Commentary

The Big Spenders

You've got to know when to hold 'em and when to bet the ranch. Some marketers played it safe last year, but 16 of them each wagered over $100 million.

The rankings of top online marketers saw some major moves in 2006, but the big picture remained the same: Internet advertising continued to grow rapidly as ad budgets shifted toward digital media. Internet display advertising overall increased 17.3 percent last year, easily outpacing any other media category, according to data compiled by TNS Media Intelligence.

Leading the way again in online advertising was Vonage Holdings Corp., the Internet phone provider, with $186 million, according to TNS, on whose research OMMA's list is based. TNS' ranking is derived from the media value of all forms of online display or brand advertising and anything that includes a graphic image. The company excludes search marketing expenditures, which account for more than 40 percent of all online ad dollars.

Vonage retained the top spot despite cutting online spending by about one-third in 2006, as the company scaled back a big marketing push to educate consumers about Internet telephony. Its online ad budget is likely to plummet even further this year. In announcing CEO Michael Snyder's departure in April amid sluggish growth, Vonage also said it planned to cut costs by $140 million this year, including $110 million from marketing.

News of the planned cutbacks came only a week after a federal court judge barred Vonage from signing up new subscribers; this, after a jury found in March that the company had infringed three Verizon patents. That injunction was stayed pending appeal.

Enjoying better fortunes was telecom giant AT&T, which vaulted to the No. 2 spot by more than tripling online ad spending to $166 million. Fueling the increase were rebranding efforts linked to mergers and acquisitions involving SBC, BellSouth and Cingular over the past two years. The goal is to position AT&T as more than just a plain old telco.

Though the top 10 online marketers spent less overall than in 2006, the top 50 increased their online ad dollars. Last year, 16 advertisers surpassed $100 million; only 10 did so in 2005.

If Internet ad spending becomes gradually less concentrated among a handful of big advertisers, that only benefits the medium by reducing dependence on any one or two marketers. So AT&T's rise this year, for instance, picks up the slack from Vonage.

When it comes to kinds of advertisers, however, the technology and financial-services industries still dominate any list of leading online marketers. Seven of the top 10 ranked by TNS fall into one of those categories. And with the collapse of the sub-prime mortgage market, the Web's abundant financial-services advertising could feel the effects later this year.

Especially vulnerable to a downturn could be the ubiquitous low-cost ads posted by sites such as LowerMyBills.com and FreeCreditReport.com, owned by the No. 6 online marketer, Experian Group. The LowerMyBills ads featuring gyrating figures that invite users to click through for loan applications may lose some of their allure. Smaller online lead generators are also likely to scale back or disappear.

Among mainstream brands breaking into the top 50 online advertisers this year were The New York Times Co., Johnson & Johnson and the U.S. government. At $50 million, The Times, whose Web properties include About.com. and Boston.com, earmarked almost as much to online marketing as the much larger News Corp. "That signifies that they take this medium seriously, with all the people it can reach," says Gordon Borrell, CEO of market research firm Borrell Associates.

Mark Walsh

Movers and Shakers

Overall Web advertising spending might be up more than 17 percent, but that increase doesn't reflect the huge variations in marketing strategy among the Internet's largest advertisers. Some of the biggest spenders markedly cut back online ad budgets from 2005, while others hugely stepped up their Web efforts. Here's a look at some of the biggest companies to sizably boost or curb their online ad efforts.

AT&T Reasserts Itself

AT&T didn't merely triple its online marketing spend in 2006 to become the No. 2 spender - it became far more aggressive about marketing in general.

That's because the company is in the midst of redefining itself as not just a telecommunications giant, but as a comprehensive media provider, connecting consumers to everything from HD programming to mobile content.

No surprise, then, that its online marketing spend jumped from $57.6 million in 2005 to $166.4 million last year. An AT&T representative said the company does not comment on its advertising budget.

The increase is likely part of an overall effort to re-educate the public, says Sally Cohen of Forrester.

"They're still rebranding SBC, they're rebranding Bell South, they're rebranding Cingular," Cohen says. The company also launched a "three screens" initiative in the past year, positioning itself as a digital lifestyle company. "They don't want to just be a telco, they want to be a service provider."

In March, for example, the company announced it would deliver comprehensive coverage of the 2007 Masters Tournament on television, online at ATTBlueRoom.com, and on mobile phones. AT&T is also developing a high-speed fiber-optic network to quickly deliver broadband video to homes, in competition with Verizon.

