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The IAB and PricewaterhouseCoopers released US Internet advertising stats for the first half of 2009. US Internet advertising revenues totaled $10.9 billion, a 5.3% decline from the same period in 2008. 2008 was the peek for Internet advertising in the US, with $23.4 billion in total revenues, up from $6 billion in 2002.

Search accounts for 47% of the total ($5.1 billion), up from 44% 1H ‘08. Display ads, classified listings, lead generation and email accounts for 34%, 10%, 7% and 1%, respectively. Retailers comprised the most substantial spending category, with a 20% market share.

Top 10 ad-selling companies accounted for 71% of total revenues in the second quarter of 2009.

• 11th: 25th – 11% of revenues for the second quarter of 2009.
• 26th: 50th – 7 percent in the second quarter of 2009.

• Industry revenue concentration remains high.
• Performance based pricing has maintained a strong sequential growth rate and is growing at the expense of CPM/Impression based pricing.
• Traffic is highly concentrated in the top 10 – 50 sites; everyone else is a traffic reseller.

Lead Generation revenues accounted for 7% of the 2009 second-quarter revenues or $361 million, down 10 percentfrom the $402 million (7 percent) reported in the second-quarter of 2008.

While lead generation was down for the industry, Reply! has posted over 50 percent revenue growth for the six-month period ending June 30, 2009 compared to a year ago in the Automotive and Real Estate categories, and has experienced increasing profitability over the last six consecutive quarters. Reply!’s growth can be partially attributed to its recently-launched advertiser-side exchange that efficiently allows for monetization of poorly-targeted traffic acquired from any online channel. Advertisers can quickly recover wasted online spend by making it available to buyers through Reply!’s platform.

For more information about Reply!’s success during this challenging time for the industry, read our recent press releases:Reply! Grows at Unprecedented Rate, Rips Beta Off Its Marketplace, Reply.com Brings on Board Top Real Estate Firms, Reply.com Launches Home Improvement.

Reply.com’s Marketplace and Exchange offer highly-efficient, locally-targeted consumer acquisition opportunities for large, sophisticated advertisers—as well as individual service providers—on a per-lead or per-Enhanced Click™ basis.

The full report is available here (as a pdf) and below.

IAB-Ad-Revenue-Six-Month-2009

While attending the Search Engine Strategies conference in San Jose this week, I couldn’t stop thinking about the lack of innovation in online marketing products geared towards local advertisers. Buying local display inventory is next to impossible, and buying local traffic from search engines is sloppy and inefficient. Creating local SEO pages is helpful, but is still very difficult to do in a scalable and sustainable manner. I believe the future of online marketing is in delivering geo-targeted advertising products that level the playing field for marketers with budgets of all sizes. I’m still stunned I didn’t see a single vendor focusing on geo-targeted consumer acquisition for new product launches (besides Reply!).

What really confuses me is the direction in which the major search engines are going. They’ve placed their focus on allowing consumers to find local products and services, but there’s a significant lag in allowing advertisers to profitably acquire consumers who are conducting localized searches. Why is it so hard to find consumers who are searching for specific products or services in specific geographies? Solving this problem will not only help local advertisers, it will provide more value to consumers who want to find and compare local products and services.

I consider myself to be somewhat of an online marketing expert. I manage a marketing team and a large corporate advertising budget; we’re profitable and we find creative ways to grow revenue and profits each month. I say this to set up my next point, not to gloat. My father is an attorney, and I manage his website and small advertising budget in my free time. I’m failing when it comes to delivering local prospects at a reasonable cost. This isn’t because I’m an unsophisticated marketer; this is because the major search engines are failing local advertisers. The major search engines can’t deliver significant traffic in the areas I want and they make changing geo-targets a painful process.The inflated cost for going local is disturbingly high. Simply put, online marketing is geared towards national advertisers. Local advertisers are at a severe disadvantage.

