Believe it or not, the World Wide Web and Michael Jackson have a lot in common these days.
Once red-hot wunderkinds, both have seen the public turn against them, cursing the empty hype and disappointment all while guiltily admitting to having been caught up in it at one point. Today's overly witty, irony-drenched dot-com freebie may one day seem as ridiculous as yesterday's red leather jacket with buckles, belts and zippers.
The Internet's chorus of backers has dwindled as investors demand business models that work, revenue streams that are real and a balance sheet that has dollar signs in the earnings column, not goofy metrics like "eyeballs." Advertising sales, once seen as the major source of online revenue, have dried up as advertisers have either gone out of business or pared down expenditures to the bare minimum while the economy cools.
Despite the rather unpleasant present, the Web has a future -- be it glory or gory. To get to the bottom of this,
TheStreet.com sat down with David J. Moore, the chief executive of
24/7 Media(TFSM Quote), which aggregates and sells online advertising. Moore says that today's Internet woes echo the days when Michael Jackson's "Dancing Machine" dominated the airways -- 1979 and the birth of the cable industry.
TSC: Is the Web dead? David Moore: No. We have quite a bit of research that shows us it's a very effective advertising vehicle. And we've done a number of studies that prove the effectiveness of banners in terms of creating product recall, purchase intent and behavior changes in individuals that have seen them.
What is happening right now is that the advertising marketplace is in a downturn. It's cyclical. And those of us who have been around for 20 years or so have seen these downturns before. In fact, we witnessed one in 1982 when the country went into recession and a number of new cable networks had launched. Everyone was questioning back in those days whether or not cable would ever be an effective advertising medium. And I think the Net's going through a lot of those questions as the newest medium on the block today.
TSC: One of the big issues in online advertising is how to price and judge the effectiveness of online ads. Many ad rates are based on whether readers click the annoying ad and completely ignore the fact that awareness is nonetheless being built. People still see the company's message, just like they do with print ads, but online places don't get any credit for that. Is this changing? Moore: I think it is, especially for those advertisers who cannot sell merchandise over the Web. For instance, companies like
Procter & Gamble and
McDonald's are not trying to sell tubes of Crest toothpaste or Big Macs on the Web in a transactional manner. What they are attempting to do with the ads they put on the Web is to create that intent to buy, which will influence that consumer when they go into the drugstore to buy toothpaste or they drive by a fast-food restaurant.
There's a lot of advertisers out there that use the television and print medium to create that intent to buy and those advertisers can't really use the Web in a different fashion. We are seeing a definite trend towards more and more of the traditional advertisers using the medium right now. But the problem is it's such a competitive environment that it's driving prices down.
TSC: What's it going to take to make people believe in the Web? Moore: I believe that research is the core driver here. If you look at the amount of research that we have today compared to what we had a couple years ago, it's quite dramatic in terms of the quality and results these studies point to in terms of what the Web can do for an advertiser. On the other hand, we're competing against media like magazines, newspapers, radio and television that have 20, 30, 50, 75 years of research behind them.
What I'm seeing in the marketplace right now is a bigger concentration on research than ever before, research that demonstrates to an advertiser how the Web plays a critical role in their media mix. And we're also seeing a lot more creative renditions of banner advertising. We've got these skyscrapers [long vertical ads], interstitials [a form of pop-up ad] and the Unicast format [a form of pop-up ad with more video and sound]. All these are healthy and helpful for the growth of the Internet. Again, I think we're just going through a growth phase right now and when we get through the other side of it, the industry will be in better shape as a result.
TSC: Research is all well and good and all, but are you seeing any anecdotal evidence that Web advertising is effective, like with the Super Bowl? Back in 1984, Apple hyped their Macintosh computer on the show and helped push this idea of using the Super Bowl for event advertising. It made TV ads look very effective. Do we have anything like that to speak of on the Web? Moore: We've got a lot of those types of results from a branding perspective, where the advertiser had a terrific result. Probably, the ones that have time and time again shown that the Web works for them are the direct marketers. They're only concerned with one thing -- return on investment. And you've got a number of companies that have been using the Web over the past three to four years just to generate sales for their products.
