The State of Online Advertising

The State of Online Advertising
Data Covering The Fourth Quarter, 2002
Prepared by:

Charles Buchwalter
Vice President, Client Analytics

David Martin
Analyst
February 3rd, 2003

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The State of Online Advertising
Fourth Quarter 2002
Page 2 of 2
Table of Contents


I. Executive
Summary
3
II.
The State of…
1. The
Industries
5
2. Media
Buying
9
3. Web Sites and Publishers
14
4. House
Advertising
19
5. Advertising
Strategies
22
6. Ad Sizes and Formats
25
7. Pop-ups
30
8. Rich
Media
34
9. Rate Card Value
37
10. Fortune 500 Advertising
40
III.
Appendix A: Methodology
43
IV. Appendix
B:
Limitations
44
V.
Appendix C: Figures Described
45
VI.
Appendix D: Glossary
49

Copyright Nielsen//NetRatings, 2003. All rights reserved.

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The State of Online Advertising
Fourth Quarter 2002
Page 3 of 3
Executive Summary
Since our last “State of Online Advertising” report in early 2001, the market
has grown and matured by leaps and bounds. The ubiquity of the full banner
has yielded to an onrush of new, larger ad sizes. The animated gif has given
up ground to Flash, Java, and many branded rich media technologies.
Traditional embedded advertising methods are now challenged by new
delivery mechanisms such as pop-ups, interstitials, and “floating” ads such as
Eyeblasters. All of these technological jumps have come as a result of
increasing demand by advertisers for “ahead of the curve” methods of
delivering messages online.
In this report we discuss all the major facets of online advertising from a
data-driven standpoint. Using Nielsen//NetRatings’ AdRelevance service, we
poll industries, website genres, technologies, and ad pricing data to piece
together a snapshot of the market as it stands today.
• Chapter one reviews which industries are placing the most ads
online, and offers a breakdown of traditional versus dot-com
businesses advertising.
• Chapter two provides a statistical view of current trends in media
purchasing. It may answer questions you have about how your online
ad campaign stacks up to industry means and medians.
• Chapter three polls website genres to scope the hottest places to
advertise, and which types of websites attract the most clients.
• Chapter four updates the state of in-house advertising, and how
websites are faring at selling their inventory.
• Chapter five covers advertising strategies employed by marketers
online today. The historical push and pull between direct marketing
and branding has given way to a medium dominated by direct
marketing.
• Chapter six provides an in-depth look at the shape of the online
advertising universe, and how the dimensions and formats of
embedded ads have changed over the last two years.
• Chapter seven looks at the ads that everyone loves to hate: pop-ups.
Despite what seems like an endless fight against browser-spawning
ads on the desktop, pop-ups are not as prolific as one would think.
• Chapter eight focuses on the rich media technologies that have
caught marketers’ eyes by delivering lush content to the web.
• Chapter nine reviews the decline of published rate card value, but
provides encouraging insight into the increase in rates concomitant
with larger ads.
• Chapter ten concludes the report with a view into the online dealings
of Fortune 500 advertisers. This important sector of advertisers has
Copyright Nielsen//NetRatings, 2003. All rights reserved.

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The State of Online Advertising
Fourth Quarter 2002
Page 4 of 4
increased its share of ads on the ‘Net, and may be a positive indicator
of things to come.
This report will hopefully answer many questions about the high and low
points of online advertising, and provide a benchmark starting point as we
move through 2003 with optimism regarding the future of the online
medium.


Charles Buchwalter
Vice President, Client Analytics
Nielsen//NetRatings
Copyright Nielsen//NetRatings, 2003. All rights reserved.

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The State of Online Advertising
Fourth Quarter 2002
Page 5 of 5
Chapter 1: The Industries
If two years ago was the dot-com bubble, then today must be soap. The
market is slippery, but not without substance. “Pure play” is out; the
“interactive ingredient” to traditional business models is in. More bricks-and-
mortar companies are advertising online than ever before; and a close look at
the leading industries online provide a first glimpse at the online advertising
landscape.
Late autumn is the time for holiday promotions to proliferate across all
media, so it was no surprise to see retail goods and services so far ahead of
other industries in the online space during the fourth quarter (see Figure 1.1).
Dominant players such as Amazon.com, Barnes & Noble, Estee Lauder,
Columbia House, and Bertelsmann purchased millions of impressions to
keep their brands in the forefront of the consumer conscious. Financial
services advertisers, led by Ameritrade, Bank One, and Scottrade, were the
second most visible online advertising industry, but trailed retailers by over
50 billion impressions. Web media and telecom advertisers remained
consistent, but travel advertisers such as Orbitz also contributed to the
holiday boom.
Figure 1.1
Industries Ranked by Online Advertising Impressions
Fourth Quarter 2002