Large ad budgets understandably influence product changes and innovation for companies offering online marketing solutions, but we’ve reached a point where advertisers with small budgets need to be heard. Their needs should be driving innovation. The next wave of growth in online marketing needs to come from providing valuable products to local advertisers. This growth will help shift $10 billion in ad spend from offline to online services. I would be willing to grow my father’s ad budget if I could find a way to do so profitably, but this just isn’t the case. This means the major search engines are leaving my (and millions of others’) unspent ad budget on the table. It also means the door is open for an innovative product to sweep through this virtually untapped market.

To learn how Reply! is solving the problems with local online advertising, you can read any of the following posts:

• Reply.com Launches World’s First Marketplace for Enhanced Clicks™
• Online Marketing is Painful for Local Advertisers
• Making Locally-Targeted Advertising Simple and Profitable
• Reply! Click Marketplace Coverage & Clarifications

Tom Young
Director, Online Marketing & Product
Reply! Inc.

Yahoo’s Earnings. The good, bad and ugly.

• Rev: $1.573 billion (down 13%)
• Pageviews up 7%
• Search revenues down 15%
• display revenues down 14%
• Yahoo’s net income rose 8 percent to $141 M.
• Operating income fell 17 percent to $101 M.
• Yahoo’s search advertising revenues on Yahoo-owned sites declined 15 % to $359M .
• Yahoo announced a deal with AT&T to sell local online ads.
• Yahoo mail developing an initiative around improving the ad experience for consumers. They call some of their ads a detriment that cheapens the Yahoo brand.

Well– where does that leave us… MicroHoo anyone?  according to Techcrunch, sources say a search deal is imminent. but Yahoo may be pushing for an acquisition. To me, both sides need the  search deal to create a meaningful competitor to Google.  Microsoft reports earnings on Thursday.

Research just came out from Needham titled “Picking the Winners & Loser of Declining CPM Rates”.

The key take away from the pieces was that display (banner, graphical or brand ads) represent ~33% of total online advertising (about $7.6BN in ‘08) and CPMs have dropped. More specifically, since mid-2008 pricing for display ads has been under pressure, driven by:

1. A ton of lower priced inventory from social networks (Facebook, YouTube, Myspace, Bebo, etc)
2. The economic downturn pressure on ad spend and pricing. In particular the CPMs common at the beginning of ‘08 shifted downward towards the end of ‘08.
3. According to Needham, conditions have not improved in ‘09 and appear to have gotten worse.

While display is not as sexy as search, a rapid shift from away from CPM branding into performance marketing CPCs is a good thing for the industry as a whole.  Jumping down a level, I agree with the delineations in the report of breaking inventory into three primary buckets:

1. Premium (e.g., Yahoo’s front page, ESPN, iVillage, etc)
2. Low-end (e.g., “remnant” inventory like Yahoo! Mail, most social network inventory, and some “long-tail” sites)
3. Mid-market inventory (everything in between – often sold by large, reputable networks and ad exchanges).

If you have the money to burn and are used to offline advertising rates, you will find online a fraction of the cost and highly measurable.  I do disagree on the need for premium / branded placements.  If you add behavioral targeting and advertising exchanges into the mix, you can find and buy any audience on smaller less expensive sites and not be beholden to “brand sites with high CPMs”.

To illustrate the points, please see the graphs below:

One of the biggest challenges we have found with online marketing is the significant difference in quality of traffic between online sources.  One of your core challenges in venturing into customer acquisition using display will be to create multiple tests you we can test creative, test the audience on a given site and do it in a profitable manner.  OR — you can just purchase the clicks, enhanced from Reply!.

Cost-per-click (CPC) advertising is the lifeblood of our business. We recently began testing CPC advertising across a variety of search engines and ad networks, and we immediately noticed a lower quality of traffic as compared to Google and Yahoo. Specifically, landing page bounce rates are considerably worse on ad networks and low-tier search engines.

With any acquisition source, bounce rates serve as a great measurement of traffic quality, or the ability to accurately geo-target consumers. If a high percentage of consumers hits the back button immediately upon reaching our landing page, it indicates we’re attracting (and paying for) consumers who didn’t intend to see our offering. More importantly, a higher bounce rate means fewer clicks have the opportunity to convert on page two, which diminishes the revenue opportunity.