"I think that with their fiber rollout, if they truly bring TV into the mix, they're not just providing voice, but they have the quad play [of voice, data, video and wireless]," Cohen says.

AT&T's nearly threefold increase in online spending stands in striking contrast with the No. 1 spender in 2006, Vonage, which cut its spend by more than 30 percent.

But online pricing and buying strategy can shed some light there, says Shar VanBoskirk.

"It makes sense to me that one could cut spending and one could grow spending and end up being about the same," VanBoskirk says.

"While the online channel is growing, it's still a marginal part of budget," vanBoskirk adds. Consider, AT&T spent $1.1 billion on television advertising in 2006.

JupiterResearch predicts that by 2011, online will account for almost 9 percent of total advertising media spending. Online display ads are the third most prioritized online marketing tool within the online suite, behind e-mail and search, VanBoskirk says.

Liz Tascio

Vonage Dials Back

VoIP leader Vonage retained its No. 1 ranking in online marketing last year, even after slashing its online spend by about 33 percent, from $275.8 million in 2005 to $185.6 million in 2006. But it's not likely to hold the top spot again this year.

In connection with Vonage CEO Michael Snyder's stepping down in April, the company said it planned to reduce overall marketing costs by $110 million this year amid slowing growth. Previously, Vonage anticipated spending as much as $425 million.

Only a month before, a federal court jury found against the company in a patent dispute with Verizon and had awarded $58 million in damages. A judge also barred Vonage from signing up new customers but a stay of the injunction was granted pending appeal.

The VoIP provider had already begun paring its online budget in 2006. The reduction may have stemmed from Vonage's total marketing spend being huge to begin with, and not just the online segment, says Sally Cohen, a Forrester Research analyst in broadband and VoIP. The company spent $266.9 million on television ads in 2006.

That's partly because the young company - it only went public in May 2006 - has been educating consumers about the technology, not just about the brand.

"They really spearheaded - from a marketing perspective - the introduction of VoIP into the consumer marketplace," Cohen says.

But the technology hasn't caught on quite as fast as expected, Cohen says. Only 5 percent of U.S. households with an Internet connection use a VoIP service like Vonage.

Vonage has said it has more than 2.2 million lines - as with phone lines, a household can have more than one VoIP line - and that it added nearly 1 million new lines in 2006. Representatives from the company did not comment for this story.

It makes sense that the VoIP company has been reaching out to consumers mainly online, but it also makes sense that they would have to broaden spending in other media, says Matt Green, CEO of Blue Ribbon Digital, an online advertising agency.

"What that may mean for Vonage in particular is that they hit a saturation level on the Web," Green says. "I doubt that their business model changed. I just think that their customer acquisition model needed a robust infusion."

Plus, as online marketing continues to grow and become more competitive, there's incentive to spend smarter online, not just spend more, says Shar VanBoskirk, senior analyst at Forrester Research.

"It forces marketers to think about how to be more creative in terms of their marketing goals," VanBoskirk says. "The smart marketer could spend the same money online this year as they did last year, but distribute it on media more targeted to their customers."

The company's court struggles may also put a crimp in marketing for VoIP, online or off.

If Vonage has to freeze customer acquisition and "stops marketing, that's a big deal for the pure play VoIP industry," Cohen says. "Vonage was the only one marketing to consumers in any kind of meaningful way."

Liz Tascio

WebSpending Inches Up The Charts, But TV Is Still King

As the fastest growing ad category, the Internet has inspired more breathless hype than all other media put together. But a look at cross-media spending among the top 10 online marketers offers a sobering reminder the Web isn't yet the king of all media.

The Internet accounted for just 6.5 percent of overall media spending in 2006, according to TNS data. Even for top online advertisers such as AT&T, Walt Disney Co., General Motors and Verizon, the Web amounted to a fraction of their total ad budgets. For these Fortune 500 brands, online spending was far smaller than TV dollars and roughly on par with other formats, such as magazines, newspapers and radio. In all cases, online ranked ahead of outdoor marketing.

For all its efforts to embrace digital marketing, General Motors committed only about 5 percent of its more than $2 billion media budget to online display advertising. That put it ahead of outdoor and radio, but trailing TV, magazines and newspapers. Verizon, with nearly as big a marketing budget as General Motors, earmarked more than twice as much for online as it did for magazines, but less than it spent for newspapers and radio.

