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THE TRUTH ABOUT INTERNET ROI April 10, 2000 By Anthony Schneider and Max Watman
Return-on-investment is the Holy Grail of the Internet: elusive, quasi-religious and hotly debated. While pundits promise huge returns from Web sites, marketing and e-commerce, Webmasters and corporate exectuives point to foibles and failures. What does it all mean? The bad news is that it ain't easy. The good news is that there is good news, and it goes beyond low CPM banner advertisements. The Internet, originally designed to facilitate communication between scientists, academics, and government agencies, has morphed into a media bonanza. Though there is gold in the virtual hills, achieving a return on investment can be tricky work. There are zealots, and there are critics, but who is correct? Can one's investment be recouped? Of course, it can, but that's not to say there isn't bad news as well. Difficulty in measurement, the expense of new technology, and the natural dangers of any frontier, including the large number of failed ideas, confound Web projects. These problems go hand in hand with the exciting possibility of fantastic returns and wild successes.
A BANNER YEAR Take, for instance, the simple banner. Frequently, these can cost more than their traditional media advertising counterparts, like print, radio and television. But each medium has its merits, and the banner ad is unlikely to become another Internet dodo. Banner ads can be more targeted, more interactive and can appear closer to decision and purchase than traditional advertising vehicles. They can also be more engaging. As Ms. Welch of Kodak.com says: "You might watch a TV ad for a minute. You might look at a print ad for 30 seconds. But people are staying in our site for 30 minutes and longer. How do you measure the value of that?" And there's more good news: the average banner CPM dropped from $38 in Q4/97 to $34 by Q3/99. The number of sites seeking banners doubles every year. According to PC meter, 8% of online banners are payment by response. Add to these facts that the cost of both production slides steadily southward, and the case for Internet advertising grows stronger. Meanwhile, technology evolves. Interactive banners, e-commerce enabled banners and, more recently, video banners, present levels of consumer interaction that have no peer in traditional media.
BEYOND THE BANNER Banner ads are but a small part of the possible avenues of return. There are other direct methods of savings and profit. Consider the expense involved in having a front office that's up around the clock, answering phone calls from around the world on a 1-800 number, answering the same questions over and over again. All this can be done quite simply and efficiently with a Web site, taking full advantage of what is for many the first avenue of investigation. Companies such as Neoforma have cut the fat from the supply chain. Often doing away with middlemen altogether, these companies use the Internet to offer goods directly to their clients. The result: huge savings for the end consumer, and huge profits for the seller. Promotions-a very contentious aspect of Web marketing-have the initial bonus of a 100% interest ratio. In other words, while newspaper insert lands in everyone's lap, a very low percentage of those laps belong to potential customers. At a site such as freeshop.com, those who click a promotion are interested. An online coupon (such as the one Web Zeit designed for Tums) doesn't waste paper and printing costs on people who don't want to save money on Tums or who never use Tums, but rather pulls a demographic that is 100% interested. Jupiter Communications claims that drawing people to a Web site is not a real reward, and that deal seeking customers are not profit making customers. But when it comes to building brand, access to a self-selecting group is unbeatable. Companies are in a position to gather demographic data like never before. It is possible to set up communities of users, and interact with clients in ways that would have been prohibitively expensive without the Internet. Healthcare has utilized databasing to create mountains of accessible data regarding patients, caregivers, and more. Financials have streamlined the consumer security market and brought tools to their clients that where heretofore available only to those on the trading floors. In doing so, both industries have brought new clients to their doors, enhanced their relationships with extant clients, and gathered specific data on a scale that has never before been matched. What used to be a shot in the dark has become an exercise in marksmanship.
NEW MARKETS Most importantly, the Internet means access to new markets. Small companies are able to sell and advertise in demographics and geographies that used to be inaccessible. One Web Zeit client boasts a 2000% return-on-investment from their Web site, mainly as a result of orders from Europe and Latin America. Large companies are able to expand into regions that seemed impenetrable. In this environment, branding rules the day. The playing field is level; the opportunities are open to everyone. There are hurdles, of course, such as marketing, promotion and branding. Certainly one of the best ways to gain a foothold in consumers' media-saturated mindshare is by branding. Luckily, the Internet is well suited to solve the very problem it created. Philip Geier, the CEO of Interpublic writes: "What we're seeing . . . is the rebirth of brands that mean more to the consumer, because now — thanks to these new technologies and their ability to personalize communication — brand and consumer can be closer."
THE MEASUREMENT MENACE The Internet, and especially Internet ROI, is not an easy frontier. Old measurements must be chucked. Apples and oranges must be measured differently. The solution is not to turn one into the other, but rather to adapt. Old formulae, including the direct calculation of ROI, must be left behind in some cases. ROI must be seen not as a simple equation, but rather as a complicated series of experiments and rewards. Measurements must be customized; only a bespoke solution can provide valid information.
THE FUTURE APPROACHES
A company with vision, capable of realizing a brand, and staying ahead
of the curve, will reap the benefits not just now, while the market is
clearly cooking, but will be in a position to maintain those benefits
over the long term.
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