Retail Goods & Services
Financial Services
Web Media
Telecommunications
Travel
Consumer Goods
Hardware & Electronics
Entertainment
Business to Business
Health
Public Services
Software
Automotive
-
20
40
60
80
100
Billions of Impressions

Source: Nielsen//NetRatings, January 2003
Industry watchers love to ask about traditional advertisers and their
prominence in the medium. Their questions are justified, as speculation
flourished two years ago whether or not online advertising would sustain
growth even with the outflow of dot-com dollars and the urgent need for
support from traditional business models. During the first quarter of 2000,
Copyright Nielsen//NetRatings, 2003. All rights reserved.

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The State of Online Advertising
Fourth Quarter 2002
Page 6 of 6
only 48 of the top 100 online advertisers were businesses operated on a
traditional model. Those 100 advertisers made up 62 percent of all online ad
spending, meaning that a large bulk of online ad dollars was coming from
pure dot-com plays. During the fourth quarter of 2002, 71 of the top 100
online advertisers were traditional business model companies, and those 100
made up 67 percent of online advertising.
Broken out by industry, we see that the rate of traditional advertising is high
in all industries but entertainment and web media (see Figure 1.2). Analyzing
the top 100 advertisers in each industry, we indexed the number of traditional
players against one another. Old-line players dominated industries such as
consumer goods, automotive, and health. Travel, financial services, and retail
also skewed heavily toward the traditional. The entertainment industry was
weighed down with scads of online gambling companies like Cassava
Enterprises, owner of the popular Casino On Net gambling property. Web
media’s slant toward dot-com businesses makes sense by virtue of its name,
most advertisers consisting of online content providers.
Figure 1.2
Traditional Advertiser Index by Industry
Fourth Quarter 2002
Consumer Goods
99
Hardware & Electronics
98
Automotive
97
Public Services
95
Health
94
Telecommunications
92
Software
92
Travel
84
Financial Services
77
Retail Goods & Services
64
Business to Business
63
Entertainment
42
Web Media
41
-
20
40
60
80
100
Traditional Advertiser Index

Source: Nielsen//NetRatings, January 2003
During the fourth quarter of 2002, the top 100 online advertisers comprised
63.4 percent of all Internet ad spending (see Figure 1.3). The Leading
National Advertisers, as reported by Ad Age, comprised 35.9 percent of all
media except Internet in 2001. This same group of advertisers comprised
49.5 percent of all TV advertising in 2001. Presently, a large media buy in
the online space represents a larger share of total ad dollars than in other
media.
Copyright Nielsen//NetRatings, 2003. All rights reserved.

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The State of Online Advertising
Fourth Quarter 2002
Page 7 of 7
Figure 1.3
Top 100 Advertisers’ Share of Total Spending: Various Media
Fourth Quarter 2002

Share of Total Ad Spending (%)
Leading National Advertisers on All Media Except Online
35.9
Leading National Advertisers on TV Only
49.5
Top Online Advertisers
63.4
Source: Nielsen//NetRatings, January 2003
Source: Ad Age, January 2003
Advertiser competition within the individual industries varied in the fourth
quarter from highly concentrated industries like automotive and hardware, to
highly competitive fields within web media, entertainment, and consumer
goods (see Figure 1.4). Web media companies like CoolSavings, USA
Interactive, MyFamily.com, and AOL Time Warner competed with nearly
equal levels of market share. The automotive industry lay on the other end of
the competitive spectrum, dominated by General Motors. GM outpaced their
closest competitor, Honda, by almost two billion impressions, and the two
companies alone made up half of auto advertising. Retail fell smack in the
middle of the spectrum, with eight companies competing for share of voice.
Figure 1.4
Number of Advertisers Comprising 50 Percent of Industry Impressions
Fourth Quarter 2002
Web Media
19
Entertainment
12
Consumer Goods
12
Public Services
9
Retail Goods & Services
8
Financial Services
8
Business to Business
7
Software
4
Travel
3
Telecommunications
2
Health
2
Hardware & Electronics
2
Automotive
2
-
5
10
15
20
Number of Advertisers Comprising 50 Percent

Source: Nielsen//NetRatings, January 2003
Three industries played a vital role in determining the shape of the online
advertising trend during the fourth quarter. Retail, hardware and electronics,
and consumer goods together drove growth through the second week of
December as Christmas approached (see Figure 1.5). Christmas week was
down significantly from previous weeks, but only when compared to the mad
Copyright Nielsen//NetRatings, 2003. All rights reserved.

