Economic Realities Knock Advertising for a Loop

ZenithOptimedia today lowered its forecast for advertising growth both in the US and worldwide.

Zenith, whose forecasts are closely followed by the industry, said it expects ad spending in the U.S. to grow just 1.6% this year and by less than 1% in 2009. In June, the ad-buying firm, a unit of Publicis Groupe, predicted growth of 3.4% and 2.6%, respectively, for this year and next.

World-wide, Zenith says it now expects ad spending to grow 4.3% to $506.3 billion this year and 4% in 2009. In June it predicted 6.6% growth for 2008 and 6% growth for 2009.

The Google-Yahoo Search Advertising Partnership: Good? Bad? For Whom?

Google has delayed its search advertising partnership with Yahoo for three months to give government regulators a chance to examine their deal on the fear that it might lead to anti-competitive developments in search engine marketing. Google and Yahoo together control over 80% of the lucrative and fast growing search engine advertising market (SEM).

Percent Spend on Search Engine Advertising
Google, Yahoo Microsoft

Source: SearchIgnite Whitepaper

But now Google CEO Eric Schmidt says the companies cannot wait any longer and will move forward with their partnership. Search marketing company SearchIgnite has published a whitepaper, Potential Impact of Google-Yahoo! Partnership & Cost to Marketers, which purports to show that Google's keyword prices are as much as 22% higher on average than Yahoo's. This could result, SearchIgnite says, in advertisers paying more for keywords on Yahoo than they otherwise would, if Yahoo chooses a revenue maximization strategy for its Google partnership. Google claims that its search keyword prices are set by auction, as are Yahoo's, and that no collusion between the companies on setting prices can result. Google also claims that there are methodological errors in the SearchIgnite research that make its results questionable.

While no one outside the companies has seen the agreement, Yahoo has described it as providing supplemental results to its own search advertising. As Cnet describes Hilary Schneider, Executive Vice President of Yahoo, saying:

She [Schneider] showed a specific example to bolster her case. A search for "red roses in Birmingham Alabama" yields no advertisements on Yahoo's search engine and 11 on Google's. Under the deal, Yahoo can show Google's ads when it chooses, sharing the resulting revenue.

This is a long-time and established relationship in the search and online advertising industry referred to as "backfill". It is quite common for a search site A to have an arrangement with a partner B to display B's results, either search results or search ads or both, as a supplement to A's. This provides A with more paying inventory and better results to display, B with greater distribution of its results, B's advertisers with broader reach, and visitors to the site with better results. It is generally held to be an all-around win for all parties.

In this case "A" is Yahoo and "B" is Google. It would seem that this arrangement benefits all parties concerned. Users of Yahoo's search engine will get more and better ads. Advertisers on Google will get broader reach to another audience of highly qualified searchers (Yahoo's search engine users). Google will derive additional revenue from displaying its ads to a broader audience (Yahoo's search engine users), and Google advertisers will have broader reach to another audience without the trouble of running multiple search advertising campaigns on multiple search engines.

Yahoo has said that it expects $800 million in revenue and $250 million to $450 million in incremental cash flow from the first year of the deal. Google offered the deal to Yahoo to keep the company and its search engine out of the hands of Microsoft, who had made a bid to buy Yahoo for as much as $47.5 billion, or $33 per share. Yahoo shares fell 44 cents to $18.82 on Wednesday, September 17, 2008.

The fear by advertisers, who have been the most vocal opponents of the deal, is that this arrangement will somehow boost their advertising costs. But Google and Yahoo will not be commingling their keyword auctions in this arrangement, nor will either company be able to see the price of the other's keywords, although Yahoo will know it after thte fact, that is after a user clicks on one of Google's keyword ads. Yahoo could use this after-the-fact knowledge to cherry pick higher-paying Google ads that perform better than their own lower-paying ads.

With respect to SearchIgnite's claim that keyword prices could rise as much as 22% as a result of this deal, this seems unlikely. Assume that it is true that Google's keywords are, on average, 22% more expensive than Yahoo's. Even if Yahoo could see the Google price on each keyword (which it can after the fact), and even if it decided to pursue a profit maximization strategy by replacing each of its cheaper keywords with a more expensive keyword (which it says isn't the nature of the agreement), Yahoo would still have to pay the affiliate fee for each Google PPC ad so used. This could range from a Yahoo/Google revenue split of 70%/30% to 90%/10%. While Yahoo has alot of clout due to the size and quality of its search traffic, 70/30 seems on the low end while 90/10 seems on the high end.

