. Innovations, he says, will come in the way people share the ringtones and not in the tones themselves.

As with the online lead generation industry, the perception and the practice need to mirror each other. The top online lead generation firms formed an association last year to help monitor their industry and set guidelines. Currently, ringtone sellers want to keep the market unregulated. “You must have communication with the network,” says MIVA’s Haverly. “We schedule weekly calls with some of the affiliates,” so that the lines of communication are always open. He adds that if a drugstore runs a two-for-one ad for aspirin but you have to pay full price if you want Excedrin, is it a misleading ad? Does the fact that it might be perceived as fraud warrant the government or the cell phone carriers to step in? Who is going to make the judgment call?

PlayPhone’s Czerny says the government will not step in. “It will not come to that.” Richard Jesty, an analyst at ARC Group, states that ringtone sales will also see a slowdown in the U.S., but not because of fraud. “Over time, the novelty will wear off, but not yet.”

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 del.icio.us 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 CostPerNews.com. “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 MySpace.com 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 PayPerPost.com 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 ZDNet.com, 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.”

Redemption

It all started with Asa Candler, a “prescriptionist” in Atlanta 112 years ago. A modest pharmacist who dealt in tonics and medicines, he bought an unassuming recipe for a patent medicine called Coca-Cola. When he gave out handwritten slips of paper for customers to try the new drink for free, the coupon was born.

The simple yet brilliant marketing idea Candler conceived has, of course, become a staple of American shopping. During the Depression in the 1930s, grocers fell in love with coupons as a way to attract needy families into their stores. And when the supermarket took over and coupon redemption became easier in the 1960s, half of all Americans used coupons. With the advent of the freestanding insert, or FSI, in the early 1970s, reams of colorful and enticing coupons came with the country’s Sunday newspapers.

As expected, the coupon migrated to the Web and even with technology laying the pavement for better distribution and security – it is still a work in progress. Online coupons are busting out all over but they aren’t as big as you might think. The world of couponing has survived the digital age so far and has made some unique advancements, but there are still challenges ahead.

Coupon distribution continues to prevail. In 2005, U.S. coupons set a new record of 323 billion coupons distributed, the first year to pass the 300 billion mark and a nice jump of 9 percent over 2004, according to CMS, a coupon-processing firm. CMS also states that the redemption rates of Internet coupons rose from .59 percent in 2004 to .96 percent in 2005. That may seem like a small amount but it’s a big jump for a fledgling coupon vehicle. Overall coupon redemption rates hover between 1 and 3 percent year-over-year.

While some analysts have forecasted the death of the paper coupon in as short a span as five years, the trends don’t seem to reflect that. Yes, more people are using the Internet to gather coupon codes to buy from websites instead of clipping an FSI and walking into a store – but those numbers are a very small slice of the coupon pie. A resounding 88 percent of redeemed coupons are FSIs, snipped from the Sunday edition of your newspaper.

Still, some are confident that the paper coupon will disappear sooner than we think and that coupons delivered via email or to our cell phones will dominate. “Young marketers are leading the way toward eliminating the paper coupon,” says marketing strategist Peter Sealey, CEO of The Sausalito Group.

Precision Targeting

For now though, only a small percentage of redeemed coupons come from online. But the upside is that online couponing – whether via a coupon code, printable coupon or emailed coupon – is able to reach a more precise target than the traditional FSI. In fact, recent redemption studies have borne out that Hispanic coupon users redeem at higher-than-average rates. Therefore, coupon distributors are finding ways to hit the Hispanic market with coupons via cell phone (Hispanic households use more cell phones than the general population). Sealey says the benefit for marketers is that they “can target people who can actually afford to buy a Porsche.”

The efficiency that technology brings is seeing immediate results in the online coupon world. Coupon networks, for example, use technology to help with everything from RSS feeds of coupons to organizing all their expired online coupons. But even then, the technology doesn’t get in the way. “We like to call ourselves a document security company,” says Steven Boal, CEO of Coupons.com, a network enabling printable online coupons. He says that proclamations of the death of the paper coupon are greatly exaggerated “for a very important reason. Because I print paper coupons – a business that has been around a long time. Up until three years ago it hadn’t changed much. Does it change? Yes. Small percentage shifts in this business move huge dollars.”