For clicks that don’t abandon our landing page, conversion rates on page two are comparable across all sources (SEM, SEO, display, e-mail, affiliates). This means the value of a consumer who reaches page two of our conversion funnel is equal across all sources (we use “net clicks” to define traffic that moves to page two). Net clicks are important to measure because the cost of a net click accounts for abandonment rates and allows for a fair cost comparison across all traffic sources. The data below shows how gross CPC and abandonment rates factor into the cost of a net click.

Ask.com is one of the search engines we recently began testing. As compared to the bigger search engines, our bounce rates with Ask.com are considerably higher, but the gross CPC is lower, causing the cost-per-net-click to be equal. In this case, high abandonment rates are tolerable because the gross CPC is low enough to offset the influx of abandoned clicks.

We’re also exploring AOL, Miva, 7search, ADSDAQ, MarchEx, Right Media, Value Click, Quigo, Avenue A, and a suite of ad networks offering CPC advertising. Abandonment rates are high across most of these sources, but only some of the sources offer a CPC low enough to meet our cost-per-net-click targets. For the most part, the revenue opportunity across these sources isn’t high enough to justify the cost of account management, bid management, and analytics tracking.

High abandonment rates, coupled with the inability to accurately geo-target, makes spending profitably on ad networks and low-tier search engines nearly impossible for small and local advertisers. Some of the sources work for us because we can buy nationwide traffic, we’ve invested heavily in landing page optimization, and we have a team dedicated to evaluating new media sources and managing the accounts. Most companies cannot invest this depth of resources, causing them to miss out on a significant volume of traffic across a unique blend of web properties.

We provide online marketing services to small and local advertisers, and we recently began selling geo-targeted net clicks to our clients. A net click that is geo-targeted is called an “Enhanced Click,” and Enhanced Clicks convert better for our clients than their traditional traffic sources. By eating the abandonment traffic and delivering clicks in precise geographic locations, we allow local advertisers to reach consumers across a span of web properties that have historically been too cost-prohibitive to manage.

Buying Enhanced Clicks avoids the costs of SEM account management, and it ensures an even quality of traffic, regardless of advertising source. We’ve seen almost no attrition across buyers of Enhanced Clicks since we began testing, and we’re confident this quality of traffic can’t be beaten. This offering is currently available for car dealers (new cars) and real estate agents (home buyers, home sellers), and we’ll be offering Enhanced Clicks for a variety of new verticals in 2009. Visit the Reply.com home page for more information about the Reply! Click Marketplace.

According to CNNMoney.com, nearly 20% of home sales in 2008 came from foreclosed homes, with another 11% coming from short sales. What’s even scarier is the fact that home values dropped more in the fourth quarter of 2008 than they did in all of 2007. As the presence of foreclosures on the market increases, the online buzz surrounding foreclosed homes follows closely.

As a company providing online real estate information, we measure the interest of home buyers across our portfolio of consumer acquisition sources. We’ve recently seen a drastic shift in the behavior of potential home buyers–more and more buyers are searching for foreclosures, and are showing less interest in “normal” home listings. Search queries for keywords such as “bank foreclosures” and “foreclosed homes for sale” have skyrocketed across the major search engines since Q4 of 2007.

Our marketing team first got a taste of the foreclosure buzz in late 2007. We had been targeting home buyers via search engine marketing for years, with foreclosure keywords representing a very small percentage of our traffic. When Yahoo ran a news story on their homepage highlighting an uptick in foreclosure listings and a reduction in home values, we quickly saw a shift in the interest of potential home buyers. For context, we were bidding on the keyword “foreclosed homes for sale” and went from spending roughly $50-per-day on Yahoo to more than $8,000 in three hours. The shift was quick, it was powerful, and it has sustained for well over one year.

Both sides of the foreclosure crisis are feeling the impact, but to varying degrees. Foreclosures have brought hardship to many families, forcing them to explore more affordable geographies while watching their home equity vanish. But for a new wave of home buyers, foreclosures represent an opportunity to acquire homes at prices that were inconceivable just two years ago.

