The Crystal Ball Evaluated

Almost exactly two years ago I wrote a column describing the state of the Web advertising industry at the time, and offering some bold predictions as to what the world of tomorrow would bring. Here is that column, along with a mid-course evaluation of how good — or bad — those predictions were:

February 2000: Over 6,000 websites whose business models call for some part of their revenue to come from advertising. Many of these sites maintain their own independent sales forces, while others depend on revenues generated by multi-office rep firms.
Prediction: After the current shakeout is over, the Web will experience a segregation of sites into a very few (3-4) general-interest portals and a much larger number (2,000-3,000) of special-interest vertical sites. The portals will be able to maintain their own sales forces while virtually all the smaller sites will have their inventory sold by rep firms.
Reality: Not a bad prediction. Today over 80% of advertising dollars are concentrated in about 10 sites, and the remaining 20% is fought over by a couple of thousand others.



February 2000: 90% of Web advertising dollars are spent by way of CPM-based buys, with the remainder spent through response-based deals.
Prediction: Marketers will realize the Web is best used as a direct-response medium, and will allocate the majority (~60%) of their dollars via this relatively risk-free tactic.
Reality: While there has unquestionably been a migration toward cost-per-action (or ‘cost-per-whatever’) based pricing, most Web advertising is still sold the old-fashioned way: CPMs. But I still believe the Web is most attractive to marketers as a direct response medium.

February 2000: Over half of Web advertising dollars are spent on relatively static banners and other clickable images.
Prediction: Web advertisers and their agencies will use more lively and animated rich media to attract consumers’ attention. The trick will be to develop creative approaches that won’t be immediately bypassed by the consumer.
Reality: Rich media is taking hold, but slower than most people thought—myself included. The dramatic drop in media budgets was a significant contributor to that slowdown, which should reverse itself when the economy rebounds.

February 2000: Marketers generally have separate budgets—and agencies—for their online and offline campaigns.
Prediction: The Web works best as a medium that is integrated into other marketing efforts such as offline media and promotions. Marketers will learn that keeping their various agencies separate isn’t nearly as effective as having the Web be one among several arrows in the marketer’s quiver. The trick will be to develop one overall strategy that is integrated over all media.
Reality: There has been a consolidation of online with mainstream advertising, mostly because such a large number of online agencies are no longer around. But the end result is the same: a movement toward integration of media strategies.

February 2000: Relatively small audience panels are being used to report on viewership of thousands of Web sites.
Prediction: The Web reaches such a large audience (currently over half of U.S. households) who have such a huge range of choices that only mega-panels of millions of consumers will prove statistically valid and projectable.
Reality: We’re still in the heat of battle on this one. Media Metrix and NetRatings continue to duke it out with their (relatively) small panels, while at least three newcomers (Compete, Comscore, and Plurimus) use large-sample strategies for Web audience measurement. I still believe that one (or more) of the latter group will win out.

February 2000: Hardly any packaged goods marketers are using the Web as a medium.
Prediction: Packaged goods will represent a significant share of online spending as marketers learn how to use promotions, couponing, and Web-related offers to sell their products.
Reality: Oops. I was dead wrong on that one. Packaged goods are still the one big glaring omission in Web advertising. But when they do wake up, watch out.

February 2000: The Web is mostly accessed through PCs located either in the home or the workplace.
Prediction: New devices will allow consumers to access the Web easily virtually anywhere. This won’t just be wireless technology - it’s literally the full Web accessible in any location.
Reality: With wonderful new gizmos like the Handspring Treo and the Blackberry family, the Web is indeed becoming more pervasive. But America is way behind Europe and Japan, where the Web is commonly available—and used—through cell phones.

-- Michael Kubin is co-CEO of Evaliant, one of the web's leading sources for online ad data.

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