His Coupon.com platform runs on more than 3,000 affiliate marketers’ coupon websites and some of the most high-profile coupon websites use his company’s back end, including Yahoo, Boodle.com, NBC.com, SmartSource.com and other coupon sites in the U.S., U.K. and Australia.

It’s true that coupon redemption rates dropped 6 percent in 2005, but as mentioned, distribution rose sharply. What’s at issue isn’t that fewer people are using coupons but that products that wouldn’t otherwise be sold are selling, according to Matthew Tilley, director of marketing at CMS. “Consumers just aren’t responding to coupons at the same rate that they used to, but that hasn’t really dampened marketers’ enthusiasm for them.” He affirms that high redemption rates are not the goal, but that “moving more product than you would without promotion – but at an efficient cost – is really the goal.”

While the big online coupon networks can scale for brands, smaller affiliate marketers have also been able to take advantage of the interest in online coupons. Popular sites such as Amazing-Bargains.com, CleverMoms.com, Fabu.com, Shopping- Bargains.com and FlamingoWorld.com have all seen great success with their coupon sites.

Much like product affiliates, coupon affiliates must track the newest offers, post them, bring down expired offers and make sure the link goes to where it is supposed to – but do so on a fairly grand scale every day. Too often the monthly offers inundate the affiliate on the first of the month, so that (if he or she works the website alone) it could be two weeks before a coupon is posted.

“I don’t know how they do it,” Michael “Mikey” Yack, founder of FabulousSavings and Fabu.com, says. He built his coupon sites from the ground up, too, but now has 30 employees. He doesn’t do code anymore. “I’m on the phone with my merchants all day,” he says. That’s the only way he can up the value of his coupons. “Once [merchants] know you’re legit, they throw you more.”

Fabu.com is also a site that employs rather sophisticated methods to keep it all together. Yack says his team writes original product descriptions and uses automated software to take down expired links. Other technology involves automatic rotating codes to avoid inviting other affiliates to cut and paste Fabu links on to their sites. He says his exclusive link with Toys R Us changes every 18 hours so that a stolen link will no longer be good after a brief window of time. All his expired coupons switch themselves out automatically.

Technology: The Good and the Bad

Link stealing may be the biggest pet peeve of the online coupon affiliate community. And while it does occur, some affiliates and networks work with it as a nuisance. Others complain that merchants aren’t doing enough because for them it just means broader distribution. The other pet peeve is that some merchants tailor coupons just for affiliates and create other deals for all the other channels they sell in. Affiliates fear the better deals may be going to the other channels.

“There are many things low-quality coupon sites do that are deceptive,” wrote Michael Coley, founder of Amazing- Bargains.com, in a Web forum. “While these things may temporarily increase their [clickthrough rates] or sales, the long-term effect is that they lose customers. Who would go back to a site that they knew was deceptive, and what merchant would want to keep working with a site that was deceptive? Their antics backfire in the long run.”

For couponers who have been at it for a while – like any Web venture – adaptation is the watchword. “Technology is always changing and those who survive must change with it. Web services, RSS feeds, JavaScript, storefront generators, XML and other delivery tools are making it easier for coupon sites to maintain current content. However, much of the, heavy lifting remains manual for those who want to offer unique content and features,” Mike Allen, president of Shopping-Bargains.com, says.

The potential for technology to take more of the sting out of couponing online has generated more than a few companies ready to cash in on new platforms. RSS feeds for coupons have been a boon to companies that do it, such as CouponBar.com, DealoftheDay.com and PhatDeal.com. Couponing from cell phones is the next area of interest for some. Companies such as Cellfire, MoBull and Quickpons are startups that just deliver coupons via cell phones. And they are already getting buzz. Redemption rates for mobile coupons are very high – at about 23 percent – mostly because cell phone users opt in to receive the coupons or must register or download a piece of software to the phone to participate.

