With the days of static Web banner ads coming to an end, industry experts share their vision for the future of marketing on the Net.

When the World Wide Web was first woven, there were no banners or buttons -- the Web site was the promotional tool. In late 1994, however, Wired Digital, formerly know as HotWired, would take a controversial step in online marketing, inventing and placing the first banner ad on their Web site and bringing Internet advertising to a whole, new level. HotWired became the first site to accept and model its business around advertising and sponsorship, and Yahoo! and Netscape followed suit until banner ads were everywhere.

Three years ago, the average response rate on a banner ad was more than 2 percent. But as Netizens begin demanding more of the promise of the Internet (read: dynamic multimedia), static banner ads are not pulling the weight they once did. Today, click-through rates on banner ads are a scant .05 percent, and they continue to trend downward, according to industry experts.

Still, don't expect Web advertisers to banish banners from the mix entirely -- the banner model is probably the one metric that everyone agrees upon. However, experts do stress that banners must evolve beyond their static beginnings, and they point out that other online marketing methods, like affiliate programs, opt-in e-mail and traditional promotions, are showing the potential for even greater response rates than banner ads ever did.

"While banners are not going away, they are really just part of the overall package," says Josh Stylman, president and co-founder of Rotomedia, a New York-based online advertising firm. "I think both advertisers and publishers have to work harder to create things that are a little more ou-of-the-box. Banners are not the be-all, end-all."

Evan Neufeld, director of online advertising strategies for Jupiter Communications, a leading new media research firm, agrees with Stylman's assessment of the current state of the industry. "The bar is going to raise on several levels, from things like audience measurement to advertisers and publishers needing to deploy more of what we generically refer to as 'impactful creative,'" explains Neufeld.

To be sure, creativity is key to any successful campaign, online or off. But all things that work in the terrestrial world do not cross over into the wide world of the Web. Before embarking on the challenging journey of Internet advertising, experts suggest getting a grasp on the assortment of online marketing options.

Choosing Your Poison

"Never before have advertisers been able to put up a proposition, or a call to action, or an ad, and literally get results," says Steven Krane, CEO of Gamesville.com, a database-marketing firm disguised as a game show site. "The value of the Web is the ability to get the right message to the right person at the right time." (Click here for a feature-length profile on Gamesville.com.)

Choosing an advertising strategy for the Web can be a daunting task for many entrepreneurs who are forced to simultaneously consider their short-term and long-term goals, due to outside pressure from investors and customers. For the short-term, advertisers need to drive traffic and sales, but building customer relationships over the long haul is vital to the success of a brand.

This is where objectives come into play. The primary objective for most online marketers today is attracting "eyeballs," or viewers. Disney's recently launched Go Network, for example, is trying to gain market share by targeting the masses with a wide array of content, commerce and communities. If this is your goal, and you have the budget, experts say your money is well spent on television campaigns.

On the other hand, just as many Internet marketers are aiming at specific target audiences and accomplishing their goals with less capital. Online toy stores, like BrainPlay.com and eToys, often advertise on sites frequented by busy working parents. "There is no other medium that can actually put you in touch with consumers the way the Internet can," insists Krane.

It should be noted, however, that targeting on the Web is only one option, and it typically includes a price hike. "If the increase in price for targeted ads does not yield value, then targeting may not be worth the expense," says Guy Hill, director of marketing for ValueClick, a pay-for-results advertising network. "Careful planners will test both targeted and untargeted opportunities to determine the right fit for a given product."

And Neufeld is quick to remind online marketers about the media mix, the theory that dictates spending money in different mediums to drive traffic from different audiences.

"Advertising on the Internet is an effective way to build your brand or drive transactions of your services online and off, and TV is a great way to drive people to an Internet site," he says, "but it's all about balance." Neufeld cautions that spending 50 or 60 percent of your ad budget on one TV spot isn't necessarily the best way to allocate funds. "You need to be playing in multiple mediums in order to drive a successful Internet business," he advises.

Rich Media Technology Attracts More Eyeballs

Speaking of multiple mediums, there is a lot of buzz about this thing called rich media. What's rich media, you ask? It implies two things, really. On one level, it's a set of new technologies that will help revive an exhausted, static banner-ad model. But on a more philosophical and strategic level, it's about innovation.

