Online ad outlook brightens
A change in attitude toward digital marketing from major advertisers such as McDonald's brings new promise to battered industry.
McDonald's joined the chorus last week, saying that it plans to devote more money to digital marketing, quite possibly at the expense of the millions of dollars it spends on TV commercials. One of the 20 biggest advertisers in the United States, the fast-food chain said it's aiming to reach the growing number of its customers who are cozying up to the computer rather than to the TV screen--particularly the younger generations.
"As an advertiser, we need to find ways to reach those consumers by increasing online advertising or through our partnerships with Nascar and the NBA," said Bill Whitman, a McDonald's spokesman.
McDonald's is just the latest major advertiser to step up its rhetoric about the Web. Half of the top 20 online advertisers in 2002 were Fortune 500 companies--up from about two in 2000---including Amazon.com, Estee Lauder, SBC Communications, General Motors and Barnes & Noble, according to market researcher
Coca-Cola President Steven Heyer said earlier this year that the company was looking into investing in new, imaginative ways to advertise, including using electronic media and product placements. American Airlines is considering upping its online advertising budget from about 6 percent last year to 9 percent this year, according to one source familiar with its plans.
"This is an increasingly expanding trend in the industry," said Rishad Tobaccowala, executive vice president of Chicago-based ad agency Starcom MediaVest Group.
Even a minor change in advertising budgets among the world's biggest companies could shift billions of dollars to online publishers, many of which have struggled to stay afloat after the dot-com implosion.
Endorsements of online media are already helping fuel a rebound at major Net publishers and interactive agencies.
Yahoo last week reported better-than-expected earnings for the first quarter--based in part on increased ad revenue--and raised its outlook for the year.
This week, online advertising technology provider DoubleClick reported better-than-expected earnings. In February, meanwhile, Seattle-based interactive ad agency Avenue A reported that it had swung to a profit in the fourth quarter following a rise in sales from traditional-advertising clients.
Net ads get supersized
McDonald's used advertising to turn a humble burger joint into one of the world's best-known brands with a chain of some 30,000 restaurants. But its marketing engine has sputtered recently, with the company posting its first-ever quarterly loss in the final months of 2002, when the company booked an $810 million charge related to closures of hundreds of its restaurants in Latin America and Japan.
The company ranked No. 18 among the country's top advertisers in 2001--the most recent year for which data is available--according to an annual survey from Advertising Age, conducted by Taylor Nelson Sofres company CMR and Yellow Pages Integrated Media Association. It spent an estimated $1.2 billion for the year, with about $590 million going to TV advertising and only $900,000 to Internet ads.
McDonald's hosts a Web site and has a marketing partnership with gaming site Sims Online. In addition, the company has partnered with Intel to offer wireless Internet access at its restaurants.
Whitman declined to give specifics about any budget increases or new marketing initiatives from McDonald's that would involve the Net. Still, the restaurant chain's warm words for digital media echoes a growing sentiment among major traditional advertisers, which are either coming to realize that their prime audiences are now online or that digital marketing can be effective.
To reflect that mind-set, some big-brand marketers are spending more money online or urging their agencies to invent ways to reach their audiences via digital media. While many
Traditional advertisers are standing up and taking notice of the Web for several reasons, including the affluence of its audience.
Marketers are also drawn to the Internet as a creative venue to interact with customers. Rich-media advertising, featuring video and animations, is on the rise. And advertisers such as Absolut and General Motors are drawn to the larger ads, with which they feel they can communicate a brand message.
"Many traditional advertisers are seeing a form of advertising that looks familiar to them for the first time," said Charles Buckwalter, vice president of analytics with Nielsen NetRatings. "This growth in rich media is making them more comfortable."
One other major area fueling a resurgence in Internet advertising is search-engine marketing. Google and Overture Services, which allow advertisers to bid for placement in relevant search results, are flush with cash and with marketing customers in their thousands that want to reach audiences searching the Web.
Getting up to speed
The change of attitude among ad buyers has run ahead of Madison Avenue, where many ad executives remain put off by the early arrogance of Web promoters who once suggested that online ads would kill traditional advertising. Instead, early interactive campaigns proved that most consumers weren't interested in clicking on unobtrusive banner ads, leading to concerns that Web advertising didn't work.
During an advertising panel at the National Association of Broadcasters conference last week, media executives charged that some traditional agencies have not gotten up to speed on the opportunities available in online and interactive media.
Tim Larcombe, vice president of digital and interactive TV advertising at Agency.com, said during a panel discussion that there's often a gap between agencies' and advertisers' expectations of digital marketing. He cited research that said about 72 percent of advertisers expect their agencies to lead the way in new digital arenas, but "they aren't" doing so.
"There's a gap in the middle," he said.
Recent statements from McDonald's offer a case in point. At the 85th annual management conference of the American Association of Advertising Agencies in New Orleans last week, Bill Lamar Jr., the restaurant chain's senior vice president of U.S. marketing, issued a call to arms to ad agencies to embrace digital media. "Reaching consumers is no longer TV-driven," Lamar said in a speech attended by top ad agency representatives, according to Ad Age.
Few media executives believe that the 30-second TV spot is in any imminent danger of being replaced by a Web ad format. But most agree that TV advertising will undergo changes in coming years, with the arrival of new digital technologies, such as personal digital video recorders, in the living room. For example, TV advertising will likely include more sponsorships and product placements, as well as more tie-ins between live television and online games.
Adam Gerber, media director for interactive ad agency Digital Edge, said that digital advertising is not going to replace TV ads, but rather complement them. Traditional advertisers increasingly see the Web as an important part of an entire campaign, he said, adding that many of his clients now spend between 5 percent and 15 percent of their marketing budgets in the digital arena.
When advertisers say they plan to spend more money in digital marketing, it's still only in the low single-digit percentage of their total budgets, said Tobaccowala. But Starcom has seen dramatic increases in spending, he said, with some clients moving allocations from 1 percent to 5 percent or more.
"We should not make the mistake of the past and think that this is going to swamp all other media," Tobaccowala said. "All other media are going to become like digital media. Most marketers haven't figured this out, but over time, TV will behave more like the Internet. If you want to get used to your major media changing dramatically over the next three to five years, you'd better be doing digital marketing."