Allen thinks this will undoubtedly drive the mom and pop out of business. “Coupon sites,” he says, “have become mainstream businesses. All the major players have recently undergone extensive revisions, technology upgrades and aesthetic enhancements to better compete in what is now a very sophisticated and fast-moving marketplace.” He says that what was once “amateur or hobby categories” are now sites that can be called brands on their own. The larger the main players become the harder it will be for small affiliates to keep up, he says.

Boal of Coupons.com thinks the future is Web services and mobile. “We took our time with mobile,” he says. “We didn’t make it so difficult.” They waited until they figured out a way for everyone to use it instead of only customers with certain cell phone brands.

CMS’ Tilley outlines what keeps coupons hot. The face value of coupons has risen about 9 percent while product price inflation has risen only about 2 percent. Coupons that require multiple purchases are down, but their response rate is up. For nonfood products, shoppers are 30 percent more likely to use a buy-two coupon than a discount on a buy-one. For food, the buy-four is more popular than the discount on one item. And for both categories overall – food and nonfood – shoppers are 49 percent more inclined to use buy-four than a buy-three or a discount on one. And while coupons redeemed has slid from 3.9 billion coupons in 2001 to 3 billion in 2005, traditionally coupon redemption drops in a good economy.

What’s In Store?

The in-store coupon is also becoming very popular. About a third of redemptions now come from the in-store instant savings coupon or offer. Tilley says packaged goods marketers plan to migrate up to 20 percent of their coupon campaigns to online by the end of this year.

While some retail affiliates wouldn’t dream of dealing in coupons, some couponers like Allen simply think it’s harder to be a retail product affiliate. “General coupons are easier to deal with than many specific retail products,” he says. “Why essentially recreate the retailer’s website on your own? It’s not good for organic search and most affiliates don’t have the resources to do all the split tests and so forth needed to optimize product layouts for multiple retailers. Why compete with what they do best?”

Fabu.com’s Yack has a real simple and direct assessment. “We’ve been working on Fabu for nine months. I have ads in 180 newspapers; I have three publicists. A lot of these sites still look the same as if they came from the wayback machine. I built Fabu because times are changing ” and I’m getting paid for having a link on my site – how crazy is that?”

Guiding Lightly: Q & A with Anne Holland

Anne Holland is the president of MarketingSherpa, which aims to help marketers advance by sharing real-world marketing data and hard-won lessons. The Rhode Island-based company publishes a wide range of metrics guides, buyer’s guides and how-to reports, as well as a 500+ case study library. Prior to founding MarketingSherpa in 2000, Holland spent 20 years in publishing. She also served as the head of marketing for Phillips Business Media – a $100 million publishing company where she helped launch one of the world’s first profitable subscription sites in 1995 – and the trade publications Interactive Marketing News in 1994 and min’s New Media in 1995. Started in Holland’s spare bedroom, MarketingSherpa was recently acquired by marketing research firm MEC Labs out of Atlantic Beach, Florida. Revenue Senior Editor Eric Reyes asked Holland about her company’s role in moving marketing forward and what lies ahead for the performance marketing space.

Eric Reyes: What was the genesis of the MarketingSherpa idea? How did you perceive the need?

Anne Holland: Before I led MarketingSherpa I was a marketer myself, so I had a pretty good gut-level understanding of what marketers needed that wasn’t being provided by research firms or publications. However, that doesn’t mean I trusted my gut! Instead I toured the U.S. and U.K. for about six months, asking marketers themselves what information they really needed to do their jobs more easily and/or with better results. The final company – MarketingSherpa – was built directly from those suggestions. Turns out our target audience wanted lots of case studies, benchmark data, creative samples and how-to instruction at a practical yet advanced level. So that’s what we provide. We still tour regularly as well as surveying and talking directly with customers weekly to keep on track.

ER: Can you outline your inventory of content – how much is available and how has it grown?

AH: There’s a lot! Basically it breaks down into three areas – all of which are created by research and reporting teams in-house here (we don’t accept contributed content).

