Year in review: Ad nausea

When the year began, Internet publishers and analysts held out hope for an advertising recovery during the second half of the year. As the year winds to a close, they're still waiting.

Rather than simply wait for a rebound, however, Web publishers were aggressive on several fronts: They improved content, pushed subscription services and embraced more intrusive ad formats. The results were a mixed bag for the three top Web portals--America Online, Yahoo and Microsoft's MSN.

On the content front, America Online overhauled its network to emphasize exclusive programming and features, resembling an HBO subscription service. Yahoo, RealNetworks and others also shaped subscription services around so-called premium content that people would be willing to pay for.

A handful of Internet operators proved there is a viable market for subscriptions, including online video and audio service RealNetworks.

Web operators pushed flashier, TV-like advertisements, giving marketers more options than ever before to catch consumers' attention. In some cases, the efforts went too far: Consumer outcry caused ISPs such as EarthLink, AOL and MSN to temper the use of annoying pop-up ads. Still, more graphics and video-laden advertisements are expected in 2003.

Search engine marketing also took center stage this year, as advertisers warmed to the efficiency of reaching surfers where they click. Search tools proved fertile ground for growth, drawing many competitors including No. 1 search service Google.

The payout has been lucrative for top portals too. In the second half of 2002, Yahoo turned around its losses to regain profitability, thanks to a deal with pay-for-performance search service Overture, considered a bellwether company in online advertising.

Still, tensions mounted in 2002 around aggressive marketing tactics that had people labeling almost anything unwanted as "spam." Junk mail reached an all-time high this year, prompting discussions in Congress and more technology solutions from upstarts. PC users also dealt with the greater prospect of stealth marketing software being installed on their computers.

Meanwhile, the Internet broadened into a backdrop for entertainment. Portals including Yahoo and AOL emphasized Hollywood stars and programming in partnership with the studios. And while filmmakers lobbied to protect movies in digital formats from rampant Internet piracy, they also unveiled a first-ever studio-backed video rental service on the Internet.

As broadband adoption quickens, the entertainment and Internet industries are on a collision course in the coming years.

Spam forces firms to take desperate measures
It's as old as the commercial Internet, but its alarming rise is challenging more companies.

Overture bows to Google in AOL deal
AOL will use search services from Google, ending its relationship with Overture Services. Overture stressed that it still expects to see a strong quarter because of its recent deal with Yahoo.

Semel rises to Yahoo challenge
In his first year as CEO, Terry Semel proves he still has the necessary hustle to run a tight ship after a 24-year stint at Warner Bros. But his second year may be even tougher.

Net firms turning to tradition in advertising
Having long sought to set the Internet apart from traditional advertising media, the industry fights to close the perception gap that it helped create.

Your PC's enemy within
Unbeknownst to many who download it, technologies that "piggyback" on free software are being used with rising frequency.

Hollywood heads up antipiracy charge
The Motion Picture Association of America expects new bills to assail illicit peer-to-peer file trading and curtail the piracy of digital TV broadcasts.

Hollywood set for piracy battle with PC industry
As high-tech companies increasingly stake their futures on digital entertainment, the movie business is mustering all its strength to control the use and distribution of its work.

AOL hitches its star to entertainment
AOL executives are returning to the idea that offering exclusive content--whether acquired by third parties or created in-house--will give people a reason to join and stay on.

Sweeping changes for America Online
AOL Time Warner announces sweeping organizational changes at its America Online unit, in a bid to make that division more profitable and tighten its focus on broadband services.

ISP dreams: We can do TV, too
Internet companies' newest hope is to model themselves after the business successes of cable TV.

Spam: It's more than bulk e-mail
Consumers are increasingly applying the stigma of spam to marketing messages of all stripes, causing headaches for legitimate advertisers.

Microsoft says ads "on a monster roll"
Weakness in the online advertising market has been greatly exaggerated, Microsoft says on the eve of a major overhaul of its MSN Internet service.

The Google gods
In the dot-com shakeout, Google has not only survived but reigns supreme. Does the search engine's power threaten Web's independence?