AOL Time Warner Inc.'s announcement last week that its online advertising revenue would plunge 50 percent next year was particularly unwelcome to the companies that create and sell cyber-ads. After riding a two-year tidal wave of money from cash-flush dot-coms eager to hawk their wares on the Internet, the online advertising business collapsed last year. This last piece of awful news from the world's largest Internet company was not what they were hoping for.
The pessimism was summed up by Howard Bomstein, president of District-based advertising firm Bomstein Agency. He said only about 5 percent of his business is in online ads. His 50 clients, which include real estate companies, retailers and radio stations, prefer customary radio, TV and print advertising. "That's about as important as it should be in a client's budget," Bomstein said. "I think it's been less desirable from the standpoint of clients. Clients aren't stupid. They're not going to put good money after bad."
Yet hope springs eternal in the advertising business. Many online experts and advertising companies say AOL's troubles hardly signal a deterioration in the online ad business. Some independent analysts even expect a slight rebound in ad spending next year, followed by yearly increases, although far below the dot-com boom's staggering heights.
New York market research firm eMarketer expects online ad spending to fall 11.5 percent this year, to $6.38 billion. But it predicted a 5 percent increase next year to $6.7 billion. The rebound would come as traditional companies commit more of their ad budgets to online banners, e-mail campaigns, classifieds and other advertising, the firm said. By 2005, online spending is predicted to hit $8.1 billion by 2005, still less than 2000's spending of $8.23 billion.
More companies are investing in what eMarketer senior analyst David Hallerman termed "rich-media ads," or more elaborate ads that use animation, snippets of TV commercials and engaging graphics. Thankfully for ad firms that specialize in this business, such ads are more expensive to produce, so they generate more revenue. Hallerman recently clicked on a Mercedes-Benz ad, for example, that allowed to him use his cursor to get a 360-degree view of the luxury car's features.
Another hopeful trend: Today's tech-savvy twentysomethings are attaining higher management positions within companies that will allow them to authorize more dollars toward Internet ads, Hallerman said.
"I would consider our set of projections a form of cautious optimism," Hallerman said. "The last two years were a disaster for online advertising."
And even AOL's drop in revenue doesn't altogether signal a cratering of advertising online. Much of the drop next year can be attributed to the loss of AOL's long-term advertising deals, many signed for top dollar during the boom. That kind of revenue just won't be there for AOL, but it doesn't mean that firms have stopped advertising online.
"Those deals are rolling off the books right now, and the pricing is no longer valid for this marketplace," said Scott Ferber, chief executive of Baltimore-based Advertising.com.
He said his aptly named firm, which specializes in "interactive marketing," guarantees that the online ads it places for clients will translate into sales, using an ad-tracking technology system. Advertising.com prices its services based on how much business is generated for an ad, not the number of hits it generates.
"Every time we get someone to buy something from an online store, we get paid," Ferber said.
The business model has paid off, Ferber said. Though the firm has had to cut back somewhat as business didn't grow as much as it hoped, Ferber said the company will still take in more than $60 million in revenue this year, better than double last year's total.
Frank Henry Dearden III, director of marketing firm 3d Technologies Ltd, which he runs out of his District home, has had a harder time recovering from the dot-com bust. He lost two clients last year, eGrail and Verizon Communications Inc., representing 80 percent of his business, plummeting his billings to $300,000, down from $650,000 in 2000. He expects even less this year.
He started creating local events, such as the annual DCDotComm conference, which he billed as a way for online advertising firms to network with potential clients. He has organized events under the auspices of an organization he created, the Capital Cabal.
Other Washington area ad firms said they have recovered, at least partially, from the loss of moneyed-up start-up clients that loved pop-up ads.
McLean online marketing firm eBrains took a beating after last year's Sept. 11 terrorist attacks, as its clients curtailed their online spending, but the company found a new revenue source in the hard-hit tourism industry, said Donna Malakoff, co-founder of eBrains, which started in 1999.
With more travelers expressing their hesitance to . . . well, travel, firms such as the Virginia Tourism Corp., which traditionally marketed the state through print, television and radio ads, were looking for other ways to drum up interest, Malakoff said.
EBrains decided to promote its offerings of marketing e-mails, revamping Web sites and finding online partnerships and as a cost-effective means of cutting clients' ad budgets. Virginia Tourism was able to lower its cost per travel inquiry by 60 percent, Malakoff said.
Falls Church Web development and marketing firm Keymind began focusing about a year ago on federal business and now counts the Defense Department and the Labor Department among its clients, said Keymind President Shane Oleson.
The 30-employee company, which specializes in Web site development, is a division of Axiom Resource Management, a government professional services firm.
Until the economy improves, government work has made up for Keymind's shortfall of commercial business, as the company's traditional clients have shaved their online ad spending, Oleson said.
"I think they've gone into hibernation," Oleson said of business advertisers.
"There are no [ad] budgets really there; if so, they're trying to do things in-house or at the lowest possible cost, which may mean that they turn somewhere else because they have to, not because they don't want to use us."
We received hundreds of suggestions for the name of this column, some good and some not-so-good. Some enterprising folks out there even sent their suggestions in Washington Post typeface. In the end, one of our editors came up with the name, "The Pitch." Thanks to all for your submissions.
Ads and Ends
ADventures Marketing & Design, a Leesburg firm, added the following new clients in the fourth quarter: Ashburn-based Xacta Corp., a risk management technology firm; Intersections Inc., a Chantilly credit and privacy protection services firm; Dulles-based Arcemus, a domain name manager; Tax Compliant, a Sterling tax compliance monitoring firm; Sterling-based Beacon Accounting Group; and Dan Adams, a Leesburg cosmetic dentist . . . District-based Bomstein Agency will manage print and broadcasting advertising for Vespa of Washington, a Georgetown motorbike store, under a $200,000 contract . . . Stephen T. Baldacci, former Washington Redskins business operations president, today officially joins White & Baldacci of Herndon, formerly E. James White Communications.
Sabrina Jones writes about the local advertising industry every other Monday in Washington Business. Her e-mail address is email@example.com.