Rich media combines sight, sound, motion and functional utility to an advertising unit, allowing the viewer to actually interact with the marketing vehicle. Today, rich media technology is generally used in banners and interstitial units, like e-mercials and pop-up ads. According to Neufeld, there are two schools of interactivity -- one produces brand awareness, and the other drives transactions.

The direction rich media is going in is facilitating banners that allow more transactive and informational capability, Neufeld explains. "That includes banners that, for example, allow you to buy a product within the banner, or a banner that will allow you to get product information about a particular service or good."

@Home Network's Enliven Business Unit, a leading provider of rich-media advertising, used the new technology to create an e-commerce-capable banner that allows users to instantly order a pair of Eddie Bauer's most popular khakis. And OnSale, a wholesale computer vendor, recently collaborated with Lot21 Interactive Advertising Group to create a banner where users can bid on auctions within the ad unit. Experts say this opens the door to impulse buying because consumers can interact with the vendor without leaving the site they are browsing.

Rich media also encourages viewers to interact with the brand by offering a more dynamic marketing message than can be displayed in a traditional banner ad.

"Rich media will take the pressure off trying to drive people to where the message is, and we can go back to bringing the message to where the people are," says Jarvis Coffin, CEO and co-founder of BURST! Media, a Massachusetts-based advertising management and networking firm. He says the contortions advertisers undergo in efforts to lure people from one site to another is somewhat abusive of the viewers' time and interest. "More importantly," adds Coffin, "it leaves unattended and uncultivated the relationships you could be having with the 99.5 percent of the people who don't click through, but may be otherwise interested in what you are trying to sell."

Early results from rich-media campaigns speak for themselves. According to Jupiter, rich-media ad units get an average click-through rate of 8 percent -- or about 16 times better than static banner or animated gif ads.

"With a great strategy, the right message, and creative that drives it home, marketers will get at least better-than-average results from rich-media campaigns," says Suzanne Brisendine, director of rich interactive marketing programs for Intel's Content Group. Brisendine evangelizes the benefits and uses of rich multimedia to marketers and advertisers, but she openly admits the challenges involved with this new technology.

The most glaring drawback to rich media is its overhead. While a traditional banner ad consumes only about 10k of computer system memory, rich media ads can gobble anywhere from 20k to 60k and up, significantly affecting viewers' download time.

"Our research shows that consumers don't want things to negatively affect their download time, especially advertisements," says Neufeld.

Until more Americans have access to broadband Internet connections, which are 50 to 100 times faster than traditional phone lines, rich media will not see its full potential. High-speed connections are necessary for viewers who want to avoid crashing their browsers while attempting to access sites that feature the new technology.

Furthermore, Neufeld says, creative agencies are still learning how to deploy rich media effectively.

And then there's the cost: Rich-media advertising campaigns are more expensive to create and launch than traditional marketing methods. Yet media-planning rules apply online just as they do in the physical world, and experts say merchants should commit to at least three months of online activity in order to gauge the true effectiveness of a campaign.

"From that standpoint, you should probably plan on buying 250,000 to 500,000 impressions each month just to have a legitimate reach," says Coffin. "This will run about $3,000 to $5,000 per month."

Affiliate Programs Charge by Results

Amazon.com pioneered affiliate programs, which emphasize the Golden Rule of retail success: location, location, location. Through these partnership networks, e-tailers can merchandise their products and services on targeted sites all over the Web -- with little or no associated overhead.

However, affiliate programs are priced a little differently than rich-media campaigns, which are usually run on a CPM, or cost-per-thousand, impression model. Affiliate programs work on a pay-for-performance basis. This is attractive to many Web merchants who are used to acquiring customers at a loss, assuming that they will be able to up-sell the customer later.

"Affiliate programs give merchants the opportunity to acquire customers at a profit," says Brad Aronson, president of Philadelphia-based i-frontier, an Internet advertising agency, and co-author of "Advertising on the Internet." "And it's great if you've got a niche where you are selling something, and there are a lot of Web sites that fill that niche because those sites may not have a lot of advertising and may be very receptive to doing so."

Overall, this is a low-risk way to enter the world of Web advertising. Still, it is absolutely critical to manage an affiliate program responsibly, or hire an agency to do so. The logistics of maintaining an affiliate program can be quite expensive, but agencies like Be Free and LinkShare coordinate affiliate programs for Web merchants on a cost-per-response basis. Advertisers can expect to pay up to $.17 per click to the publisher, in addition to sharing a small percentage of affiliate-generated revenues with the agency.

