• by May 24, 2002

MODERATOR, Tom Hespos (Media Director, Mezzina Brown and Partners): Have we seen the worst in this decline in interactive ad spending? The Q4 figures haven’t come out yet, but it looks like 2001 is going to represent a decline in Internet ad spending. If you look at the first three quarters in 2001 vs. in 2000, according to CMR, overall ad spending looks like it’s down over 8%. Internet ad spending, according to the IAB, has declined 8.4%. I want to get a sense from people here: Do you think Internet ad spending will pick up as traditional does?

Sharon Katz (VP/Director of Media, Modem Media): I actually think it isn’t a matter of when traditional ad spending picks up, but when there’s more of a compelling way to advertise and to address consumers on the Internet. The huge benefit of this medium is the actual usage of it. You don’t say you “watch the Internet” or “read the Internet”; you “use the Internet.” So the advertising needs to have some sort of service or functionality within the borders of it, not just a message. That will be more compelling for customers as well as clients, and we will be able to realize the efficiencies of the medium. Dave Morgan (CEO of Tacoda Systems): I think we are going to see growth going forward. I agree with Sharon that we lack the success stories, the fulfillments of the promise of what this medium can deliver. But I find optimism in the fact that we have an awful lot of money being spent against the Internet, in spite of the fact that most people agree we still haven’t developed the utility for consumers or advertisers that people expect.

Jim Meskauskas (President of Media Darwin and Acting Media Director for Sharp Partners): A down market applies downward pressure on the kinds of things that people are allowed to spend their money on, and if they’re going to spend it on advertising, they need to have a compelling reason to do so. It needs to be positioned as an investment. All the data is there, but agencies have been lazy at going ahead and repurposing and processing the data, then being able to explain it in a fashion that’s comprehensible to clients. But also, vendors focus too much on using gimmicks to try and lure people in as opposed to demonstrating the value of audience. Brian Quinn (Sales Director for CBS Market Watch): I’m just hopeful that the first quarter will end soon. (laughter) It’s been really challenging, but the second quarter looks very positive from our perspective.

Katz: That’s interesting, hearing it from the site perspective, because from the agency perspective, our pipeline has been busier than it ever has been in a first quarter, in terms of new business opportunity, new business pitches. So we’re seeing a lot more interest right now than we ever have, and it’s usually not this busy in a first quarter.

Morgan: I would echo that and look at some points like hiring. In the last month and a half I have seen an awful lot of announcements for people hiring to fill NY sales positions. And that wasn’t something that we saw six months ago. So at least people in the industry believe that they can start making investments against the future now.

Hespos: So that usually happens on the sales side before it happens on the media side?

Morgan: Well, the buyers are all taking about how hard they are working lately. It may just be that there aren’t too many of them left.

Hespos: Things are definitely picking up. I think one of the main reasons why you see sales forces picking up before agency personnel is because sales people are in the front line of cash flow. The interactive space, as far a media is concerned, is going to start to see an uptick in spending before traditional space is going to. And those monies are going to come almost exclusively from traditional advertisers. The dollars are going to start to move to the online space. Has anybody seen anything yet to indicate what fourth quarter 2001 ended up at?

Katz: There are two clear trends I’m seeing. One is consumer packaging companies that haven’t done anything before. They’re finally trying to figure out “how do I prove success of this channel?” And the second clear trend is email marketing. It’s a trend that started very similar to online advertising, where clients had gone directly to the media partners or vendors in order to satisfy their needs, and are now starting to go through the agencies for their email marketing needs.

Morgan: Sharon, what’s your experience been with the opt-in guys? Have those response rates been declining, and does it seem like they’re tired lists at this point?

Katz: Yeah, you are seeing a decline, There’s too much competition in your inbox, which is going to keep generating the decline. The CPMs are still really high on list acquisitions, so it’s hard to make a business case work, and a lot more clients are trying to grow their own in-house list and figure out how to best leverage that and establish a dialogue with their customer directly.

Hespos: Have you seen anybody doing any brand metrics on email campaigns where they’ve bought lists or home grown lists or anything like that?

Katz: Not as much on email, and I’m still a believer that email is working a lot better for loyalty and retention right now. And I think that’s a trend we’ll see for awhile, a lot of great brand measures on the online advertising/marketing side, and I think that’s what’s going to push more consumer package good companies into the space.

Hespos: When do you think things will pick up—three months, one, two years?

Morgan: I was talking to a financial analyst who covers this base last week, and what he said was that, from his perspective, he’s optimistic. He thinks we’re going to see a slow and steady uptick throughout the course of the year, and a better uptick certainly in the fourth quarter, given the cyclical nature of the ad spend. But what he said is that everyone will misread the little upticks for a big boom coming again, so we’ll probably end up with bad expectations. It’ll be slow, and we shouldn’t get too excited about it and everyone will have to run really tight ships for the next 18 months or so.

Hespos: What or who is going to be driving things over the course of the next year? Is it going to continue to be direct response advertising, or do we think the consumer-package goods folks are going to come into it in a big way?

Quinn: I think who we’re looking to are the folks who are already invested in the web—the car companies, certainly your core categories like the financial service guys—they’ve already tested a lot of the newer stuff. If you look at an advertiser like Lexus, which is a great Internet advertiser, they are always looking to do new things, and advertising in a lot of places, just increasing that and expanding those success stories. And I still think package goods guys are going to be a challenge. And direct response is always going to be a big part of it.

Morgan: It’s clear that the growth will come from people who will buy according to return on investment. I can’t imagine many companies, certainly public companies, that will be able to make incremental new expenditures this year, unless they can convince their CFO that they’re going to deliver a return.

Katz: If you’re saying you’re doing a program for awareness, the metrics are going to be definitely more response-oriented. It’s going to flip the whole paradigm that we’ve looked at before, so that somebody interacting with your brand two or three times is going to get you brand awareness. The whole idea of interaction is going to be a new metric to take a look at.

Meskauskas: I think Sharon’s exactly right. I’ve written about this before, the whole theory of engagement branding. And what’s going to constitute branding of the future is really a working out of the dialect between direct response and strictly ethereal branding. And branding is going to start to get looked at with some of, but not all of, the same kinds of rigorous attention to data that the direct response folks have been using for ages. Lots of advertisers aren’t click-and-buy advertisers, most of them are not. So straight causal relationships between a final action and the first encounter through an advertising asset aren’t always going to be relevant, but there are going to be other kinds of data points that are going to be available.

Quinn: Anecdotally, I always look for signposts that are positive, and one was when Volvo launched the car model on AOL; more recently, Doritos canceling [their offline media]…you know what, they’re not stupid. They’re trying to reach teenagers, and they see that it’s a great place to do that. So those little things always keep you going and keep you positive. There are going to be more of those to speak of as the year progresses.

Hespos: Signs of spring, a bag of Doritos.