  • Case studies and how-to articles – based on hour-long interviews with actual marketers. We delve into what worked, what didn’t, what the data was and include creative samples. We’ve got a library of thousands of these, searchable by tactic and by company/brand name. They’re all exclusive.
  • Benchmark guides, buyer’s guides and tactical handbooks – based on research into what’s working for real-life marketers. We survey tens of thousands of marketers every year, and profile hundreds of consultants and vendors. These 200- plus-page reports come in PDF for instant question answering, and we also ship a printed-and-bound copy to every customer for easy reference.
  • Summits – every year we hold three big summits for marketers: in New York, San Francisco, Boston and a fourth city (next year it’s Miami). The topics include email marketing, selling subscriptions to Internet content and B-to-B demand generation. Naturally our summits feature loads of peer-presented case studies and new data.

ER: Now that MarketingSherpa has been acquired, what will change for you and the company?

AH: Pretty much since day one, there have always been a lot of people who wanted to buy us out or invest in us. I held out for seven years because I wanted our growth to be driven by our readers’ needs, not some board of investors. Every six months I take a few days to step back and review the progress and future of the company. When I did that this past June, I realized it had gotten too big for me to handle alone anymore. It’s a common fate for an entrepreneurial- driven company. You grow it as big as you can and then you hit the ceiling of your own desires and abilities. I wasn’t born to administer this fast-growing multi-million-dollar organization. I was born to research, write and keep in touch with the needs of the readership.

So that’s when I started looking for a new corporate parent for Sherpa. The goal was to find someone who would understand and appreciate our readers and our mission, plus appreciate the great team of employees and researchers we’ve built – not just someone who would wave a bunch of cash at me. By finding the right buyer, in effect I was hiring Sherpa’s new boss. Several organizations were in the running – after carefully interviewing several of them, I chose MEC Labs based on fit.

They are a research firm that partners with folks such as The New York Times to conduct experiments on live campaigns to discover what works (and what doesn’t) in marketing. We are a research firm that partners with our 237,000 readers via surveys and studies to discover what works in marketing. Culturally the fit works too. We are all fairly intense, hardworking people who also like the ocean. Their headquarters are on the beach in Florida. Our headquarters are about a block from the beach in Rhode Island.

MarketingSherpa won’t change much – aside from continuing to grow and serve our readership even better. We’ll just have even stronger corporate leadership to allow us to reach bigger goals and do some pretty amazing research projects. On the personal side, I’ll still be here. Only instead of being stuck in meetings with accounting, HR and IT, I’ll get to focus all my time on the things I really love – research, writing and the art of marketing. And, maybe a little more time to walk on the beach.

ER: What are some of the most important goals you have for MarketingSherpa next in the 12 to 15 months?

AH: Keep her on a steady, focused course. It’s easy to get overwhelmed with expansion opportunities, or to let success go to your head so you do crazy things, launch big new ideas that don’t hold to your core business. I’m an idea person, so it’s probably toughest for me. But our big idea is No New Ideas.

Aside from that, you’ll see several launches that have been enormously researched and several years in the making, the biggest of which is our upcoming membership site launch. At the base, it simply means instead of paying $5 to $9 per article every time you want to read something, you can pay one flat annual fee. Convenience is a wonderful thing. There are also some new features – but the dev team will shoot me if I talk too soon. Watch for December-January and you’ll begin to see.

ER: Are there industry segments that MarketingSherpa is not currently focusing on but would love to get into, and why?

AH: We set our course for a very specific marketplace from day one, and it’s a darned big one that will take us many more years to serve completely. Our chosen marketplace is marketing professionals (including advertising, PR and online) in corporate America at the manager to VP level. That’s about 140,000 marketers. We also serve the consultants, agencies and vendors who serve marketers. That’s about 10,000 folks. So it’s a total market of 150,000.

ER: How much effort is dedicated to the affiliate marketing space by MarketingSherpa ? And the performance marketing space? And do you see that changing in the future?

AH: We cover affiliate and performance marketing from the point of view of the merchant or brand-side marketer. That’s who our reader is. Although many affiliates also read us, they aren’t our target audience. So, for example, the affiliate marketing team at eBay reads Sherpa, but most of their affiliates probably don’t ” and that’s fine with us.