Not surprisingly, the more Web-centric companies among the top 10 tend to spend a bigger proportion of their budgets on online marketing than on traditional media. Vonage, for instance, allotted nearly $280 million for all other outlets compared to $186 million for the Web. Experian set aside only $54 million for other media while pouring $128 million into Internet ads, and Apollo Group, which runs the online University of Phoenix, put only about $2 million toward offline marketing while spending $123 million online.

Oddly enough, Dell, which sells most of its computer products online or by phone, still spends far more on traditional media than the Web. Last year, it budgeted nearly $600 million for offline outlets, including $311.5 million on TV, compared to about $137 million online.

For many executives making key media-buying decisions, the Internet remains an intriguing but unproven new medium, explains David Hallerman, a senior analyst at market research firm eMarketer. "Don't underestimate the human factor in this," he says. The greater complexity of Internet advertising makes the continued reliance on traditional formats unsurprising.

Even so, Hallerman notes the Web is poised to catch up with radio advertising - currently about nine percent of media budgets - in the next couple of years. "It's a key milestone as far as looking at the Internet as a mainstream advertising medium and not a new medium," he says.

Mark Walsh

Time Warner Takes Stock?

Even if the world's largest media company went against the flow and decreased its online ad spend last year, we might want to cut it some slack. Time Warner CEO Dick Parsons told investors late last year his company was trying to position itself to "ride the wave of technology and change, as opposed to getting too far ahead of it or behind."

Last year, Time Warner spent $89.5 million on Web advertising, down from around $169.7 million in 2005.

Indeed, through much of 2006, Time Warner seemed to be in retrenchment mode online, spending much of its time cultivating its new properties, creating synergies with distribution partners, and retaining its already massive audience and keeping them online longer. Vintage TV made its debut online with "In2TV," while the entire AOL portal relaunched under a free model with a wholly new interface.

Its GameTap online gaming portal finally ramped up last year with more compelling

original content like the Sam and Max adventure game.

Meanwhile, both Warner Bros. and Time Inc. Interactive created internal digital video production studios to leverage their brands more effectively via broadband. And an HBO/AOL streaming media partnership, ThisJustIn.com, is trying to be a "Daily Show" for digital.

Even if the company was not spending as much in digital promotion, there were signs that the long-promised synergies among Time Warner units were pushing and pulling eyeballs effectively within its own domain. By year's end, the TW universe had a unique audience of 101 million that it held for over four hours each month, according to Nielen//NetRatings. Not only was its collection of properties much stickier than any other network, but according to comScore's new measure of engagement, TW sites enjoy a very high rate of nearly 20 return visits monthly from users.

With AOL re-tooling its strategy, the movie and TV divisions were the most visible online advertisers last year, and here they made their mark with innovative promotions. "Entourage" and "Deadwood" targeted their niche audiences with podcasts on iTunes.

The surprise blockbuster 300 got much of its pre-release mojo by feeding comics fanboys digital assets for re-use in the blogosphere. But the master stroke was a partnership with MySpace, that gave users what they really wanted, a feature upgrade that allowed members to save 300 images to their profiles (up from the usual 12). The Los Angeles Times reports that 8 million movie trailer viewings came off of that inspired MySpace promo, and so more than half of the film's $70 million opening weekend gross came from the under-25 demographic. TW may be showing us all how to get more from online promotion with less.

Steve Smith

Wal-Mart Stumbles

For Wal-Mart, mastery of the online world is proving more elusive than the domination it's long exercised on the brick-and-mortar landscape.

While its Internet ad dollars (excluding search) doubled in 2006 to $61 million, a couple of high-profile marketing stumbles last year showed the retail giant still has a ways to go before conquering the Web.

The company suffered a marketing communications disaster when it was revealed that a pro-Wal-Mart blog ostensibly written by a pair of average Americans traveling cross-country was actually the work of two paid writers. Public relations firm Edelman, which created the fake blog, or "flog," on behalf of Wal-Mart, admitted to creating two other phony blogs for the retailer.

Wal-Mart's attempt to create a social networking site last fall also flopped when it took down teen-oriented "The Hub" only 10 weeks after its launch. Online marketing experts said the site failed because Wal-Mart pushed too hard to use it as a promotional vehicle rather than as the basis of a genuine community. The company also has a MySpace page that's been more successful, though, generating three percent of its Web traffic.

