What Lies Beneath


Lynn Russo Whylly digs below the surface of online spending and finds a murky morass


Follow the money. That was the objective. And by all accounts there is a lot of it online. Too much to keep track of, maybe. You can see the money spent on a banner ad, sure, but that's not the whole story of where the money goes. To quote a well-known secret source: "It leads everywhere. Get out your notebook. There's more.... just follow the money."

As Wall Street continues its bumpy ride, the media industry is itself bracing for a downturn. While there are plenty of bad things about a recession - like people losing all of their savings, their jobs and in many cases, their homes - it's not all negative. The bright side? Digital media joins the good company of porn, alcohol and cosmetics as industries that do well during tough times. Thanks to targeting capabilities, trackability and more concrete ROI, many brands turn to the Web when it comes time to advertise during a downturn. The Internet is a big place, though, which raises the question, where, exactly will all that extra money be going?

Display ads are one thing (see chart, page 35). What we became curious about is something less obvious, sometimes referred to as "below-the-line" spending. But before we could even begin to get figures, we needed a definition. This can be tricky, since everyone seems to have a different understanding of what it is. OMMA defines it as anything online that is not a paid ad or considered media, either free or paid: it's the background stuff, like Web design, audio streaming, video production, research, and even search engine optimization. In short, if it does all of the work and gets none of the glory, it's below the line. It's all the stuff most people don't think about, or know about, when they look at a Web site. Feeling pretty confident and armed with this bit of info, I began my quest to find out how much money is really down there.



Up at the Old Hotel

My investigation started with making the rounds of the research companies and asking for studies and analysts or experts who could speak to these topics. I was a little surprised when eMarketer, PQ Media and ZenithOptimedia had nothing to offer. Jupiter didn't even respond. Forrester gets a gold star for offering up the only report, even though it ended up being peripheral to my needs. A little discouraged but not defeated, I moved on to the top consulting firms. Accenture couldn't help. Neither could PricewaterhouseCoopers. McKinsey offered a glimmer of hope, but they wanted me to sign away my soul in exchange for an interview - they refused to be in any article that included their competitors, Booz Allen, Boston Consulting and Bain - and also wouldn't appear in any articles that included the names of any Fortune 1,000 companies. And, of course, they wanted to read all their quotes before we went to press. Needless to say, this interview never happened. And I was beginning to wonder if I was chasing a ghost.

Next up were the major agency holding companies. With little hope of getting anything precise, I asked for rough estimates and perhaps an insightful executive to interview. When I explained my task to a wpp spokesperson, he snickered and said, "Good luck." Nice. So I read to him from WPP's Q407 earnings release: "In 2006, the underlying relative strength of the inaptly named 'below-the-line' services reasserted itself, as marketing services grew to 52.5 percent of revenues. In 2007, they grew further to 53.8 percent." While they at least used the term in a recent report, the fact that they qualified it with "inaptly named" was not encouraging. The spokesperson explained that he thought it would be impossible to find what I was looking for, because no one breaks out digital media in the same way, and when you add the fact that not all holding companies deal in U.S. dollars, I would never be able to compare apples to apples even if I could find the information.

And to some degree, he was right. I took a look at the annual reports and sec filings for Omnicom, WPP, Publicis Groupe, Interpublic Group and Aegis. Everyone lumps advertising and media into one bucket. There was nary a mention of the word digital, let alone splitting above and below into their respective parts. Paris-based Publicis was the only holding company that even used the word digital, reporting that digital represented 15 percent of its revenue - 735 million (or a little over U.S. $1.2 billion). While this was more information than I got from the other holding companies, it didn't get me any closer to my goal.

The line, already arbitrary historically, had become further blurred by digitalization. This pixelated image shattered and spread every time I grabbed at it. Money flowed through brand pipelines from banks to agencies and into reported earnings. But how to tell what came from where? Further complicating matters: Agencies and advertisers seem to exert more effort laundering money than Pablo Escobar.

Setting the Ocean to Simmer

To get any information out of anyone, it seemed I would have to call every digital agency myself and promise complete anonymity, approval of all quotes, and the soul of my first-born in exchange for information. I needed W. Mark Felt. But he, of course, is done talking.

