Online advertising rates: Rip-off or deal of the century?

July 2007

Rumblings can be heard among BtoB marketers about the rising costs of online advertising. And it’s true: costs have risen. In fact, total US advertising spending will reach $152.3 billion in 2007, according to the Interactive Advertising Bureau (IAB).

As online rates rise, one question keeps coming up: “What am I paying for?” That inquiry stems from a perception that online advertising has very little mechanics involved, therefore the costs should be low.

Perhaps it is because you can’t touch an online ad – its intangibility makes it seem less valuable. Somehow, the costs associated with offline advertising feel more tangible: Printing, paper, postage. Online ads don’t have any of these costs, so logically, shouldn’t online ads cost a fraction of the price?

Marketing costs, circa 2007
The problem with that argument is, it’s not that online ads don’t have costs. They just don’t have the same costs as their offline counterparts. With online advertising comes a whole host of associated, and pre-1990s, unheard of costs: servers, html development, reporting, firewall maintenance, spam compliance. Not to mention the knowledgeable workforce required to design, build, deploy and analyze an effective online presence. Just look online and you’ll find hundreds of examples of why a reputable company’s web presence should not be left to the hands of amateurs, or teams of one or two.

It’s a new skill set, but a necessity nonetheless.

Online ads don’t require a circulation director, but a search engine optimization professional is crucial. Add to that a webmaster, developer and security expert. The list also includes skills similar to print: designers and copywriters, now trained with online expertise.

Is it working?
Once an online presence is successfully created, there’s the ongoing maintenance, and arguably the most important task is yet to be done: The work of reporting and analysis. Again, not a task to be taken lightly. Today’s business owners demand Web analytics tools that do more than raw data reporting and focus on business reporting. Examples include marketing campaign analysis or ROI measurement. Successful companies have an analytics staff responsible for extracting, tracking, reporting and analyzing online revenue data.

The information helps site managers and marketers better understand the effectiveness of their online initiatives, with the goal of improving website and ad campaigns.

When online advertising becomes a core competency, whether for an ad agency or corporate marketing department, a dedicated ad management system is another crucial component. A truly effective campaign management tool manages campaigns’ lifecycle from start to end and goes well beyond counting click-throughs to include planning and production, reporting, analysis on current, past and future campaigns.

Put it all together and the costs associated with online marketing probably outweigh that of offline.

Effective online advertising isn’t a free resource. Far from it. We feel a bit of déjà vu as this next line is typed, but there’s no such thing as a free lunch – or free marketing.

Evolving market
Another factor to consider is that in the grand scheme of marketing history, online advertising is in its infancy stages. Many publishers dangled a carrot with a low price tag to entice marketers to buy in to their online advertising products. But as the measurement of online advertising becomes more sophisticated, and the value and effectiveness of the medium is proven, prices are adjusting accordingly.

"Rates are going up, but effectiveness is going up too," explains Greg Stuart, chief executive of the IAB. "It reaches consumers with an unprecedented level of efficiency and measurability that provides marketers with actionable data. And the ever-changing landscape of new platforms and technologies that enrich interactive advertising guarantees that this growth trend will continue."

Online ad spending still represents only 10% of the typical overall marketing budget. But media consumption is 46% of the overall market. The market is still evolving. Unlike its offline counterparts, online ad prices haven’t reached a premium; they’re still at near-charter prices. As a result, marketers are able to get the most bang for their buck.

The moral of the story is, don’t expect online advertising rates to decline. Rather, make sure you’re getting the best possible results from your efforts. Embrace the medium that opened a new channel for reaching prospects and forever changed marketing as we know it.