Based on the agreements I have been privy to I would speculate that the revenue split between Yahoo and Google is on the order of 80%/20%. With just a hypothetical 22% premium on Google search ads, Yahoo essentially breaks even on this profit maximization strategy. The only way Yahoo makes money from this deal is if it uses Google PPC ads to supplement its own, not replace its own.

There is one other area of concern that none of the above addresses, and that is the fear of the concentration of power in the hands of just two players of over 80% of the search advertising on the Internet. This advertising is extremely desirable and likely to continue growing strongly in the future. The idea of just two players controlling so much of this market has to be unsettling, despite any demurrals by the principals and admonishments to "do no evil" from Google. This is an issue that cannot be addressed by the facts of the deal. Internet advertising technology is likely to continue to change rapidly and the partnership between Google and Yahoo may grow tighter. If it is any consolation, historically such deals have usually ended with the partners at odds with each other, rather than closer to each other. The interests of the two parties eventually diverge so that they cannot sustain the relationship. The Internet is the most dynamic environment, technologically and business-wise, we have ever created. What seems like a good idea and a threat today can just as quickly go sour tomorrow.

Google now provides its advertisers control of which of its affiliate networks, even down to the particular web site, they want their ads to appear on. I would hope that Google extends this control to its advertisers for this Yahoo partnership. If an advertiser is afraid that it will be charged too much when its ads appear as backfill on Yahoo, or if they don't like the resulting ROI in such an arrangement, they should be able to opt out of having their ads appear on Yahoo. It is something that advertisers now can do on Google anyway, and it should ease concerns over rising advertising prices for those who are worried, even theoretically, about such things.

Link: Google Public Policy Blog: The SearchIgnite study on ad prices and the Yahoo-Google deal
Link: ANA Recommends Against Google-Yahoo Search Advertising Partnership in Letter to Department of Justice
Link: Facts about the Yahoo-Google Deal

Newspaper Advertising Expenditures Continue Falling

The Newspaper Association of America (NAA) today reported Q2 2008 advertising expenditures for newspapers. The results were not good. Total print expenditures were down 16.07% to $8.8 billion from $10.5 B in Q2 2007. Total online expenditures, showing declining growth for the past 5 quarters, shrunk for the first time quarter over quarter from $795 million in Q2 2007 to $776 million in Q2 2008, a growth rate of -2.4 percent. The combined quarter-over-quarter growth rate for newspaper advertising expenditures is now -18.47%.

Newspaper Advertising Trend: Total Print and Total Online 2000 - Q2 2008

Classified advertising expenditures continued showing the greatest loss, down 27% from Q2 2007. Classified advertising has shown the deepest losses for newspapers starting in Q2 2006. Retial and national advertising expenditures were down 9.56% and 13.90%, respectively. The Internet has done a job on classified newspaper advertising with sites like eBay (revenue model: auction) and Craig's List (revenue model: free) having taken a big bite out of this important newspaper advertising category. The undeclared recession of 2007-2008 has also not been kind to advertising expenditures.

Newspaper Advertising Trend: Classified, Retail and National 2000 - Q2 2008

Online Ad Printing Shows High Recall Rates

New research by researcher Nidhi Mathur of HP's Bangalore, India, research lab shows that Web printed ads have very high unaided brand and content recall of 33% and 22% respectively. Of course, HP would like nothing better than to get Web surfers to print Internet ads since they make their money on printers and (mostly) ink. The research was done using Web travel sites where study participants were required to print out their itineraries, etc. Recall of ads accompanying the printouts was then tested.

Most marketers don't have the luxury of having content that requires printing or that users would even want to print. Maps are an exception to this, and marketers may want to keep this in mind when geo-content is relevant to material, or perhaps even create geo-content that can be used as a vehicle to include printed ads.

Another tactic is to use online coupons more, especially in our financially straightened times. Web coupon use has grown 83% in the past three years, and not only do coupons create buyers and good will, but together with printed ads can form a powerful vehicle for brand and message recall on the Web.