"If an affiliate network doesn't work for a merchant, they incur no cost, whereas if it does work, the cost is proportional to how well it works," says Samuel Gerace, executive vice president of technology for Be Free.

Affiliate programs are working quite well, according to industry experts. And technology now allows for more sophisticated programs that include photos of featured products from the advertiser's inventory, as well as links to specific areas on the merchant's site. These advancements produce about 10 times the sell-through rates produced by banner ads, says Gerace, because the affiliate links are displayed in context. This is referred to as "contextual targeting."

"The fact that products are displayed in context means you are catching a viewer at exactly the moment they might be interested in buying, and they've already demonstrated, by wanting to view the content of the site, interest in that particular area," Gerace explains.

Gerace also stresses the importance of branding, insisting that an affiliate network must be a merchant-branded experience in order to be truly effective. This brings us to the disadvantage of affiliate networks: With so many sites selling for the merchant, there is some loss of control over the brand.

"Affiliates are going to do whatever it takes to sell," Aronson explains. "It's usually not awful, but on occasion, you'll see your brand portrayed in a way that makes you a little uncomfortable."

Experts say the 80/20 Rule applies to affiliates -- that is, 20 percent of the affiliate sites in your network will usually generate 80 percent of the revenues. This assessment is leading online marketers to consider additional options in order to achieve greater balance in their promotional efforts.

Database Marketing Individualizes Sales Efforts

Direct marketing via e-mail is gaining ground with online advertisers looking to achieve true one-to-one marketing. Also called opt-in e-mail marketing, direct marketing via e-mail is yielding high sales-conversion rates at a relatively low cost of acquisition.

Opt-in e-mail should not be confused with unsolicited commercial e-mail, or spam. Opt-in e-mail is permission-based, as in the case of sites like XOOM.com, E-greetings and Gamesville.com, where registered users are invited to receive announcements on specific topics of interest. This makes direct marketing via e-mail even more effective than direct marketing in the postal world, which is based primarily on ZIP Codes. Direct marketing on the Web allows merchants to track individual customers instead of anonymous residents.

Jupiter predicts that this method of online marketing will be big and has numbers to back it up. According to Neufeld, the average cost to send an e-mail message ranges from $.01 to $.25 vs. $1 to $2 to sent a direct-mail piece in terrestrial spaces. What's more, the average response rate for opt-in e-mail can be anywhere from 15 to 30 percent, as opposed to 1 to 2 percent with traditional direct mail.

"The effectiveness is absolutely stellar in terms of click rates -- double digits are not uncommon," says Ken Wruk, president and founder of WebPromote, a leading Illinois-based Internet marketing agency. "But beyond the click rate, the conversion rate and ROI that are achievable are also many times greater than banner advertising."

The channel, though obviously effective, does have its attending miseries. A low barrier to entry means that many people will use and abuse the direct e-mail channel. "By the middle of this year, the sheer number of messages consumers [receive] will actually eclipse the amount of mail you get in your mailbox traditionally," says Neufeld. "There will be a lot more people using e-mail, and that will make it harder for any particular marketer to rise above what's going to be an increasingly cluttered mailbox for consumers."

As well, Wruk says there is a severe shortage of subscribers who have raised their hands to request e-mail announcements. And then there's the challenge of overcoming privacy concerns.

"Opt-in e-mail allows the consumer to jump in or out of a program at his own free will," explains Krane. "Part of the privacy issue is about permission as much as it is about privacy."

Database marketers do not sell e-mail addresses to merchants as direct-marketing firms sell street addresses in the physical world. Instead, a merchant gives a targeted message to the marketer, and the marketer sends it to individuals who meet the merchant's requirements.

All in all, Neufeld says opt-in e-mail marketing will continue to be a very effective channel for Web merchants.

Traditional Promotions Round Out the Media Mix

For advertisers who don't just want to preach to the converted, traditional advertising and promotions can round out the marketing mix nicely. Experts agree that traditional advertising drives traffic to a site, and many of the larger Web-based players, like Amazon.com, E*TRADE and Snap.com are now extending their marketing efforts offline.

