Category: Research

IDC has lowered its forecast for IT growth in 2003 because of increasing uncertainty about the economy.

I conducted a survey of CIO’s back in August and found them to be fairly optimistic about 2003 spending. But clearly we still have no idea what’s going to happen and no one’s going to spend money in that kind of environment.

“The outlook for the next six months continues to be extremely volatile and a double-dip IT recession can’t be ruled out in a worst-case scenario. But the fundamental drivers remain solid,” said Stephen Minton, director of IDC’s Worldwide IT Markets group. “Once the fog of war has cleared, there will be a gradual recovery in corporate profits and business confidence, and this will translate into increased IT spending. We expect to see improved market conditions in every region in 2004. And by 2006, the global IT market will generate $1 trillion in revenues.”

In other words, someday we’ll get past this, but we’re not sure when.

More and more online publishers are requiring users to register if they want to read content. Adrian Holovaty correctly points out that if you don’t do it well, site registration is an invitation to fraud, but Jay Small counters that eventually we’ll learn how to do it and readers will accept it.

In my opinion, demographics (even when they’re correct) are usually the wrong way to target online advertising.

Demographics are almost always proxy for something else. You may believe that the most likely user for your product is a woman between the ages of 25 and 44, but what you’re really looking for is anyone who might want to use your product. It’s just more efficient to buy magazines and TV shows that are viewed by women 25 to 44.

On the Web, you can target users by context and behavior. That’s a lot more powerful than demographics and it’s the reason why Overture and Google are changing the way we think about Internet advertising.

Booz Allen and Neilsen//NetRatings, in an article titled “Seize the Occasion! The Seven-Segment System for Online Marketing“, say:

The focus on demographics — the outward and visible signs of inward attitudes — grew more out of marketers’ need for analytical criteria than out of any inherent link between a person’s demographics and shopping behaviors.

…

But this approach simply applies traditional marketing methods to the e-world, without exploiting the Web’s unique strengths. The abysmal performance of targeted banner advertising on Internet portal sites, where click-through rates today average 0.1 to 0.2 percent, underscores the failure of this conventional wisdom.

Wherein lies the flaw? An exclusive study by the Digital Customer Project, an alliance between Booz-Allen & Hamilton and Nielsen//NetRatings Inc., shows that the most effective segmentation scheme for online consumers first groups them by their individual behavior at a point in time, not by demographics or psychographics, or even by aggregate online behavior.

There is also an excellent interview with one of the authors at AvantMarketer. Both the article and the interview are a little long-winded for my taste, but the point that demographics is a lousy way to target Internet advertising is dead-on.

Nora Paul distributed a list of research about kids online for last week’s New Media Conference at Berkeley. Two reports in particular were especially recent and interesting:

Connected to the Future is a report on children’s Internet use from the Corporation for Public Broadcasting. It addresses, among other topics, use among underserved groups.

MobileYouth2003 covers marketing mobile products successfully to the Youth, from a European perspective

Jupiter says that online content sales will rise from $1.5 billion in 2002 to $2.0 billion in 2003.

Jupiter didn’t define online conent in their public statements: “The $2.0 billion forecasted for paid content spending is fragmented across over a dozen categories ranging from news to sports to health to adult content, making it difficult for any one company to collect a significant share of that spending.”

Without further detail, it’s impossible to compare that number to the Online Publishers Association number of $1.3 billion in content sales in 2003. The OPA didn’t include adult content and Jupiter may not have included services and personals.

“For at least the next 18 to 24 months, most online media companies should generate 60% to 70% of their revenues from advertising.” says Jupiter analyst David Card. That average confuses the issue, probably by including some sites and sources that shouldn’t be lumped into the average. I estimate that non-adult online publishers are getting less than 10% of their revenue from content sales.
UPDATE: David Card tells me in email that their number does include such services as personals and greeting cards. Also, they put pornography at less than $250 million/year, with little growth.

Emarketer has a good overview of current research supporting online advertising:

• The audience is more affluent
• It’s effective in changing users’s perceptions of brands.

Robert Losch at Marketing Fix adds

• It’s the best way to reach the work/school audience
• Consumers are using it to find product information

DoubleClick claims that by increasing the amount of Internet advertising in your media mix, you can increase frequency and brand awareness.

I would add that it’s the best or even the only way to reach people who have begun to limit their consumption of commercial media: TV nonviewers, DVR users, or NPR listeners. Many of the people are as influential as they are difficult to reach.

Content destinations and content management software companies each represented 4% of the Internet M&A activity last year, according to Webmergers. Most of the activity was in infrastructure, consulting, and access businesses.

Buyers last year acquired 1,087 Internet-related properties for total spending of $23.3 billion, 15% fewer companies for 70% less money. In 2001, acquirers bought 1,283 Internet-related companies for a total deal value of $78 billion.

Top 10 Internet Categories – 2002

Sector	% of 2002 spending
Ecommerce destinations	16%
E-business enablement	14%
E-business payments	10%
Internet equipment	9%
Internet security	6%
Outsourced business services	5%
Internet systems integration	5%
Enterprise applications	4%
Content management	4%
Content destinations	4%

Source: Webmergers Database

Apparently, even the bottom-feeders aren’t interested in the content business. At least not yet.

Kevin Werbach points out that two of the top five sites on Alexa’s Top 500 are in South Korea.

While Korea may lead the US in broadband and cell phone Internet access, I find it hard to believe that two South Korean portals are more popular than Google.

Could it be that Koreans are more likely to install and use Alexa’s software? I would take any data from Alexa with a grain of salt.

It’s nonetheless amazing how much of the Web may now be simply invisible to English-speakers.

MSNBC reports that 43 percent of Americans say online advertising is “a nuisance” and 53 percent of active Web users are irritated by online ad clutter:

To be fair, clutter is considered a problem all over, with 75 percent of Americans saying that advertising is shown in “far too many places,” Roper found. TV commercials annoy 65 percent of Americans, and 56 percent object to the ads in print publications, Roper found.

But impatience with online ads is growing faster than with traditional media, according to Roper, posing a bigger problem for Web publishers who are still trying to prove the Internet’s marketing power.

While 38 percent of consumers found online ads to be “useful and informative,” an almost equal number, or 37 percent, found “almost none” of them to be useful and informative, the survey found. By comparison, 78 percent of Americans believe at least some TV commercials are “useful and informative.”

“This is a critical time for online advertising,” said Jon Berry, senior research director of Roper Reports. “In terms of usefulness, online ads have a long way to go to catch up to other media.”

Roper loses credibility points for having no information about this study on their site.

Let’s face it, the advertising industry doesn’t care whether it’s irritating or intrusive, only whether it’s effective. I’m not sure anyone in the ad industry puts a lot of stock in whether consumers find their ads to be useful and informative, only in whether they take an action or change their attitudes.

Having said that, it’s pathetic that online advertising isn’t considered at least as useful and informative as (gasp) TV advertising. Utility and information are what the Net is about, yes? [Thanks, MarketingFix!]

CMR/TNS Media Intelligence says that Internet advertising will grow 7.4% in 2003, after declining 12% to $5.7 billion in 2002.

This makes Internet advertising five to ten times the size of the paid content market, depending how you define content.

The biggest sites will probably get the largest share of this increase.

I’m winding down bashing the OPA’s billion-dollar-content report, which does contain a lot of good information. But I have one last question: why are personals included in their definition of content, when you can read the listings for free, but have to pay to add your own listing?

Shouldn’t personals be classified (no pun intended) as advertising?