The Web’s Attraction To Readers Is Not Matched By The Advertising Bucks From The Big Guys, Nor The Public’s Trust, And Now There’s A Dip In Internet Growth

Philip Stone June 20, 2008

The news for the web hasn’t been so great lately -- a new Yankelovich study says that ads on traditional media platforms make a more positive impression than digital, which may be why the Procter & Gambles of this world still put the vast bulk of their spend into traditional platforms, and that readers say they trust traditional media more than they do the Internet, and to top it off Q1 saw the Web’s first growth blip.

The Yankelovich study gives good reason for the major advertising players to still keep their wallets closed when it comes to committing the really big bucks to Internet advertising. Oh sure, they are all dipping in, and increasing their Internet spend each year, but it’s not as if they are jumping into the deep end of the pool.

Take Procter & Gamble, the largest US advertiser. In 2007 it spent some $5 billion on advertising, the great bulk going to television and just 2% of that spend found its way to the Web. Now 2% of $5 billion is still $100 million and in the Web’s world that is nothing to be sneezed at, but the percentage is indicative that P&G still relies far more heavily on traditional media than it does the web to get its message across. Apart from previous success, why?

The just released Yankelovich survey, When Advertising Works, may hold some of the answers. The study said 56% of those surveyed believe traditional media ads made a more positive impression than did digital, while only 13% said traditional media ads gave them negative reactions compared to 21% who said the same for digital.

And the survey also came up with another point that goes against what we have believed about the Web in the past – it seems  that if people really like a TV ad they are far more likely to boost it by word-of-mouth than they do with a similar ad found online.

Television has served P&G well over the years and the networks themselves were pleasantly surprised that given falling audience figures their upfront selling in May was far more successful than they had expected. So maybe less people are watching  the networks – perhaps because of more TV choice, perhaps because of the Internet – but advertisers still seem to prefer old dogs to new dogs and while they are embracing the Internet with added spend each quarter for the big players it is still a pittance of what they spend elsewhere.

And while we are used to seeing huge Internet annual growth numbers don’t forget how much of that belongs to Google. Fully 41% of Web advertising is search and Google rakes in from between 68% to 76%  of that depending on the source for the numbers. Strip search out and a few other categories like classifieds and email and display advertising  ends up with only about 34% of online ad dollars.

In the UK, incidentally, where Internet ad revenues are forecast to be more than TV this year, the Google dominance is even more pronounced. Paid search is forecast to exceed £2 billion ($4 billion), fully 60% of the online ad spend,  and in the UK Google owns 80% of that.

The Interactive Advertising Bureau says US Q1 web advertising revenues grew  18.2% over the same period last year to reach  $5.8 billion but strip out search and the others and there’s only about $2 billion for display.

But take a closer look at that 18.2% figure. It marks the first time after 13 straight quarters of revenue growth that the figure was less than the quarter before. In Q4 last year growth was $5.9 billion so the following Q1 was just below and while there is spin about Q4 Christmas shopping and the like, that didn’t apply the year before, or the year before that, so spin is spin and things really are slowing down a bit.

The online advertising market has grown by leaps and bounds in the past few years – 30% for each of 2004 (when total value was $9.6 billion) , 2005, and 2006, and it slowed to 26% last year ending at $21.2 billion. This year the forecast are calling for growth less than 20%, in fact it could be a lot less than 20%.

The current economic climate, including $4 gas, seems to have changed everything. Note newspapers that are now reporting really dismal print revenue declines and their Internet revenues, while growing, have slowed way down. If there is one sector that should be doing well on the Web it is a newspaper’s own web site which has a high trust factor with readership and therefore remains attractive to local advertisers, but that growth is definitely slowing and that is the worst news for newspapers that are counting on the Web to make up as much of print’s losses as possible, and quickly.

What it all boils down to is that we are now in uncharted waters but any thought that  Web growth will withstand current economic woes now seem to be off the mark.