Web advertising needs strategy shift

By Helen A. Jimenez, Senior Reporter
Business World Online, January 8, 2002

Like most businesses affected by the global economic downturn, firms that rely on online advertising as a major source of revenue look to the new year with guarded optimism, at best.

The dot-com crash has shown that websites cannot survive by simply attracting page views.

Information portals and search engines have also realized the hard lesson that they cannot sustain their business by relying on banner advertisements.

As if things weren't bad enough already, the September 11 terrorist attacks on the US mainland - and their global reverberations - forced businesses to hold on to their advertising budgets for other more critical expenditure.

Online advertising will "pick up" as Internet users in the Philippines increase and as more advertisers realize the value of advertising online.

Yet, some industry analysts say online advertising remains a promising, cost-effective alternative to traditional ad media.

Gartner G2, a research service of Gartner, Inc., said in a recent report that online advertising in the US is expected to become an $18.8-billion market by 2005, up from $7.9 billion in 2001.

The Interactive Advertising Bureau (IAB) also reported that Internet advertising in the US "held steady" in the third quarter of 2001, totaling $1.792 billion, down 4.1% from Q2's $1.868 billion.

The first nine months of 2001 online ad revenue stood at $5.55 billion, down by 8.4% from the $6.06-billion earnings for the same period of 2000.

Despite the decrease of total ad revenues, Internet analysts in the US welcomed signs that the decline was already slowing down.

Philippine Internet search engine Yehey! admits that the four-year-old dot-com firm has realized that online advertising is "not a viable source of revenue," said Yehey! chief executive officer David R. de Leon.

While Yehey! used to rely heavily on banner advertising, Mr. de Leon said the local search engine has started to explore other sources of revenues, including e-commerce services.

He clarified, however, that the company is not completely ruling out online advertising. Yehey! will still maintain but will not rely on online advertising as heavily as it used to for the company's revenues, he explained. "We are just managing it," he said.

He expressed optimism that online advertising will "pick up" as Internet users in the Philippines increase and as more advertisers realize the value of advertising online.

As an alternative to online advertising, Mr. de Leon said Yehey is continuously tapping strategic partners who can provide complementary services for its users, particularly in the area of e-commerce. Last year, for example, Yehey! partnered with BancNet for online payment of bills.

Mr. de Leon, however, noted that online commerce is still largely dependent on the number of credit card users.

In the case of the Philippines, he said there are not too many people who own credit cards as compared with those with ATM (automated teller machine) bank cards. "That's why we are exploring other means of payment (for online transactions)," he said.

Yehey! boasts of over six million page views each month, with the site providing links to over 16,000 Philippine-related websites.

Roger Chua, president of Internet business solutions provider Web Philippines, Inc., said companies that use the Internet as advertising medium have to carefully evaluate how online advertising would benefit their business.

Web Philippines is the company behind online recruitment site Trabaho.com and wedding portal Kasal.com. The company is also engaged in consulting for brand management, design and development, and e-business solutions.

Mr. Chua said companies should have a holistic approach in doing online advertising.

But first, they have to be clear on what they want to achieve with their ads - whether to increase sales or establish branding.

He said most companies should first focus on their own website and on what it could offer clients who visit their site rather than rely simply on banner advertising.

As in any traditional retail ads, he said online advertisers must ensure that they have the inventory to service their visitors based on what they had promised to deliver.

The kind of online advertising would depend largely on the type of company and the products being advertised.

Mr. Chua said online advertising is most ideal for bookstore and music sites, for example, because they could easily go into e-commerce transactions.

Other sectors such as food and garments have to explore more appropriate models for advertising and generating Internet-based revenues, he said.

Mr. Chua believes that online advertising in the Philippines will "start to get better this year."

He said the Internet is a viable medium for establishing Web presence in order to target international markets. As opposed to participating in an international trade show, for example, Mr. Chua said the cost of setting up an online presence is much lower.

He said more local companies may opt to advertise online as a way to expand their markets in a more cost-effective way.

For content providers that rely on online advertising, Mr. Chua suggests that they continue to evaluate their business models and explore alternative sources of revenues.

These alternatives may include e-commerce services, domain name registration, online surveys, and Web-based mail service, he said.

Denise Garcia, Gartner G2 research director, said diversification is the only way for the online industry to survive.

"Due to decreased growth and market domination by the top players, online media firms must diversify their products and services to

supplement the income they expected to receive from online advertising," the Gartner official said.

GartnerG2 cites five additional revenue streams for online media that could augment the lack of advertising revenue: business services, subscriptions, licensing, e-commerce and international expansion.

The research firm defined business services as customized enterprise software services, audio/video streaming, store hosting, and management and website tools and services.

These revenue areas, Gartner said, "would help online media businesses solve advertising growth challenges by expanding user bases, obtaining better demographic and targeting information from user registrations, and ultimately supporting sales to advertisers."

It added that advertisers want a more integrated approach in advertising in order to get better value for their money.

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