Even putting aside the issues of broadband access and
earnings release Wednesday evening promises plenty of insight into the direction of business over the Internet.
Tuesday brought two events suggesting that, for all the attention investors are paying to B2B and Internet infrastructure, the market for online advertising is growing briskly. Ad company
reported strong earnings and made bullish comments about targeted advertising, which the Net can arguably offer better than other media, while the
Internet Advertising Bureau
trade association reported that the Net ad business continues to boom.
So on AOL's earnings call, investors will be listening not only for information about the progress of AOL's fast-growing, high-margin advertising and e-commerce revenues, but also for hints about how AOL and Time Warner will be able to work together in advertising sales and other areas. "We expect the real takeaway from the earnings will be ... the potential near-term synergies of the proposed merger between AOL and Time Warner," wrote
Internet analyst James Preissler in a report Wednesday morning.
In the analyst Q-and-A portion of the DoubleClick call, CEO Kevin O'Connor disclosed that the company had performed its first test of email advertising using data collected by
, the company DoubleClick recently acquired that collects data about consumers' mail-order transactions. Speaking vaguely about the test, conducted in the form of a sweepstakes, O'Connor explained that it represented an attempt to verify whether DoubleClick could use the offline data to predict users' online behavior -- the driving force behind DoubleClick's acquisition. Can one match the online and offline data? "Absolutely," said O'Connor. "Is offline data useful? Can it predict online behavior?" he continued. "It does."
That's a good, albeit small, indicator for the consumer marketing possibilities at AOL and Time Warner. Assuming that neither grass-roots uproar nor government regulation hampers AOL Time Warner from integrating the consumer information it possesses, the company appears to have staggering chances for targeted advertising. "You've got 20 million AOL subscribers. You've got 20-plus million magazine subscribers," says a former Time Warner exec familiar with its online operations. "They'll have the most powerful direct marketing engine in the universe -- way ahead of anyone else."
In another good sign for advertising, the IAB reported Tuesday that Internet advertising amounted to $2.8 billion over the first nine months of 1999, up 125% from a year earlier. The latest figures, collected by
, put the industry on track to sell $4.4 billion worth of ads for the year, well over analysts' predictions. Consumer-related advertising was 32% of that number, up from 29% of online advertising in the second quarter and 27% from third quarter 1998.
But from the perspective of future growth, more interesting was what the IAB found isn't growing at all right now: Internet advertising sold as part of a package -- that is, in conjunction with a buy on another medium, such as television or radio. The amount of Net advertising sold that way, says the IAB, is about 1% -- a number that hasn't changed much over the past few years.
But that number will rise, says IAB Chairman Rich LeFurgy, as traditional media companies recognize the value of the Internet, as sales forces for Internet and other media advertising are integrated, and as advertisers demand it. Once the percentage of advertising sold in a package increases, he says, "It shows a greater acceptance by the main-line advertisers in recognizing the Internet as part of an overall media and marketing plan."
LeFurgy admits that other media don't do a significant amount of cross-media selling. But LeFurgy says he's confident the Internet could change that -- with, for example, a television ad campaign sold in conjunction with an online poll promotion. AOL, for example, has a long and rewarding history of doubling back on public pronouncements.
As always, Internet advertising won't be a layup for AOL Time Warner or anyone else; analysts expect that DoubleClick's revenue, for example, will drop sequentially from the fourth quarter to the first quarter because of seasonality in the advertising business. But beyond that, signs look good.
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