The Internet created a new medium for marketing with advertising.doc

B0310-10Fredrik BacknerInternet Business & MarketingMark LehmannStuart MarcoonThe Internet created a new marketing medium that allows advertising opportunities to grow as rapidly as the Net. Corporate web sites are stocked with banner ads and other sponsorship arrangements that promote the brands and services of other companies. Most ads are animated gifs that are targeted directly to the user. This direct marketing is the fundamental advantage that web advertising has over other types because it can be much more efficient. This technology hi-lights some key features of the web that makes it innovative and unique. The barriers to entry are technological capabilities rather than the hitherto economic formula of capital and labor supplies.Several ad-network companies currently demonstrate by their business growth that they are the leaders of harnessing the technology needed to successfully advertise on a broad scale over the web. Still, none of these companies are older than four years and many risks and uncertainties, such as increased competition or the capability of a new browser to quell banners, could quickly render one obsolete. Nonetheless, their business models appear solid and promise profitability in the future even though they now execute the ubiquitous Internet-company strategy of outspending their revenue to stimulate expansion with more customers, an increased market share and branding. Double-Click, by measuring its revenue and market capitalization, is currently the leading Ad network. There are three other companies 24/7 Media, ValueClick and Link Exchange, which was recently purchased by Microsoft.How Ad Networks Make Money Partnerships and AlliancesAd networks are intermediaries that place the ads from companies, including those from traditional ad agencies, into the ad banner space inventories of their large networks of professional websites. They form alliances with Internet advertisers and web-space sellers. For example, Double Click pays Macromedia for the exclusive right to place banner ads from Double Clicks media buyers into Macromedias website. Macromedia is part of Double Clicks network of domains in which it manages all of the the ad placements. Double Click makes money by charging a premium on the ad inventory space that it sells to its media buyers. The fees Double Click charges its media buyers and the compensation that it pays its network affiliates depends on the provisions of their individual contract arrangements. Value Click and 24/7 media Ad networks do business similarly as Double Click.Internet advertisers pay ad networks an amount proportional to the extent of their ad campaigns. The fee structure includes many parameters, such as the type of website in which the ad is placed and the ad location in the website. Ad networks cluster their affiliates into tiers, based upon their traffic volume and type of business, and assign them different prices. Currently, advertising in popular high-technology web sites is the most expensive. Another primary fee factor is the ad placement marketing strategy. Ad networks claim that their technology can effectively target market through the Internet. Following, Double Click and the other ad networks increase their rates as the number of their customers target criteria increases.Ad networks pay their affiliates in accordance to a number of statistical calculations that show different ways to measure advertisements effectiveness. Some methods cause some controversy because some believe that the numbers cannot be trusted. Double Clicks most popular business, Double Click Network, uses Cost Per Thousand Views, or CPMs, as the unit of measurement to pay its affiliates. The cost of a CPM typically ranges between $20-70, depending on where the ads are placed.Advertising on the ValueClick Network is based on the Cost-per-Click model that assures customers that they pay not based on how many times the banner is seen but pay only when a user actually reads the ad and clicks through to the website. Their apparent “no risk” offer includes many services and benefits offered to the advertiser. They offer guaranteed unique visitors, targeting of ads to different online categories, real-time online campaign statistics, and a banner testing system that tracks sales, downloads, signups, or whatever the desired transaction might be.The initial business objectives of Link Exchange were to use a banner exchange network as an affordable means of generating traffic to websites and online businesses. In addition, they also offer many other services to enable customers to get their businesses on line and make the most out of the Internet. They will assist the customer to start a website, including finding a domain, designing the site, and free web hosting. In order to promote the customers sites, they offer various banner advertising packages, services to register the site with search engines, a click through service to enable affiliates to send customers to other sites, as well as premium memberships to attract more traffic. Link Exchange will help their customers improve their website with the following options: the “Site Inspector” to make the site look and perform better, “List Bot” to keep in touch with customers, “Fast Counter” to keep count of your sites visitors, “Position Agent” to check search engine rankings, and “Daily Digest” to learn the latest about site promotion. In regards to revenue generation, they offer services to earn cash by linking to merchants, open an online store to grow the business, and e-commerce resources to learn how to sell online.For more established websites, Link Exchanges Position Agent could be a very valuable resource in that it will allow the customer to see where their Web site is listed by page and position in the top search engines. They offer the chance to keep track of search engine listings for each page and keyword chosen. They will rank the customers site in order to determine how easy it is to find and to allow the customer to keep track of the search engines continually changing policies toward advertisers who pay for keywords and impressions.In order to allow smaller companies to access the opportunity of the Internet, Link Exchange set up a revenue model where the larger paying customers would purchase premium services and ad packages, enabling them to subsidize smaller customers.Brand and Marketing StrategiesOne of the most important marketing and brand strategies for Internet advertising networks is the company name or website address. As with all Internet-based businesses, it is vital to attract people to your site. In this case, ValueClick, DoubleClick, and Link Exchange are all trying to get some kind of message to the potential customer through the use of a catchy name. Each company has their own methods and unique set of attributes that influence their brand and marketing objectives.DoubleClick uses the image of a world map on their website to convey an international image and presence. With the Internet rapidly bringing advertising strategies to a global scope, this looks like an effective approach. DoubleClick also have a copy of a press release right on the homepage that also enforces their global reach. A click to the Advertisers section brings the viewer to their “Solutions for Advertisers” page where they explain their four key products to help advertisers grow their businesses on line. Link Exchange was recently acquired by MSN and they are taking full advantage of the Microsoft brand and the power it has. Their logo now contains the MSN logo and there are several spots on the page where MSN advertising is apparent. Marketing objectives are to distribute and promote Link Exchange services in key areas of the MSN portal and small business channel. Their homepage explains their strategies on how to start a website from scratch, and on how to promote, improve, and earn revenues from existing sites. ValueClick draw the attention of the viewer with their “The Pay-for-Results Advertising Network” slogan that appears under their logo. They further emphasize the value in ValueClick by promoting their cost-per-click model of banner advertising, where the advertiser pays only for the times a potential customer actually reads the ad and clicks through to the desired website. Issues Facing the Management and RecommendationsSeveral issues face the ad networks management teams. As with other nascent Internet companies, none of them have begun to make a profit. Although Double Clicks stock price is over $100 share, it still loses money each quarter. Value Click and Lick Exchange have not made money either. These companies continue to test investors and the marketplaces patience with delivering a combination of losses and promises. If the market environment begins to lose faith in unprofitable adventures, the ad networks will have to start to focus on posting a profit with their available resources instead of continuing to expand. M