• by Michael Drexler , April 23, 2001

The dot-com shakeout and overextended technology sector certainly contributed to the rapidly weakening economy just as it did to the unusual rise in economic growth before the fall. But that does not mean, as some have suggested, that the Internet has failed as an advertising medium. Let's be realistic. The online advertising marketplace is virtually as large as cable TV. And it took cable over 20 years to get there, whereas the Internet reached this level in about 5 years. It's also likely that in the next few years the online medium will rival magazine ad spending, remaining second only to broadcast TV as a major national advertising medium (newspapers and radio will of course continue to lead among local advertisers).

Right now, we all recognize how fragile the advertising marketplace is. Virtually every medium today is facing the threat of a possible recession and a commensurate cutback in advertising budgets as the dot-com catastrophe has affected traditional media spending as much, if not more, than the Internet. Currently we know that Fortune 500 companies allocate an average of about 1% - 2% of their advertising budgets to the Internet. So it's unlikely that the so-called "old economy" companies will pick up the slack left by "new economy" marketers in the online world anytime soon. But in the long run they definitely will.

Before we address how traditional marketers are beginning to see the Web, it's important to note that now is really the wrong time for strong companies to pull back on advertising. Study after study has shown that those marketers that continue to maintain or increase their level of ad spending during a weak or recessionary climate actually enhance their market position and gain consumer share long after the dark clouds are gone. To further support the premise, an analysis issued by the Department of Commerce showed that consumer spending has actually risen during every post war recession. And advertisers, recognizing that the efficiency of online advertising is often superior to that of other media, are rethinking their media asset allocation during this turbulent time.

Long term, I believe that Fortune 500 companies will set a new pace in online ad spending. Why? Because they know that the Internet will continue to grow in terms of both penetration and time spent and many are already considering how the Web can play a more important marketing role as a communication and sales channel. Agencies are also taking the need to establish a real capability for dealing with interactivity more seriously as it touches virtually all major media. Advertisers are showing more interest and asking more questions and agencies must be in a position to understand and respond with the knowledge and resources necessary to lead their clients on the Web.

Up until now, only a few agencies really qualify in this area. The vast majority have not invested substantially in developing a genuine capability other than doing some creative work and, when necessary, having a few people in their traditional media department or in a separate media group. That's not unusual since the top 25 advertisers are currently spending relatively little on the Web and some do not yet even consider it a medium. It's tough for large agencies to justify the cost when profits are tied to the big spenders in traditional media. But that's all changing now because real questions from their clients about the Internet need answers. How should we use it? How can we determine its relative value compared to other media per dollar invested? Why have click rates declined so precipitously? Does it work for branding as well as direct response? And so forth. Some of these questions can be answered with empirical evidence while others require testing and more research to create specific concepts unique to consumer behavior on the Web.

Recent observations of leading companies from the top 10 advertising categories reveals a variety of online strategies. Some are relying exclusively on their own sites to market their brands with product information and promotions. Others are using very targeted special interest sites to create sponsorships with highly compatible content. Still others are using e-mail to alert customers to special offerings, new product introductions, or producing mini-sites for creating games and other forms of entertainment to engage the consumer.

The fact is that major companies are experimenting and doing more on the Web. Most in conjunction with their investments in traditional media. While offline media will continue to be used to promote awareness and broad reach, the Net will be used to drill deeper into the personal interests of individual consumers. All in all, marketing and advertising on the Internet will be very consumer-centric and the payoff will be bigger than ever before.

* - Lee Iacocca.

- Michael Drexler is Executive VP at Mediasmith, Inc. an integrated Interactive media planning and buying company. During his 41 years in advertising he has been Media Director of Ogilvy, DDB and FCB as well as Chairman of TN Media. He may be reached at mdrexler@mediasmithinc.com.