Digital Media History of Online Advertising

Digital Media: History of Online Advertising(Abhishek Uppal)In 1994, the first advertisement appeared on the Web, marking the beginning of the online advertising world, which reached $19.3 billion in 2006 in the United States alone. The Internet advertising world can be broken into five distinct eras:First Era: The Beginning Of Online Advertising (1994-1998)The beginning of online advertising was marked by experimentation and pioneering by advertisers, publishers, and ad serving technologies-both in terms of ad formats and ad delivery technologies. DoubleClick, one of the first ad serving technologies, launched its DART system in 1995. The first online display ad was an AT&T ad that appeared on Hotwire.com, a property that Lycos eventually acquired. The ad was a 468 x 60 banner that was placed online on October 25, 1994. Soon after the first online ad appeared, the first major change to online advertising came in 1996, when Hewlett-Packard embedded Pong (the first video arcade game) into a banner ad-creating one of the first interactive ads on the Internet, ushering in a new era of interactive rich media advertising. From the beginning, advertisers, agencies, and publishers realized that advertising online was both very different from traditional media, and perhaps more compelling. In no other media channel could advertisements be targeted and measured the way they could online. As with many technological innovations, however, the medium was misunderstood for a long period: Traditional advertisers and agencies would wait on the sidelines until the effectiveness of the medium was proven many years later.Second Era: The Boom Period (1999-2000)The frenzy that led to the Internet bubble was a rush by thousands of advertisers, many of them online businesses, to get consumers to click. While traditional advertisers in key verticals such as autos, consumer packaged goods, and financial services remained sceptical of the click, the influx of capital from the dot com boom drove pricing to irrational levels, guaranteeing that these cash-laden advertisers would remain in more traditional media, where standards abound and pricing was rational. At the height of this era, Internet spending reached $8.2 billion, a figure that would not be reached again until four years after the bubble burst. Yahoo!'s revenue in the fourth quarter of 2000 reached $311 million, the highest ever until then, and a figure that Yahoo! was not able to exceed until the second quarter of 2003, ten quarters later. The most important contribution of the boom period was the development of many technologies to target and deliver ads. Many advertisers, however, were alienated by the extremely low effectiveness of the online ads, their high prices, and the difficult process of buying online ad inventory.Third Era: The Bust And The Decline (2000-2002)Beginning in the second half of 2000, the dot com money that drove the bubble in online advertising began to dry up as the stock market collapsed and the economy began to decline into recession. The Nasdaq peaked in March, 2000 at 5,049 and did not bottom until October 2002, at approximately 1,100. As one dot com after another went bankrupt, so too did the online advertising dollars, causing a dramatic fall in online ad dollars. From 2000-2002, online advertising dollars declined from $8.2 billion to $6.2 billion, a decline of 32%. What made the decline even more pronounced was that many of the large publishers attempted to dis-intermediate the large advertising agencies by going direct to the advertiser. As the market entered an uncertain economic climate, the agencies were not interested in supporting an unproven new media channel.Fourth Era: The Recovery Period: Search Comes To The Rescue (2002-2004)Post-bubble, Internet advertising was in rapid decline with the exception of search, which was just beginning to show its high levels of efficiency. Because of its measurability and very high ROI, the U.S. search market quickly grew from $475 million in 2001 to $2.3 billion in 2003. By late 2002, we witnessed the beginning of a recovery in the overall advertising market. Advertisers and agencies increasingly realized the value of online brand advertising, especially for hard-to-reach demographics such as working adults or teens. Additionally, more traditional advertisers (such as consumer packaged goods companies) began to adopt online advertising and are largely driving the growth of display advertising today. Yahoo! also started to see growth, while AOL continued to suffer from declines. In 2003, we finally saw an overall increase in total online ad spending for the first time since 2000. The recovery period extended until 2004, when additional online inventories became popular and Yahoo!'s early resurgence was followed by MSN and vertical sites, then eventually by AOL, and finally by the smaller sites and the networks. At the same time, the role of the agencies in accepting the online inventory increased, albeit slowly and often reluctantly, as it became clear that online advertising is effective and as consumers increasingly spent more of their time on the Internet.Fifth Era: The New Growth Period: 2004-PresentSince 2004, we have witnessed rapid adoption of the online medium by advertisers and an increasing sophistication of the agencies and advertisers in using the Web as part of an overall marketing campaign or even as the central focus of the campaign. The New Growth period is also marked by a noticeable improvement in the efficacy of the broad online inventory with companies like Advertising.com and others offering highly targeted and very effective inventory to many advertisers. Increasingly, advertisers (including traditional consumer packaged goods advertisers) embraced the Internet as a branding mechanism and a vehicle to launch new products successfully. The hallmark of the New Growth Period is the full integration of the Web as part of the media mix, followed by the increasing position of online marketing, whereby it is now taking dollars at the expense of other mediums. Finally, search has become an important marketing tool and now roughly equals brand advertising in total spending. In the New Growth Period, Internet users have started to take more control of content creation, becoming an active participant in creating content, as opposed to just passively reading content. This increase in user-generated content has served to transform the way advertisers are approaching online advertising: Advertisers must now look to engage the user and often use a form of "viral" marketing to build brands online. Finally, with the increase in broadband adoption, starting in mid-2005, advertisers increasingly began adopting streaming video ads, which we believe will be the prevalent form of display advertising in the future.

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