Instead, I got a bunch of Liddys. I called up every one of my usually reliable PR reps, and decided that instead of trying to boil the ocean, I would hone in on specifically what I thought was the largest slice of the below-the-line pie - Web design and production. Of the 14 reps I called, one came through. Yep. One. Of the other 13, one said, "Not really comfortable with this one." Another said, "I'm going to have a heck of a time justifying this request to my internal folks. What's the benefit to us?"

Meanwhile, my Deep Throat source clued me in to why I was having such a hard time. To start with, there is no universal definition for below the line. Then, when you go digital, forget it. He mentioned viral media, for one: things you create but don't pay for, such as blogging (which, okay, you sometimes pay for). But even he wasn't sure: "Or it could be that everything that offers ROI is above the line and everything that doesn't is below," which was closer to OMMA's definition, but it was becoming obvious to me that above or below, I was in murky waters.

He did, however, offer me some much-desired definitive numbers. Web design and production for his company's clients ranged from $8 million on the low end (by an insurance company that he felt was actually underspending in the market) to $120 million on the high end (by a major high-tech firm). A pretty wide gap, but still something.

He also provided insight into the reasons why I would never be able to reach my goal of sizing up the market: Truth be told, agencies don't have a clue. He attributed this to two reasons: 1) most, if not all, of Web production is done in-house - turning it into an employee wage calculation rather than a marketing calculation - while agencies primarily handled marketing-campaign related work such as new landing pages; and 2) Web work is handed out incrementally - on a project-by-project basis.

"You're not going to find companies making a wholesale Web site change - that was a very '90s thing to do," DT said, noting that it was not uncommon during the dot-com gold-rush days for companies to hand over millions of dollars in stock to build a Web site or portal. "Today," he says, "they do it a chunk at a time - putting a toe in the water." The average Web-design or production project today for his agency ranges from $48,000 to $100,000, and the frequency of projects is roughly monthly (the equivalent of somewhere between $576,000 and $1.2 million a year). In addition, he says, "it's a completely fluid and moving environment. As soon as you try to count something, it has already changed."


Hitting Bottom

My phone rings. It's Andrew Frank, research vice president at Gartner, calling from Stamford, Conn., to cloud the issue even further: "The distinction you're trying to make - what qualifies as below the line - is a significant definitional problem." He proceeds to tell me that, prior to joining Gartner, he worked for an agency on a major tech account. There, "Above the line was considered anything that came out of the retainer. Below the line was anything that was project-based or was billed additionally."

He went on to say that fees collected on Web site production had gone up over time but the volume had not, because, just as Deep Throat had mentioned, more and more companies were taking this responsibility in-house. The net result: "Agencies are charging more for a smaller slice of the pie," Frank said.

But getting back to my request, he added, "I think it's an order of magnitude. Companies are probably spending ten times as much on media in the online space as they are on production services. That's a wild guess, but I think it's a good ballpark."

As desperate as I was for any figure, even if it was a wild foul, we decided instead to follow Deep Throat's idea and look at growth of in-house Web development teams. According to, the average Web developer with between one and four years' experience makes approximately $45,668. How many people, on average, were on a Web team, I inquired, and how much had that number grown over, say, the last five years? Here, I hit another dead end. Not only could I not find any such information after calling eight leading it research and information firms, including IDC and CNET, but two people I spoke with said they were seeing contraction, not growth.

Peter Offringa, vice president of engineering for several CNET properties, including,, and, said that, over time, his Web development team has dropped by one-third, from 120 people to 80 people, as a result of the growth of open source software that can be reused, as well reuse of internal code. And anecdotally, a self-employed creative husband-and-wife team I spoke with said that their Web development work has actually gone up in the past couple of years, not down.

The money trail had grown cold, but there are two things we know for sure: Ad spending online is on the rise; and the Internet holds strong during a recession.

Recent predictions by eMarketer show that online ad spending will grow 23 percent in 2008 over the prior year and another 16 percent in 2009. Meanwhile, eMarketer senior analyst David Hallerman says, "The Internet will support continued ad-spending growth even as other media falter."

In a survey conducted by the Direct Marketing Association, nearly 50 percent of the participants responded that they are anticipating a recession but would spend more on e-mail, while 35 percent plan to spend more on SEO. At the same time, Forrester predicts that social applications, which allow advertisers to launch low-cost word-of-mouth buzz-marketing campaigns, will be an attractive place for a tight budget.

The future of the economy may be as uncertain as what goes on below the line, but one thing is certain: As long as people are flocking online, there will plenty of companies waiting there to sell them things.

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