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The State of Online Advertising
Fourth Quarter 2002
Page 8 of 8
dash for clicks that began in October. Financial services’ advertising was the
picture of consistency throughout the holiday rush, and other industries such
as public services and business-to-business seemed to diminish as the end of
the year grew near.
Figure 1.5
Ad Impressions Trend by Industry
Fourth Quarter 2002
30
25
i
ons 20
s
es
pr 15
Im
of
10
i
l
l
i
ons
B
5
0
9/30/200210/7/2002
10/14/2002
10/21/2002
10/28/200211/4/2002
11/11/2002
11/18/2002
11/25/2002
12/2/2002
12/9/2002
12/16/2002
12/23/2002
Automotive
Business to Business
Consumer Goods
Entertainment
Financial Services
Hardware & Electronics
Health
Public Services
Retail Goods & Services
Software
Telecommunications
Travel
Web Media

Source: Nielsen//NetRatings, January 2003

An ideal condition for the online advertising community is to have a large
number of traditional advertisers representing multiple industries competing
for Internet share of voice. Data covering the fourth quarter of 2002 show
that companies with traditional business models comprise a bigger piece of
the advertising pie than two years ago, and that some industries are far more
competitive regarding share of voice. Tracking these measures over time
gives us a yardstick to gauge whether or not the most important clients are
viewing new and existing online advertising vehicles as effective.
Copyright Nielsen//NetRatings, 2003. All rights reserved.

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The State of Online Advertising
Fourth Quarter 2002
Page 9 of 9
Chapter 2: Media Buying
The next logical question when trying to diagnose the state of online
advertising is whether advertisers are purchasing more or less ads. In this
section we look at how media buying is distributed between big and small
advertisers, what kind of market share a buyer can expect, and where the
competition really heats up between advertisers.
Since the fourth quarter of 2001, the amount of online advertising the
average company buys has changed little. The mean campaign size of all
advertisers increased by three percent year-over-year to just over 17 million
impressions (see Figure 2.1). Median campaign size, a depiction more
representative of the thousands of small advertisers in the mix, showed a nine
percent decrease. This tells us little else but that there were no radical shifts,
in the positive or negative direction, in the online advertising universe.
Figure 2.1
Campaign Size Statistics
Fourth Quarter 2002

Q4 2002
Q4 2001
Mean campaign size in impressions
17,154,597
16,614,435
Median campaign size in impressions
135,000
149,000
Source: Nielsen//NetRatings, January 2003



















Copyright Nielsen//NetRatings, 2003. All rights reserved.

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The State of Online Advertising
Fourth Quarter 2002
Page 10 of 10
The majority of online advertisers achieved only the smallest share of
market, less than two tenths of a percent (see Figure 2.2). A few advertisers
bucked the trend on the high end of the spectrum, purchasing enough
impressions to comprise over one percent of the online advertising market.
The war between AOL 8 and MSN 8 took up the most bandwidth online,
with the rival services combining for 6.3 percent of the market. Amazon,
Classmates, Estee Lauder, eBay, and Barnes & Noble also fell into the list of
companies purchasing a significant portion of the market. While the
aforementioned “mega” advertisers bought enough impressions to canvass
the Internet, a small share of market can suffice when an advertiser’s
impressions are well placed. With the volume of online users and page
views, a mammoth budget is required to effectively use the blanket-branding
approach. Smaller advertisers, the majority of the medium, therefore need to
concentrate on getting the most from their money by purchasing targeted ads.
Figure 2.2
Share of Market Distribution
Fourth Quarter 2002
25 14
,000
12
r
s
e
10
r
t
i
s
e
v
8
d
of A
6
er
mb
u
4
N
2
0
28
33
38
43
48
53
63
73
78
83
88
93
98
03
e
0023
or
00
00
00
00
00
058 00
068 00
00
00
01
M
0.
0.00 0.
0.
0.
0.
0.0
0.
0.0
0.
0.00 0.
0.00 0.
0.00 0.
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Share of Market Bins

Source: Nielsen//NetRatings, January 2003







Copyright Nielsen//NetRatings, 2003. All rights reserved.

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