Our coverage in the spaces is decided by the input of our readers – they tell us what they want us to focus our research on and that’s where we go. I personally would like to cover affiliate marketing a bit more than we do, but for many of the merchant-side marketers, it’s just not all that critical to their jobs.

Often an e-commerce or lead generation site will have one marketer who is responsible both for affiliate and also managing SEM. That’s crazy – too much work for anyone to do well. But that’s the way it is. We try to educate marketers via our annual Affiliate Marketing Special (now in its fourth year) every January and other studies such as our Ecommerce Benchmark Guide. Many, however, many, especially in consumer software marketing online, are not there heavily yet, if at all.

ER: What are the next two or three things you think will turn Internet marketing on its ear?

AH: Frankly, I don’t see much changing over the long haul with the exception of a lot more mobile activity in the U.S. (at long, long last) and of course video, video, video. I’m sure what we’re going to see next is a lot of “shovelware” video [sticking your TV ad online], badly measured corporate podcasts and way too many text-voting entertainment campaigns.

If mainstream off-line marketers – the giant retail chains and consumer packaged goods firms – could easily measure Internet activity against their off-line sales, then you would see the world change. The biggies still spend single digits online. Bear in mind, all of SEM spending for this year is less than everything spent on promotional products such as embossed pens and T-shirts given out as marcom. We who research Internet quite a bit tend to forget how incredibly small the spend still is compared with other vehicles.

In the meantime, the real focus that every marketer should be spending their time and money on is not what’s new, but rather, how to make the old stuff work better. Our data show that if you just improve the copywriting on your site a tiny bit, your conversions leap up. Copywriting! That’s as old-fashioned a tactic as you can get. True success is about testing the basics.

ER: You do a lot of public speaking gigs and you also conduct many of the interviews for case studies. Is there one facet of your job you prefer, and why?

AH: My job has really evolved as the company has grown over the past seven years. Research is now run by our research director Stefan Tornquist and his team, while editorial is run by editorial director Tad Clarke and his team. We also have teams running summits and memberships. These days I’m doing less research and writing myself and far more leadership. So I get to attend departmental meetings and guide the company as a whole. I miss the old days when I was chief cook and bottle washer ” but now we have so much more capacity to serve our customers’ needs. So that’s a delightful thing.

Now my favorite things are speaking about new research studies (it’s so fun to say, “Hey, here’s info marketers are yearning to know – let’s go get it!”); speaking at shows, especially when I get to meet readers who have ideas about research studies or stories we should cover (many of our best case studies come from me meeting folks on the road); and once a week personally conducting a marketer-side interview for a story I or one of our reporting staff might write.

ER: During many of your talks you give real-life Internet shopping examples of good and bad things that you’ve encountered. How many of those incidents spark research on that topic?

AH: Actually events often spark our research because attendees will ask great questions… . Those questions drive the research. I’m way, way, way too close to the research we’ve done and the marketing world to know what marketers really want to know.

When you’ve studied something intensively for years, you’re the wrong person to come up with new ideas for studies. You’ll end up in esoteric or newfangled places that your audience couldn’t care less about. One of our biggest stories – in terms of readership and reader feedback – last year was research we’d done in partnership with CNET’s B-to-B Network on what white paper titles got downloaded the most. I thought it would be [just] an OK article, but my God, it hit a huge nerve: floods of thank-you email letters from our readers in the B-to-B space.

So, you have to let your readers tell you what’s hot and what’s not. Don’t ask your editor or newsletter writer. I’m shocked that so few email newsletters do reader surveys asking about content. They all need to.

ER: What are some of the benchmarks for maintaining the quality of MarketingSherpa research and other content?

AH: We never publish data that doesn’t have enough evidence behind it to be statistically reliable. That drives me nuts about other studies (including the DMAs). They’ll survey 10 people and then call it a “study” and make a big stink about findings. We don’t publish charts if the data has to be sliced “too thin” to get a number.

We know that many readers are using us for their budgeting, forecasting and to sell their marketing plan to their CEO. We don’t want to feed them misinformation or slanted data and mess that up.