Unaided Recall of Printed Web Ads

Source: Nidhi Mathur, HP Labs, Bangalore, India
via NewScientist, July 19-25, 2008; P. 26

Top 10 Most Powerful Brands - Millward Brown "brandz" Report

Millward Brown "brandz" Top 10 Most Powerful Brands - April 2008
Source: Millward Brown

Internet Coupon Users

Scarborough Research reports that 11 percent of households currently obtain coupons via the Internet, an increase of 83% since 2005. The Sunday paper remains the number one place where consumers clip coupons.

Source: eMarketer

E-marketing Effectiveness Benchmarks for the Pharmaceutical Industry

ComScore has released its 2nd Annual e-Marketing Effectiveness Benchmarks for the Pharmaceutical Industry. The study was based on passive observation of ComScore's million person panel across 30 drug brands. Some very interesting metrics that have hitherto been unpublished or unavailable on the effect of e-marketing on script uplift and incremental next fill/adherence are revealed in the study.

According to the study, 90 million Americans visited health-related Web sites in March 2008. This is a 32 percent increase in two years, a rate of growth over 3x the general Internet growth rate of 10% over that same period of time.

U.S. Unique Visitors - Total Internet and Health-Related Sites

US Internet Users Who Have Searched Online for Medical Information

Source: eMarketer


Top 10 US Health and Medical Web Sites March 2008Source: eMarketer

The ComScore study measured incremental effect on aided and unaided awareness and brand favorability, looking at online banner ads, interactive rich-media ads, and visits to a branded web site or unbranded "Disease.com" site. Perhaps not surprisingly, online advertising effectiveness increased with richer interactions, rising to its peak with visits to a Web site. Unaided awareness from visiting a Web site and brand favorability rose significantly to a high of 36% and 28% respectively with prospects, those not using the drug in the year prior to the study, and favorability rose 15.8% among patients.

Throughout the report no mention is made of abandonment rate's (visitors who leave a site after viewing just one page) effect on the results, although the study does discuss the importance of number of pages viewed in general. In any case, it is a truism for measuring Web site effectiveness (and is a standard measure used by all Web metrics programs) that increasing number of page views increases visitor engagement with a site and thereby also any of the benefits from that visit. The study also does not state whether length of time on site, another standard Web site effectiveness metric, showed any significant uplifts. Presumably not, or it would have been mentioned.

Things start to get very interesting in the next two charts where data is presented that could lead to some hard ROI calculations for pharmaceutical Web sites. These are the first published metrics of script uplift and incremental adherence/next fill from online advertising that I am aware of. Among new patients the study showed an almost 5% script uplift from prospects visiting the "Brand.com" Web site and an almost 20% increase in adherence/next fill among patients visiting the Web site.

Again, the report does not discuss whether site abandonment was factored into its results, but one could always measure both single page visits and multipage visits to calculate an ROI range from conservative to optimistic. It is very difficult to know which visitors to a "Brand.com" Web site are prospects and which patients, so while these metrics are an excellent start, they still fall short of a methodology to calculate a hard ROI for pharmaceutical Web sites. Presumably ComScore asked the members of its panel who participated in this study whether they were users of the drugs being studied to determine who was a prospect and who a patient. This is a luxury that is more difficult to realize in the wild, although incentives can obviously be provided to visitors to part with anonimized personal information. From this one could periodically calibrate the percentage of prospects to patients at a "Brand.com" Web site and from this have the beginings of calculating a hard ROI based on increase sales of the drug.





It is interesting that online ads showed no effect on script uplift among prospects, but showed a 4% - 9.5% increase in next fill/adherence among patients. Perhaps this is like a mother's reminder to take your medicine: Ignored if one is not already doing so, but otherwise a word to the wise is sufficient. This also suggests a more targeted approach for these ads towards patients. (Something like - "Don't forget to take your medicine" -- Mom.)

For the first time ComScore was able to measure incremental conversion by referral source: Display media, search (both paid and algorithmic), and organic (or direct navigation). For prospects, conversion to a new sale showed an almost 12% increase over the control group with direct navigation to a "drug.com" site. This was 3x - 4x higher than the incremental conversion from search and display media. This is a very significant finding. I would have expected the large difference over display media but would have expected a much smaller difference with search, especially algorithmic search. This suggests that cross media campaigns, viral and word of mouth campaigns, and social networking-focused campaigns that build brand awareness and generate direct navigation to a site, rather than SEM or SEO, are the best way to create script uplift online.

Incremental adherence/next hill uplift for patients was virtually the same across all of the media types. Again, a word to the wise is sufficient no matter the source.


The study is available upon request from ComScore.

U.S. Hispanic Advertising Spending by Media, 2007 (millions and % total)

TV dominates US Hispanic advertising spending. Advertisers spent $2.5 billion on TV ads targeting Hispanics last year, accounting for more than six out of 10 Hispanic ad dollars spent.

Source: eMarketer

Unique Visitors to Social Networking Sites and Ad Spend on Social Networking Sites

Ranking of Top Social Networking Sites by Unique Visitors

Source: Clickz

U.S. Online Social Networking Revenues 2006-2011

Worldwide Online Social Networking Spend 2006 - 2011



U.S. Teen Online Social Networking Users 2006 - 2011



U.S. Adult Online Social Network Users 2006 - 2011

Source: eMarketer

U.S. Advertising Expenditures and Growth Rates

U.S. Online Advertising Spending as a Percent of Total Media Spending, 2006-2012
Online advertising is growing at the expense of other media advertising, as has already been painfully witnessed by the Newspaper industry.

Source: eMarketer

Advertising Growth Rates for 2008E by Medium
Internet advertising growth rates are projected to be 14.4% in 2008, nearly 4.5% above the closest next category, Spot TV at 9.9%. (Note: Internet advertising grwoth rates are projected for banner ads only).


Percent Change in Ad Spending Q1 2008 vs. Q1 2007 (Internet numbers limited to display advertising)

Top 10 Advertising Categories Q1 2008 vs. Q1 2007


Top 10 Advertisers Q1 2008 vs. Q1 2007

Source: TNS Media Intelligence

Newspaper Advertising Revenue Trends

July was a bad month for newspapers: 3,500 newspaper jobs were cut in the last two months, and $3.9 billion in stock capitalization was wiped out in the past two weeks. In other developments, the Newhouse family said it may have to sell one of its largest papers, the Start-Ledger of Newark, NJ. The paper has been loosing money for 3-4 years and Donald Newhouse, president of Advance Publications and the newspaper's owner, said he expects the paper to loose $40 million - $45 million in 2008. "This was a very difficult decision to make," Mr. Newhouse said in an interview. "We have never sold a newspaper, from my father's time to my time."

Here are the numbers behind the stories:

Newspaper advertising revenue, print and online:

Percent change in newspaper advertising revenue, year-over-year:

Newspaper Association of America Newspaper Advertising Expenditures Excel Spreadsheet

In inflation adjusted terms, the fall in newspaper advertising revenue has been 31% from 2000 - 2007.


Newspaper circulation is down an average of 2.4 percent from 2006 to 2007, although some papers, like the Star-Ledger of Newark, the 15th-largest newspaper in the country by weekday circulation, has seen weekday circulation fall 15.4% in the past five years to 345,130.

US Daily Newspaper Circulation 1990 - 2005

A shift of readership from print to online cuts several ways for newspapers. The commitment of time and attention is so much less that online readers do not command the premium rates print can charge. Paul Ginocchio, a Deutsche Bank analyst, estimates that a print reader is worth $350 a year to a newspaper, an online reader 10% to 15% of that. (Source: "State of the Media 2007")

Newspapers have been trying to make up for their advertising shortfalls by focusing on their bread-and-butter local advertising and shifting it online, but their initial modest successes seem to have fallen on hard times lately. In Q2 2008 total online newspaper advertising expenditures turned negative for the first time, falling by -2.4% to $776 million from $795 million in Q2 2007:

Source: The Wall Street Journal

From Borrell Associates Report, "Say Goodbye to Yellow Pages"

Number of local online sales reps across all media types: 34,100

Media share of local online ad reps:

Size of local online advertising market (2008E): $14.1 billion dollars

Year-over-year growth in local online advertising (2007-2008E): 61%

Average Search CPC Data

Source: SearchEngineWatch.com