Alliance aims to boost slumping online ad sales

A group of publishers, technology companies and advertisers have created a partnership that aims to reverse the slump in online advertising by promoting more interactive ads.

Macromedia: Moving beyond banner ads Rob Burgess, CEO, Macromedia

Macromedia chief executive Rob Burgess will announce Thursday the creation of the Macromedia Flash Advertising Alliance--an industry group comprising publishers, technology companies and advertisers that will promote the company's Flash technology as a way to make capricious Web surfers click on Internet ads more regularly.

The group's first announcement promotes Flash by offering a new standard, dubbed the Macromedia Flash Tracking Kit, to easily track the click-through rate of interactive ads. The standards will enable developers and ad-serving networks to assign "click codes" to Flash-enhanced ads so they can measure the effectiveness of their campaigns.

Less than 1 percent of all Internet advertisements are Flash enhanced, according to Macromedia. The company hopes to change that by promoting the technology as a cure to the online advertising blues. Macromedia cites a Millward Brown study that shows "rich media" advertisements, which largely use Flash, achieve higher click-through rates than static banner ads.

Introduction of the alliance comes amid a painful time for the online ad industry and the companies it supports. Yahoo, which derives about 90 percent of its revenue from online advertising, Wednesday met earnings expectations for last quarter but slashed its forecasts for 2001. Yahoo shares, which declined 90 percent in 2000, tumbled 20 percent Wednesday on the news.

Online advertising began its descent into trouble shortly after an April correction in the Nasdaq Stock Market. With considerably less money, many dot-coms not only stopped advertising, but many began layoffs, initiated bankruptcy proceedings or closed. Between the second and third quarters of 2000, revenue spent on Internet advertising dropped 6.5 percent to $1.9 million from $2.1 million, according to the Internet Advertising Bureau.

Conditions have yet to improve. Just last week, ad services company Engage said it would cut half its work force as it seeks to achieve profitability. Merrill Lynch analyst Henry Blodget in a recent research report cut his 2001 online ad revenue projections to $8 billion from $9 billion, saying the market is doing worse than he expected.

The Macromedia Flash Advertising Alliances hopes its work, beginning with the promotion of Flash-enhanced ads, will boost the industry.

"We've seen a huge decline in click-through rates for general GIF ads, and people are turning to new ads to stimulate the online advertising market," said Macromedia spokeswoman Meredith Searcy. "None of this pointless, blinking madness but interactivity."

Searcy said a myth that ad agencies can't track the click-through rate of Flash ads is responsible for its current low showing in online ads. Searcy said that these ads can be tracked right now but require more engineering time and expense.

The newly created standard formed by the alliance will dramatically simplify this effort. Members of the alliance include a range of ad-related Companies such as Bluestreak, TBWA\Chiat\Day NY, CNET Networks (publisher of News.com), DoubleClick, Engage, Enliven, Goodby, Silverstein & Partners, Microsoft Network, 24/7 Media and Unicast.

Analysts, however, are skeptical of the plan. Although the use of Flash could make online ads more engaging, analysts fear they could also make them far more intrusive if overdone.

"The real challenge is to strike a balance between getting customers' attention without turning them off," said Kevin Werbach, editor of Release 1.0, a monthly report on technology and trends in the industry. "There are some companies that use Flash for very elaborate, flashy splash pages. Some of them are awful, but others are very beautiful."

The economy and the stock market must also stage a revival if online ads are to pick up, analysts say. Until companies are meeting their earnings and revenue projections, they will be unlikely to spend more money on marketing, especially if click-through rates on GIF ads continue to decline.

Still, there is a silver lining for the industry. Web ad sales are expected to grow to $16.5 billion in the next four years, up from between $6 billion and $6.4 billion this year, making the Internet the fourth-largest ad medium behind television, radio and newspapers, according to Jupiter Media Metrix. Altogether, Net advertising could represent close to 8 percent of the total ad market in the United States by 2005.