Unlike most of our competitors, we do not publish third-party content. We don’t solicit editorial from vendors or consultants or anyone else. Our editorial is researched and created in-house. That’s a lot more expensive, but it’s worth it.

On the research benchmark side, we do create partnered studies with some folks where we survey the marketplace or examine results stats we could not do alone. We also gather best-of research from some third-party sources to fill in holes and provide perspective. But we’re not like eMarketer where 100 percent of the data is compiled from other people (they do zero primary research). With us, it’s about 20 percent.

That combination of our data plus partnered studies plus best-of-third-party data is a killer combo. You get everything in one place. It’s all about convenience.

Sometimes people question our data – for example, recently several SEO experts questioned whether our data on the industry slowdown was based in reality because, from their personal perspective, business was booming. Thing is, we had data out the wazoo – data from more than 3,000 client-side marketers, from 104 top SEO firms and from third-party studies. We had more data than anyone on the planet on search marketing. From our perspective, the industry was slowing like crazy and I was able to defend that very easily.

ER: MarketingSherpa covers so many areas of online marketing. Do you consider yourself an expert in any one area of marketing?

AH: I suppose my main personal areas of expertise would be e-commerce, lead generation landing pages and email marketing. I’ve personally been involved with research we’ve conducted in all three and met many, many of the marketers themselves in these fields. I’ve also been heavily involved in our SEM research and coverage over the years, but I think SEM is something that you really cannot be expert in unless you’ve rolled up your sleeves and you do it every day yourself. I don’t. Few of the press covering SEM have.

ER: What is the next logical evolution beyond paid online content?

AH: I am so psyched about buying TV episodes online! In a past job, I was the marketer for a paid subscription [print] newsletter called Interactive Video News. Back then in the early ’90s we were all talking about 500 channels and pay-per-view cable where you’d be able to view anything on demand. Well I have on demand at home on my cable now, but it’s a very clunky interface. However, our research director Stefan Tornquist brags he doesn’t own a TV at all ” he just buys and downloads anything he wants to watch from the Internet.

Mainstream TV networks are now cross-promoting new shows by running them on cable for a few episodes to get the word out. Broadcast TV is, in effect, now just a marketing vehicle for content that’s paid for with some ads. I buy the TV episodes directly by episode online now. Love it to death. That plus buying music song by song for iPods, and the huge long tail of that, is very exciting. Media consumption is changing hugely in the way purchasing changed in the past five years due to search engines for research and ecommerce.

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 Network.com had a traffic increase of 21 percent; AllRecipes.com 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, Cooking.com and igourmet.com. Both have realized revenue increases in the past year; igourmet.com’s by 50 percent. Marketing manager of Cooking.com 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 igourmet.com, 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 igourmet.com 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 Cooking.com – credit affiliate marketing and search marketing as key drivers of their business. Cooking.com has an affiliate program run by Commission Junction and their top affiliates include eBates and Upromise.

igourmet.com has outsourced its affiliate program to outsourced program management company Pepperjam.com since 2000 and says that since its launch, sales have increased every single year.

“A huge part of igourmet.com’s success is due to the affiliates – who are essential,” says Michael Jones, COO of Pepperjam. Through igourmet.com’s LinkShare program, they can see that the amount of producing affiliates is increasing. Pepperjam says igourmet.com’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 igourmet.com has very active and aggressive campaigns on Google, Yahoo and MSN and that search generates a large part of their business. Jones claims igourmet.com 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 igourmet.com and Cooking.com say women make up the majority of their customers. For Cooking.com, 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 igourmet.com’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 Chow.com, which is aimed at 25-to-45-year-olds, whom they believe are passionate about food but possibly not very skilled at preparing it. Chow.com, which launched in September 2006, includes the popular discussion boards of Chowhound.com 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 Weblogs.com, 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 AllRecipes.com to reach mothers of school-age children.

AllRecipes.com, 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. AllRecipe.com’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 KraftFoods.com, 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 KraftFoods.com 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 Ronald.com has pages for kids to color, and Capncrunch.com, 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 KraftFoods.com 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.”