TSC: One thing that I'm concerned with is the state of online content, the places where most of these ads run. If you look at Salon and a lot of the other online content sites, they're in trouble. Salon's already battling delisting. Online content seems like it's dying. Can it survive this downturn? Moore: Well, before I start, one thing I'd like to point out is that delisting does not mean they're out of business, it means that their trading volume is not as high and they're not covered by analysts. It hurts you if you're looking to use stock to raise more money.
TSC: Still, these guys are in some trouble. Moore: Yes, well, most content sites are looking at reduced revenues compared to what they had last year. You know, the cable business survived because they had both subscribers and advertising -- two revenue streams overall. The networks right now are having trouble making money just by selling advertising. I think as
TheStreet.com has proven with its subscriber model, it's going to be important that the content side has more than one stream of revenue, other than advertising.
TSC: Is this more of a time issue? As in, it will take time for the industry to recover, people need to be patient and once the economy improves, business will snap back to where it was before? Moore: I think that's the case. And it'll snap back with fewer participants. If you look at the number of people selling advertising on the Web today compared to a year ago, there's been the reduction of 7,000 salespeople -- 7,000 people that were selling ads on the Web last year are not selling ads on the Web today. So there are going to be fewer competitors and those that are left standing after the smoke clears are going to have a much larger market opportunity.
TSC: There are also fewer places to put those ads. How does the closing of all the dot-coms affect the business? Moore: Well, that creates demand for supply. So overall the shakeout is going to be healthy. Look, the first cable networks started in 1979 --
ESPN,
Turner and
HBO, of course, which didn't take ads. In fact,
HBO started in 1975. But nevertheless, it took eight to nine years before cable was integrated into the media plan. It wasn't until 1987, when
ESPN got the America's Cup -- something that you couldn't get anywhere else, and then the next year it got NFL football and so did
WTBS, or
TNT. And that was when these networks started coming into their own.
But prior to those periods of time, selling advertising on cable was like selling vacuum cleaners door-to-door and people were always giving you reasons why they didn't want to buy these miniscule audiences. And I think the Web is going through this exact same period of time. The big difference is that we went through this time of exaggerated growth where we had 2,000 to 3,000 new product launches, which were launches of all these new Web sites. And new product launches always come with a lot of money behind them, whether its
Pepsi launching a new product or
IBM -- they spend more money.
So here from 1998 to let's call it the first quarter of 2000, you had all these dot-coms, which were new product launches, that created an artificial demand for Internet advertising and as a result, created a lot more revenue than you would have ordinarily seen if it was just a new medium growing in the same way that cable did back then.
TSC: And with so many launches, they glutted the market with too many products that consumers couldn't differentiate between. Moore: And if advertising on the Super Bowl really created such a return on investment, then all those 38 dot-coms that advertised on the Super Bowl in the first quarter of 2000 would still be alive and well.
TSC: Looking at the Web from a metrics standpoint, you have millions and millions of people going to Yahoo!, AOL and other sites, but it seems like if those were daily newspapers, the ad rates would be higher. But on the Web, it's different. Is there a stigma attached to advertising on the Web? Moore: Yes, I think part of it is that the banner ad just intuitively looks too small to some folks. Because direct marketers came in and seized control of the medium early on, which is par for the course -- they did the same as this in the cable business, too -- people looked at it as a transactional medium. I also think that because the Web is destined to become the most powerful advertising medium heretofore seen, that the expectations were that it would be that overnight. And it takes a while to get there, and as a result it's not meeting the expectations today, creating the stigma that you were talking about.
TSC: Where do you see the Web in five years from an advertising perspective? Moore: We have all the metrics we need to show how the Web integrates into the overall media mix of an advertiser. I think we've got the metrics we can use to prove that the Web provides a very cost-efficient and, in many ways, effective way for an advertiser to reach their key customers. I think we have an advertising community that integrates the Web into every single marketing plan that they develop.
TSC: So you'd say the Web isn't dead. Then what is the Web right now? Moore: Today it is still a very effective way for an advertiser to communicate with the audience that is most likely to purchase their products. You say we're in a down cycle, yes, [since] you don't have the dot-com spending like you did before and those advertisers that are spending are getting prices like they've never seen before. But I could argue, based on the [low] prices they're getting today, that there's no better way to market a product more efficiently and effectively than to buy an advertising schedule on the Web.