Wal-Mart did not respond to media inquiries for this article. But Patti Freeman Evans, a retail analyst at JupiterResearch, chalks up Wal-Mart's online hiccups to a learning curve. "To their credit, they're testing the waters in terms of interaction with the online community," she says. "They learned the lesson that a marketing blog is not a blog, and they're not alone in that regard."

She adds that much of Wal-Mart's Web marketing efforts have focused on driving traffic not only to its Web site but to its offline stores. In March, for instance, the retailer started its Site-to-Store program in which Walmart.com customers can choose to have purchases shipped for free to a local Wal-Mart outlet rather than having them sent to their homes.

Last fall, it also revamped the site with the aim of creating a more user-friendly experience and improving online support for customers who shop at offline stores. In an interview with Forrester Research senior analyst Moira Dorsey in March, Wal-Mart executives said the redesigned site was hitting projected traffic goals, and that its "Store Finder" feature saw a 37 percent bump in visits.

Earlier this year, Wal-Mart's most senior online executive, Carter Cast, was named to head U.S. business strategy. He was succeeded as president and CEO of Walmart.com by Raul Vazquez, formerly chief marketing officer for the online unit.

Wal-Mart doesn't break out online sales, but analysts estimate them at between $1 billion and $3 billion - less than 1 percent of total revenue. In that light, the company's increase to $61 million in display advertising online hardly seems impressive. But Jupiter's Evans insists that the Web is more than an afterthought for Wal-Mart. "From what I understand, the online business is a critical component of their marketing strategy and I don't believe they see the Internet's influence diminishing any time soon."

Mark Walsh

A Monster Takes Aim

With a twofold increase in Monster's online marketing presence last year, one would expect this high-profile dotcom behemoth to be tromping across the digital terrain with indiscriminate branding campaigns.

In fact, however, Monster still relies on offline advertising to achieve the broad branding goals, while relying on digital media for customer acquisition and direct response metrics. Last year, the employment site spent $102.6 million in Web advertising - nearly double 2005's $58.8 million.

As the employment site claims brand recognition of 90 percent, its marketing strategy evolved in recent years towards narrow, deeper messaging that moves the company image beyond job listings. "We are now focusing more on vertically targeted advertising through strategic partnerships that offer us the opportunity to target more niche consumers and employers," says John Federico, vice president of online media, Monster North America.

The Monster's eye now identifies the high demand regions, industries and job titles it needs to eat, er, reach. Then it customizes the appeal to "deepen and personalize relationships with our target audiences," says Federico.

While it remains one of the leading online spenders, Monster is too mature to chase every new trend and format. It has optimized and tested its tactics so much for so long that the company seems happy with its blend of search, rich media and e-mail campaigns and doesn't expect to shift its budgets to or from any one of these platforms this year.

Monster refuses to be easily seduced by marketers' new love affair with pre-roll video inventory. In testing online video advertising, Federico says "we've found in most cases that the increased cost of production and deployment versus traditional Flash ads is not justified by a corresponding increase in performance."

Leveraging strategic partnerships to deploy digital marketing programs has been a key driver of new business in 2006. Monster.com's sponsorship of the MLB.com All Star Ballot was among its most successful campaigns last year. The Monster brand penetrated mlb.com banners, e-mails and even the ballots themselves. The program culminated in an offline "Ultimate Job" prize that sent the winner to the All-Star Game itself for an interview with a player and a blogging spot on mlb.com. By integrating its brand message seamlessly with a target audience's passion, the campaign delivered some of the best traffic and conversions Monster.com had even seen, including almost one million opt-ins.

The "monster" database of job listings is shifting its cross-platform messaging to emphasize the company's responsiveness to individual needs and expertise in specific professions. Can a brand that made its bones promoting sheer scale and coverage now get up close and personal with industry verticals and job seekers? The new "Works for Me" campaign for 2007 emphasizes individual stories about Monster.com advancing and enhancing careers and helping employers grow their businesses.

Monster already has its job description and goals for the coming year: grow the listings business in a decelerating economy. Modest hiring in the United States has already led the company to lower recent earnings estimates. Co-marketing and distribution partnerships with major U.S. partners like The New York Times, and international expansion could be this monster's main food source in the next year.

Steve Smith

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