• by October 11, 2001

But it also showed how challenging it has become to convert Internet traffic into revenue. If anything, revenue from online advertising has fallen further since Sept. 11 even as big sites like Yahoo become a main source of news to consumers around the world.

When asked to come up with a new explanation for the persistent slump in the online advertising market, one Internet analyst recently proposed a troubling analogy.

"It may be that the Internet is a medium that is more like the telephone than the television," said Safa Rashtchy of U.S. Bancorp Piper Jaffray. "People have tried to do advertising over the telephone but it just never really worked well."

Rashtchy went on to say that the jury is still out, and he said he does not believe that it's necessarily the case that Web ads will go the way of phone ads.

But as key Internet media companies like Yahoo! Inc. and DoubleClick Inc. get ready to report another quarter of soft results in a downturn that has lasted longer than anyone expected, people are starting to wonder if the industry's problems can be blamed entirely on the weak economy.

Clearly the industry's early promises that advertisers would simply follow their customers onto the Internet has turned out to be naive.

While top media sites like Yahoo reach an audience many times the size of major magazines, the ad rates they get are far smaller. Moreover, the companies that have always spent the most ad dollars offline, the car and consumer goods makers, have only a smattering of an online presence.

"I don't understand why Yahoo hasn't been able to make it happen," said Rashtchy. "I try to put myself in the place of the chief marketing officer at a major car company, and I think I would happily pay $20 million to put my logo in the middle of an Internet page, if it was going to be seen by 80 million people who are fairly affluent, as a whole."

Yahoo has done better than most online media sites. The company's large audience numbers make it a good bet for just about anyone wanting to experiment with online advertising.

Yahoo's new chief advertising sales officer Wenda Harris Millard, in an interview just after she took over the job this week, maintained that the industry's current slump was simply part of a cycle that would turn.

"Advertising on the Internet is less than seven years old and, the idea that we have garnered $8.2 billion dollars (in the year 2000), that is absolutely extraordinary," she said.

Millard said she was excited by the progress the company had made attracting Fortune 500 companies as advertisers.

So far, though, there hasn't been much sign that the top consumer brands are putting much of their ad budgets on the Web. A recent survey by Jupiter Media Metrix found that the four biggest online advertisers last month were Microsoft Corp., AOL Time Warner Inc., Amazon.com Inc. and Yahoo! Inc. -- all either Internet companies themselves, or in the case of Microsoft, a company with a vast Internet operation.

And for all the talk of weeding out shaky dot-com advertisers, Jupiter's top 50 online advertiser list included some of the most troubled dot-com companies, including the bankrupt high-speed Internet service provider ExciteAtHome Corp., and the Internet incubator CMGI Inc.

"The reason for the problems is a crisis of confidence in the medium," said Mark DiMassimo, President of DiMassimo Brand Advertising in New York. Although DiMassimo believes the Internet will eventually be the most powerful advertising medium available, he said there will probably also come a recognition that it is not for everyone.

Just as many companies are finding billboard-like Internet banner ads ineffective, the more informational ads, which take advantage of the Internet's ability to provide detailed content, may not work for some of the biggest companies, he suggested.

"The Internet is a challenging medium for the Procter & Gambles of the world," he said. "How much relationship do people really want with their soap? Do they really want to go to an Ivory soap Web site and talk to other ivory soap users?"

Maybe not. But New York-based Unicast, which developed Internet ads that imitate TV, known as "Superstitial" ads, says a number of major advertisers including Procter & Gamble are finding this media-rich format allows them to appeal to consumers' emotions, the same way they can on television. Using this method, the advertiser can take over the entire computer screen to send out a message, instead of being confined to a tiny banner ad in the corner of the screen.

The problem is not that the Internet itself is an ineffective medium, argues Unicast President Richard Hopple, but that many of its early ad formats were ineffective.

"If you think of the Internet banner as being the same as an outdoor billboard, a short reminder message that can't convey emotion, it is not surprising that they sell for just $1 to $2 per thousand impressions," Hopple said.

Robin Webster, President of the Internet Advertising Bureau agrees, saying the industry's failures to date have been mostly creative failures.

Then again, there are companies like eDiets.com, whose success contradicts all the current thinking about the direction of the industry. EDiets, an online subscription site that assists members in their weight loss goals by delivering custom diets, and it's needed to create an emotional pitch to make its product work.

"Everyone says the banner ad is dead, but it's not," said David Humble, Chief Executive of eDiets, which spends about 95 percent of its ad budget on the Internet and is quickly becoming one of the most prominent advertisers online.

"I think we've used banner ads to attract a lot of people from conventional offline diet centers, by appealing to their emotions." -- Reuters