From AJR, November 1999 issue
Untapped Cash Discovered by Online Papers
National and mom-and-pop businesses find reasons to advertise on the Web.
By John Morton
John Morton (firstname.lastname@example.org), a former newspaper reporter, is president of a consulting firm that analyzes newspapers and other media properties.
NEWSPAPERS HAVE ALWAYS made their money by selling advertising and copies of their papers. Several factors influence success, including the quality of what's in the newspaper, how attractively the paper is presented and how adept the newspaper is in selling its circulation to advertisers.
The common assumption has been that these same rules would apply as newspapers move to the Internet: provide quality information attractively presented, drive up the number of page views (the Internet equivalent of circulation) and sell the numbers to online advertisers.
So far, this is pretty much how it has worked, although some advertisers appear to be dissatisfied with the effectiveness of ads in reaching online newspaper viewers. Despite this, though, the Internet may be providing newspapers access to previously untapped revenue from both national and local advertisers.
Before getting into all this, I'll define some terms. Web sites sell ad banners, which run across the top or bottom of a page and call attention to a particular advertiser. If a viewer clicks on a banner, the screen goes to the advertiser's Web page, where goods and services are pitched. Similar in function are the smaller ad cubes and the even smaller tiles, which are often just large enough to print an advertiser's name.
Finally, there are cookies--in effect spy programs that can be inserted into a viewer's hard drive to reveal information about the viewer's Internet usage, especially responses to particular ads.
According to recent published accounts, many advertisers are unhappy with the low level of click-throughs of ads by viewers. (See The World of New Media, October.) It seems most viewers, given a choice, prefer to skip the ad pages. This points up a major difference in how advertising works on newsprint compared with the Internet.
An enduring strength of traditional daily newspaper advertising is that the advertiser can assume the reader reads the newspaper and sees the advertising by paging through it, because the reader paid for the paper. Otherwise, the newspaper wouldn't be bought. The allure for the newspaper advertiser partly is that the readers are exposed to goods that they might not have known they wanted--until they saw the ads. On the Internet, though, the viewer has the choice to eschew this random exposure.
Then there are cookies. Assuming the viewer of a newspaper Web page has agreed to provide name, address and other data in connection with logging on, the advertisers gain a wealth of information about potential customers for specific goods. The controversial side of this is that a cookie can be sneaked into a viewer's hard drive, making the viewer unknowingly part of a commercial database.
Whether achieved honorably or not, the ability to acquire knowledge about a specific viewer's interests illustrates another major difference between print and Internet advertising. As John Wanamaker, the department-store king, famously said early this century: "I know I waste half the money I spend on advertising. The problem is, I don't know which half." Gathering data about Internet customers, coupled with the Internet's unique ability to target customers, goes a long way toward eliminating the wasted half.
Still, so far department stores have not proved to be advertising mainstays on the Internet as they are in newsprint. Department stores lack the staff to process e-commerce orders or to update prices quickly on Web pages. That is likely to change as e-commerce expands.
For now, a lot of the retail advertising turning up on local newspaper Web sites comes from small mom-and-pop retailers. Managers at the Charlotte Observer report that 70 percent to 90 percent of the paper's online advertising comes from "very small" businesses, apparently because rates are cheaper than for the printed paper. Many small businesses long ago were priced out of traditional newspaper advertising. The Internet is bringing them back, probably at the expense of weeklies and shoppers.
But national advertisers are also being drawn to local newspaper Web sites, according to executives at Knight Ridder's New Media unit. A car manufacturer, for instance, can purchase advertising on Web sites in markets where sales are weak and skip markets where sales are strong--something not easily done with a traditional national advertising buy.
Finally, newspapers may find a source of revenue beyond advertising and circulation through their portal sites (expanded Web sites that connect viewers to a host of related sites and e-commerce) by facilitating transactions and charging commission on the sale. That hardly sounds like newspapering, but the times they are a-changing.