Our goal, as we provide an online marketing solution to real estate professionals, is to acquire consumers with the highest likelihood of completing a real estate transaction. We’re interested to see where the real estate market will turn in 2009, and we’ll continue to monitor the intent of home buyers and sellers in an effort to provide the highest quality clicks and leads to our network of real estate agents.

Here are some very interesting presentations delivered at Inman’s Real Estate Connect in New York.  Hope you enjoy them.

• Jeff Turner: “25 Web Sites To Help You Find Customers and Save Money in Downturn” (2.1 MB).  Very helpful sites that you should review.
• Ashley Rigg: “25 Real Estate Web Sites to Keep Your Eyes On” (1.4 MB)
• Robert Shiller: “Finding A Fix For the Housing Market” (3.9 MB)

Okay, this took me awhile to get to…sorry!   We attended the soldout Affiliate Summit (Vegas, January 11-13). If you were unable to attend the show, they have just posted all presentations online. The presentations can be found here.

Here are some interesting takeaways and companies from my perpsective:

• Tracking202.com – My favorite company from the show. I had a demo and love what they are doing.   They aren’t doing bid management yet, but have some fantastic tools to “increase profits with real-time PPC analytics so you have a clear picture of how well your campaigns are performing.”
• Prosper202.com – Provides pay-per-click affiliate marketers with free, leading-edge, self-hosted ppc software. (free version of Tracking202.com)
• 99Designs.com – I had never heard of this site, but it is a great resource.  After all, who ever has enough design resources?  From their site, “Need something designed? 99designs connects clients needing design work such as logo designs, business cards, or web sites to a thriving community of 25,780 talented designers.
• ODesk.com, eLance.com – Sites that simplify the process of finding, managing, and paying for resources like: web programming, writing and translation, admin support, sales and marketing, finance, legal, etc.
• Izea.com - Pay-per-post blogging. If you would like to use the power of bloggin and social media to drive in-bound links and awareness, consider using these guys… pretty cool.
• Sendori.com (acquired today by IAC/Ask.com) – will auction off redirects from parked domains through their servers and to sponsored advertiser pages in a PPC auction.
• Facebook Advertising – They now offer a self-serve PPC network with over 150MM unique users (1/3 U.S, 2/3 International). While their platform is very new, raw, and often frustrating, they offer solid demographic and psychographic targeting.  Once you get your ad approved, you can get “massive traffic.”  There isn’t a lot of competition on their system right now, but making it profitable will require focus and attention.
• Interesting Affiliate Networks that attended the show: Azoggle, Buy.at, Commission Junction, Google Network (formerly Performics), Linkshare, Shareasale, ClickBank.com, DirectResponse.com, HydraNetwork
• Note to self – Several panelists suggested everyone read the book, 4-Hour Work Week.

Found this document on slideshare and found it a fantastic read.

Interesting Take Aways:

• Scalability, Network Effects, Data Mining, Openness, Co-creation, Business Model
• The mobile industry in not suited for the Google development model based on openness, interoperability and network effects.
• YouTube acts as the platform of a two sided market composed of content providers and video seeking users.
• Google partly destroys Microsoft’s market when shifting value from offline to online.
• Facebook’s platform is limited. Google’s open social strategy is web-wide.
• Google has the financial power to buy traffic from partners, accessing massive audiences (Firefox, Dell, iPhone, Adobe, AOL, etc)
• They acquired DoubleClick to gain expertise in display and a global market
• Google supports the OpenSource community in a spirit of collaborative creation, one of Google’s strategic pillars.
• Externalizing tasks onto users (crowdsourcing) is a commonly used process to improve its products.

Autobytel announced this morning a 35% workforce reduction as part of a company-wide cost-cutting initiative started last year.  The company also announced that it has retained the investment bank  RBC Capital Markets Corporation as to assist the company in exploring alternatives to maximize shareholder value.

The full release can be found here.

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