Move Over, TV

Posted: 10/1998

Move Over, TV
Internet Captures Imagination, Dollars of Telecom Industry Marketers

By Jennifer Knapp

Advertising on Internet is fast becoming a common strategy for companies in many
industries, and, according to one study, telecommunications’ heavy-hitters are leading the
way. Unlike television, with its massive appeal and commensurate cost, experts say the
Internet is a mass medium that could be a cost-effective advertising venue for large and
small carriers alike.

In its 1997 cross-industry study, "Trends in Internet Advertising,"
InterMedia Advertising Solutions, New York, ranked the top 100 companies for Internet
advertising spending. Among the contenders for the top 10 positions was AT&T Corp.,
landing in eighth place with nearly $6.5 million in Internet ad spending. Not far behind
was Bell Atlantic Corp. in 14th place. Also included in the top 100 were Sprint
Communica-tions Co., US WEST Inc., Pacific Bell and BellSouth Corp.

Image: Telecom Companies Among the Top 100 Advertising Spenders on the
Internet

Overall, the study found that the telecom industry is a big spender, the third largest
behind the computer/software and financial industries. At $32.6 million, telecom industry
Internet ad spending represents 5.99 percent of the total. That number is on the rise,
increasing from 1996 to 1997 by 68.79 percent.

Growth for the medium also shows no signs of slowing. eMarketer’s 1998 eOverview Report
cites growth rates for Internet advertising starting at $1.5 billion this year and growing
to $3.8 billion in 2000 and $8 billion by 2002. The ability to target will be key to this
growth, says New York-based eMarkerter. And it will be key to smaller carrier
participation, analysts say.

"There is a space for smaller carriers [to be successful with online advertising],
and actually it may be a more cost-effective space to be in because of the targeting
ability of the web," says Drew Ianni, analyst, online advertising at Jupiter
Communications, New York. "It could make a lot more sense for smaller players,
instead of trying to compete at the mass market advertising level, to go online where they
can reach very targeted, specific customers."

Image: Top 5 Spenders

For all its improvements over other transmission media in the area of micromarketing,
Ianni says Internet advertising has a long way to go "for the Nirvana of one-to-one
targeting."

Jupiter’s recent research on the growth of online marketing warns that targeting is a
critical step to web-ad success, and it has not been successfully addressed thus far.

"The relatively high price of ads compared with the price of ads in traditional
media is theoretically justified by targetability and interactivity," Jupiter
reported at its Third Annual Online Advertising Forum. "Without real targeting,
however, the potential of interactivity goes largely unrealized."

Because websites mostly are unable to provide demographic data such as age and income,
targeting becomes impossible, explains Jupiter’s Evan Neufeld, practice manager for online
advertising strategies.

Web industry players are not letting the issue slide, though.

"The current crop of deals between ad targeting technology vendors, and major
websites and other tech players should serve to accelerate the development of targeting,
but the time to move was yesterday," Neufeld says.

Image: Connections

America Online (AOL), for example, presented Tel-Save Holdings Inc., New Hope, Pa.,
with a certain amount of targeting, which allowed the long distance carrier to launch a
very successful ad campaign for AOL members.

"We loved the demographics of AOL," explains Tel-Save’s president, Gary
McCullan. "They have 13 million users, of which about 10 million are domestic. In
addition, the average household income is about $75,000, they have more than one phone
line and they use cellular phones."

After targeting AOL’s membership, Tel-Save arranged a 50-50 profit sharing arrangement
with AOL in March 1997, in which Tel-Save advanced the Internet service provider (ISP)
$100 million. In return, Tel-Save received 1.5 billion impressions in the form of pop-up
advertisements, banner ads and positioning on the welcome page.

In the campaign’s most recent customer drive, Tel-Save pulled in 850,000 new
subscribers in one month.

But this feat was not accomplished wholly through Internet advertising. AOL gave
Tel-Save addresses for 8 million members for a direct mail initiative, which generated an
11 percent return rate, McCullan says.

Tel-Save’s mixed media campaign strategy was a sound one, analysts say.

"Marketers will still rely on other, offline media to create awareness, build and
promote their brands," says Sam Alfstad, publisher of eMarketer. "The Net is
merely one tool, with specific strengths and weaknesses, in the overall advertising
mix."

While the Tel-Save/AOL model is an excellent example of the possibility online
advertising offers, it is more likely an exception as there are few other gateways vendors
with whom these results could be duplicated.

That is not to say that opportunities to reach millions of people do not exist on the
Internet. Notes analyst Ianni, it only took 4¹/2 years for the Internet to
penetrate 20 percent of the American population, whereas it took television eight years
and radio 13 years to do the same. However, industry insiders say the Internet’s growth
and momentum should not overshadow the fact that as an advertising medium, it is still in
its infancy.

Burke Stinson, spokesman for AT&T, adds that "the Internet, as an enterprise,
is almost like the telephone itself was 100 years ago. It is brand new, it is growing and
it is undisciplined."

"If you look closely at [online advertising], you can find a dozen reasons why a
company would want to stay away," Stinson says. For example, AT&T ran an online
advertisement using a voice-enhanced commercial that "annoyed people." The
carrier also received a lesson about the shareware atmosphere of the Internet when a
company copied an AT&T online ad and put it on its own website to entice other
companies to advertise with it.

Despite these early bumps in the road, Stinson says AT&T would rather grow with the
medium than stand on the sidelines. "I think that is what a lot of conservative
companies do because they are afraid to stub their toe from time to time," he says.

Once a carrier decides to take the plunge, choosing where to advertise is the next
step. The most popular publisher for overall web advertising during 1997 was Yahoo!,
topping the list with $63 million in ad revenues, according to the "Trends in
Internet Advertising" study. Infoseek, however, was the breadwinner in
telecommunications industry ad spending, followed by Yahoo! and Excite, the study showed.

While the cost of placing an ad on these sites might overextend a smaller carrier’s
budget, there are other places to advertise on the web, and there are agencies focused on
finding those spaces. DoubleClick Inc., an Internet advertising solutions company,
represents publishers such as Alta Vista search engine, and sells their advertising
inventory for them, Ianni says, adding they take ads and service them out to a
conglomeration of sites.

Jennifer Knapp is News Editor for PHONE+ Magazine.