"The idea of sales promotion and some of the more traditional tactics in promotion allow you to have a brand experience with a specific call to action," says Di-Ann Eisnor, CEO of Eisnor Interactive, which assists online companies, such as TheStreet.com and N2K Inc., with establishing offline branding strategies.

However, Aronson recommends that smaller Internet-based companies start out advertising online before experimenting with traditional promotions, due to the higher costs involved. No doubt, traditional advertising is much more expensive than online marketing with banner ads, affiliate programs and opt-in e-mail. Pilot programs in local markets can cost as much as $50,000, and national media buys can exceed $5 million.

At these premiums, Eisnor say Web merchants who choose traditional advertising must leverage their media dollars by getting free public relations impressions and pursuing partnership opportunities. "Success with traditional advertising depends on using all the leverage you can muster from the PR side and the word-of-mouth side to get more bang for your traditional media dollar," she suggests.

New Challenges for a New Medium

Armed with the information to conquer the world of online advertising beyond the banner, Web merchants must prepare to spend a lot of time and effort on their campaigns, from testing the Web site to coordinating creative development, testing the ads, and optimizing placement. Most online-marketing mistakes stem from inexperience, leading experts to suggest dedicating human resources for the project or hiring an agency to do it for you.

Either way, Web merchants must be sure their sites are functioning properly, both on the front end and the back end. In other words, if you are marketing shoes, you better have a Web site that can handle selling and delivering those shoes. Other than that, says Neufeld, you cross your fingers and hope you know what you are doing.

"In traditional advertising, we have 40 years of data to make intelligent decisions," he explains. "The Internet is kind of a Wild West show, and individual companies need to act intelligently."

Neufeld says with the number of users on the Internet increasing exponentially every year, it is really important to be ubiquitous. To a certain extent, it's marketing 101 -- do smart things, figure out where your audience is, and figure out what your cost of acquisition vs. ownership is. On the other hand, says Neufeld, it's a matter of not necessarily sticking to the old rules. You need to be very strategic and have a good sense of your brand and your value proposition when you are trying to market in any medium.

"The brand is what makes the company. It's all about brand, and what the brand stands for, and how you leverage brand assets -- and that's what a lot of Internet companies need to figure out," says Neufeld.

Measuring Results and Click-Through Caveats

Brand is vital in Web marketing, giving experts all the more reason to caution against measuring results on click-through alone.

"What if all the people who click through get to your home page and leave? It's actually a bad branding experience because they thought they'd get something from the ad and then got to your home page and realized they weren't going to get it," explains Aronson. He suggests that an effective brand hit has occurred when a user clicks through, then browses the merchant's site, looking at two or three pages before leaving. "Based on that, you can come up with the dollar value and measure, in dollars, how successful the campaign was," he explains.

Aronson hit the nail on the head. What marketers want most from an advertising campaign, online or off, comes down to three letters: R-O-I.

"At the end of the day, it's going to be revealed that the Internet is not the Holy Grail of media accountability," says Coffin. "Advertising is never going to entirely boil down to a science. In many ways, the Internet space is more accountable than traditional media today, but I think it's almost absurd to think we can drive to a point where it's entirely based on results, in terms of ROI on the media dollar."

This leaves the whole pricing structure of online advertising up for negotiation. "As long as buyers know that a site wants that buyer's dollars, and that site has unsold space, there will be room for price reductions and added value on paying orders," says Hill.

Indeed, there is a lot of surplus inventory on the Internet these days. Depending on what estimates you listen to, as much as 75 to 80 percent of ad space on the Internet goes unsold each month. A buyer needs to know what's reasonable, says Hill, but in most cases, if a site won't work with you on price, one of their competitors will.

Internet Advertising Beyond the 20th Century

Jupiter reports advertising projections that put the market at about $7.7 billion by 2002. But Neufeld says those numbers could change. The next 18 months are going to be a critical time for the Internet as an advertising medium, he says, and it's really going to impact whether those numbers go up, down, or stay the same.

"The problem the Internet suffers as a marketing vehicle is the disconnect between the hype of what the Internet was supposed to deliver and the current state of affairs as it relates to rich media and targeting and a whole host of things," says Neufeld. He doesn't view the problems as terminal, but suggests they must be addressed before we can move forward.

"One final word of caution," jokes Krane, "call me next month, and let's figure this out all over again."

Copyright © 2002 by Virtual Advisor, Inc. All rights reserved.