Online medium sends messages about the future

A decade ago when the Web was new, marketers salivated over the boundless potential of the medium. But after the tech bubble burst, businesses lost their appetite for online advertising. Spending flatlined, and online marketers were left starving for funds.

Today, online advertising is rebounding. Spending is growing in both Canada and the US as more and more businesses invest in the medium, particularly in areas such as keyword ads linked to search queries.

In the US, online advertising set a new record of $12.5 billion in 2005, a 30 per cent increase over 2004 figures. The biggest area of investment was search advertising, accounting for 41 per cent of total online spend, according to the Internet Advertising Bureau (IAB), a New York-based advocacy association.

Canada is in a similar growth pattern. Investment in online advertising jumped 107 per cent from 2002 to 2004, with estimates of $519 million in spend for 2005, according to the Toronto-based IAB Canada.

Despite these impressive growth figures, online advertising still represents only about 5 per cent of the total advertising pie in North America. Traditional media – TV, radio, and print – still account for the lion’s share.

But online advertising’s significance far outweighs today’s numbers. “Time spent online is going up across the board. In fact, it’s the only media that’s increasing in terms of time spent,” says Paula Gignac, president of IAB Canada. Regular Internet usage sits at about 70 per cent in North America, with Canadians spending an average of about 12 hours per week online, according to market research by Ipsos Insight.

But that average figure obscures the vast quantities of time spent online by young people.

“TV is still an 800-pound gorilla, but the Web is the number one medium for younger demographics,” says Gignac. Businesses that master the art of online advertising will rule in the future.

North America is rapidly becoming one online advertising entity, as more and more companies invest in cross-border advertising, says Gignac. American businesses are very interested in Canadian eyeballs and wallets. Thanks to good penetration of broadband Internet in Canada, companies in retail and travel are realizing they can deliver more services and are investing in visually sophisticated ads. “Particularly in travel, they are starting to show online video ads to entice Canadians to come on down to Boston, Los Angeles, and so on.”

But there are some differences in the way the two countries have approached online advertising. In Canada, packaged goods companies have been using the Web to advantage, particularly in marketing their products to women.

“Companies like Procter & Gamble and Unilever have been involved in online advertising from the get-go,” says Gignac. “But they haven’t gotten into search in the same big way as the US, although they were quicker to get into display ads and e-mail advertising.”

Gignac explains that search advertising requires not just investment of money but also in time and education to learn how to make optimal use of the Web, and many Canadian businesses have shied away from this. “We have many key buyers who’ve been doing TV and print ad buying for many years and can do it by heart,” she says.

There are some distinct phases in the way businesses have approached online advertising, which requires a certain amount of trial and error. People first get experience in simple display ads and e-mail. The next step is to experiment in search advertising and local directories. Once a business has obtained some experience and data in this space, the next logical step is to look at marketing analytics to optimize the way online advertising is used.

Analytics is a hot area in online advertising now, says Gignac. Google’s marketing analytics tool is so popular that the company had to shut down access to it at one point, she says.

While Google’s tool may be free, it may be worth the investment to look into using the services of a Web analytics firms, she says. “If you’re using Google’s tool by yourself, it’s like the blind leading the blind. The most powerful part of analytics is the interpretation. You don’t just want reports, you want to take action. That’s why you need an analytics firm or training in the software to develop the expertise internally.”

In the near future, Gignac predicts search ads will grow a bit more, and display ads and e-mail will remain stalwart companions. But the next big thing will be online video ads that work with users’ online goals. “Video as a portion of display advertising will grow hugely and will be the Next Big Thing,” she says. A company like Valvoline, for example, may sponsor an online educational video that shows the customer how to change the oil in a car, with a display ad and a soft-sell link to its Web site at the end.

Another big area with growth potential is pay-per-call online advertising, which will likely appeal to smaller businesses, says Gignac. The pay-per-click model pioneered by Google is being refined so businesses receive a 1-800 phone number that allows them to track and pay only for specific customer calls generated from online advertising. “When a customer calls, there is an accounting mechanism that links the two companies and charges for the call. This will be very important for local advertisers,” she says.

There are also broader trends afoot that transcend any particular medium, says Mary Maddever, vice-president and editorial director at Toronto-based Brunico Communications, which tracks marketing trends in Canada. Many Canadian companies are spending on Web site development in addition to online advertising.

“That’s now about 4 per cent of the budget, but many agency pundits say that should be more like 15-20 per cent to effectively move from a mass marketing to a relationship marketing model,” she says.

Companies are spending more time and money to create deeper Web sites to find out more about their customers and what they want. “In moving to relationship marketing, companies will need to know how to engage even a TV audience in a different way,” says Maddever.

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