Each company eats up every nanosecond of its allotted 45 minutes, hoping to
convince the skeptical audience that their technology can provide the
much-needed spark to reignite Internet advertising.
For
the Web portal, this is a critical meeting. With online ads declining in
effectiveness, dropping in value, and failing to live up to their
much-ballyhooed potential, Excite@Home is under intense pressure to come up with
new, innovative ways of advertising. Nearly half of the company’s forecast
$653 million in 2000 revenues is expected to come from online advertising. But
as an overhead screen displays a whizzy pop-up box that lets Net surfers view
360-degree images of an advertiser’s product, including zoom and spin
controls, it becomes clear from the gloomy faces around the table that there isn’t
much excitement in the room today. Even the usual kinetic energy of Susan
Bratton, Excite@Home’s 6-foot senior vice-president for sales and marketing,
is subdued. "I didn’t see anything that really pushed the envelope,’’
she says. "The success of Net advertising is critical.’’
The clock is ticking for online advertising and the Web companies dependent
on the dollars they bring. Money that flowed furiously into Net advertising from
dot-coms has dried up faster than a 30-second Old Media ad. And traditional
advertisers, still uncertain about how to value online marketing, aren’t
piling in fast enough to take up the slack. One reason for their hesitancy: The
so-called "click-through rate,’’ which measures how many people click
on ads for more information, has fallen dramatically. Click-through rates on
banner ads–billboard-like pitches that account for 50% of Net advertising
revenue–have plummeted from 30% for the first banner ad in 1994 to a measly
0.3% today. That’s well below the 1% to 1.4% response rate of direct mail.
For all the effort, not enough companies are making it over. After rising
nearly 100% annually since 1997, the growth of online ad sales is expected to
nosedive to 17% in 2001–less than half what Merrill Lynch & Co. was
predicting just four months ago. That means overall U.S. online ad revenue will
hit only $9.7 billion this year, or 3.5% of total ad dollars. That’s a paltry
increase of three-tenths of a percentage point over last year and far short of
what experts had predicted in the past.
Clawing for survival. It gets worse. Take out the 75% of online ad dollars
that Yahoo, America Online, Excite@Home, and six other major portals capture,
and that leaves thousands of Net companies fighting for what’s left. As unsold
ad space piled up, prices in the fourth quarter declined 10% to 15% for every
type of ad. At the same time, e-mail marketing prices dropped 25%, to $150 per
thousand messages delivered. At those rates, many Net publishers may soon find
themselves clawing for survival. Already, entertainment site Pseudo.com and free
Internet service provider 1stUp.com Corp., which both relied on advertising
revenue, have shut down. Lehman Brothers estimates that it takes $200 million to
$250 million in annual revenues for online publishers to break even–too big a
nut for most. Apart from AOL, Yahoo, other major portals, and CNET, the Wall
Street firm figures only 14 online publishers out of some 10,000 today will
survive in their present form.
Already there are signs of more fallout. On Dec. 26, EarthWeb Inc. sold its
ad-supported Web sites and e-mail newsletters, choosing to become a recruiting
service for tech workers. The number of companies that have missed quarterly
estimates, slashed staff, or been downgraded by Wall Street is piling up–including
the likes of Yahoo, DoubleClick, NBCi, iVillage, RealNetworks, CMGI, and Ask
Jeeves.
By Heather Green and Ben Elgin in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc