Online advertising has been surging ahead as US marketers continue to shift their spending away from traditional advertising formats. According to eMarketer, “The fastest-growing Internet ad format is video, which will see spending surge by 89% in 2007. When it comes to total spending, however, search advertising rules. In 2007, US advertisers will spend nearly $8.3 billion on paid search ads, $1.3 billion more than they did in 2006 (Read the full press release here).
Video is certainly the hottest technology and, I assume, a favorite for many traditional ad agencies that have the skill sets to transition easily from television to online video. In addition to the strong growth of social networking, video appears to offer great opportunities to increase exposure and ignite viral marketing. Although it seems that with most video advertising it is difficult to measure performance results except at a brand exposure level.
It isn’t a surprise that search advertising rules because of its significant advantages. Although its growth as a factor of spend doesn’t say much about its effectiveness. I wrote in a post in October about a Shop.org article titled, “State of Retailing Online 2007″ which referenced the average cost per order for varying online advertising channels. The article stated the following:
- Email: avg. cost per order less than $7.
- Banner ads: $71.89
- Paid Search: $26.75
- Affiliate marketing: $17.47
It is no surprise that banner advertising has such high cost per order. According to an article in BusinessWeek (November 12, 2007) titled, “So Many Ads, So Few Clicks”, “The so-called click through rate for those ads on major Web destinations such as Yahoo!, Microsoft and AOL declined from 0.75% to 0.27% during 2006.” Although a click-through does not indicate any likelihood of a visitor acting on a businesses offer (e.g. sales or sales lead conversion); it does help define the opportunity of potential buyers or prospects. The smaller the opportunity the greater the possibility of a higher cost of conversion.
Likewise, paid search is probably higher for many companies because they are so focused on click-through rates and not equally focused on improving conversion rates. Greater spending on paid search advertising yet an average cost oer prder of $26.75 doesn’t necessarily indicate effectiveness. Actually for most small web businesses, an average cost per order fo $26.75 means they are probably losing money on each sale!
The point is that businesses should measure results from the advertising channel through the final result an allocate spending accordingly. Sometimes the final measure may only be time spent on site, time spent watching a video (e.g. was it all consumed or just the first few seconds) or number of times the video was referred to a friend. But having some measure to associate with success that occurs further back in the value chain (after a click-through) will help better manage and reduce the cost per order and help generate a higher return on the increase advertising spends.