The current business model for online advertising in Australia is in need of an overhaul, with heavy discounting and moves to ‘cost per click' ad sales de-valuing the industry, according to online research company Nielsen.
Recent Nielsen analysis, as reported on the Interactive Advertising Bureau's site, has revealed that although the online advertising industry has experienced steady growth throughout 2009, with rises in the number of advertisers and banner ads, this growth has not been reflected in online display advertising revenues.
The online advertising numbers were released by Nielsen come off the back of the recent Interactive Advertising Bureau/PriceWaterhouseCoopers quarterly Online Advertising Expenditure Report which showed online display advertising revenues were down for the quarter to September 2009.
The Nielsen AdRelevance numbers showed that the number of advertisers was up six percent vs last quarter and 41 percent vs the September quarter 2008. The number of banner ads increased by three percent in the last quarter and was up 19 percent compared to the same quarter in 2008.
"The fact that revenues are down despite increases in banners and advertisers suggests an increase in discounted online advertising rates," noted Dr Stuart Pike, Asia Pacific Research Director for Nielsen's online division. "In the past five years there has been huge growth in online inventory in. This inventory growth along with an increasing number of publishers and ad networks competing for online display advertising dollars seems to be driving discounting."
Dr Pike observed that publishers and ad networks seem to be offering heavily discounted ‘cost-permillion' or ‘cost-per-click' rates despite strong evidence pointing to the success of online advertising as a tool for building brand awareness.
Earlier this month, Nielsen released online advertising effectiveness benchmarks showing that as many as one-third of Australian consumers were able to recall online advertising they were exposed to, regardless of whether they clicked on the advertisement or not.
"The extent of metrics available to online advertisers is unique to the online medium - it's simply not possible to gather these metrics in any other medium," stated Dr Pike "This often results in too much focus being placed on click-through performance, which is a simple but incomplete statistic to measure, rather than the overall performance of online ads."
Dr Pike stressed the need for the Australian online industry to consider whether continuing to focus on click-through rates as available inventory continues to increase would position it best for the future: "Delivering users to a site is essentially what search advertising is about. Display advertising needs to focus on its unique capabilities - those that search doesn't offer - and that is clearly its ability to impact users' perceptions of the advertised brand.
"Practically every online advertising effectiveness project undertaken by Nielsen has demonstrated the ability of the online medium to generate significant changes in brand and purchase intention metrics, yet as an industry we are failing to communicate this value as effectively as our counterparts in television. In a nutshell, it is time to change the way we evaluate the success of online advertising campaigns and focus more intently on the metrics that advertisers themselves care about, and less on outdated metrics that are more closely aligned to daily management of inventory."
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