Monday, March 23, 2009

Video Killed the Banner-Ad Star


This post was also published in AdWeek.

Over the past couple of years, the decreasing effectiveness of banner ads has led to increased hand-wringing. When I give talks nowadays, I start off by asking who clicked on a banner ad that day. No hands go up.

Banner ads were all the rage for many years, culminating in 2007 with Google's $3.5 billion acquisition of DoubleClick. But as more people spend more time online, banner ads are becoming the billboards of the Internet.

Billboards can be very effective. Ubiquitous Coca-Cola billboards build the brand. Billboards placed in highly visible locations like Times Square and Giants Stadium attract a premium. But it's quite the exceptional billboard that actually makes you take action -- calling a listed phone number to learn more about the business, for example -- just like it's quite the exceptional banner ad that gets you to click on it.

And well-placed billboards, such as one on a highway advertising a restaurant in a nearby town, can be effective and lucrative, just like a banner ad on a travel site tied to what you're already searching for can catch your eye. But overall, billboards are a niche market, and pale in comparison to broadcast TV and cable advertising.

The equivalent of TV advertising online is, of course, online video advertising.

For a long time, online content was mostly user-generated video -- the equivalent of cable-access channels, the garbage can of TV advertising. But now that major TV networks are distributing premium content over the Internet, users are increasingly watching premium video content from networks such as CBS and Fox, and Webisodic content from sites like FunnyOrDie.com and Runawaybox.com. Not surprisingly, a recent report from eMarketer states that "video ad spending will run counter to overall economic developments, rising by 45 percent in 2009 to reach $850 million."

Now that premium video content is available, it's a natural fit for top advertiser dollars. Premium online video has only just begun its penetration. Previous generations of online content have already flowed from source sites such as YouTube and CNN into thousands of embedded widgets, RSS newsreaders and profiles on social-media sites.

The same phenomenon will happen with premium content, which is just starting to flow from destination sites like CBS.com and Hulu.com to popular MySpace and Facebook pages. Particularly in an economic downturn, it's important for advertisers to leverage their existing assets such as short-form video ads and maximize consumer attention with ads that viewers will actually watch as they wait for their content to start.

Similarly, online video advertisers will get the most benefit from their investments when their content goes viral by tapping into the social graph on social-media sites. Ads will no longer have to wait for viewers to come to them; they'll find them where they live online.

As Charlene Li, author of Groundswell and founder of Altimeter Group in San Francisco, has said: "Social networks will become like air. They will be anywhere and everywhere we need and want them to be." If you're a content company, that's the distribution platform you want. You can go where the audience is. That's something that a banner ad can't do.

Video killed the radio star in the 1980s and, 20 years later, it's killing the banner-ad star.

Peter Yared is founder and CEO of iWidgets. He can be reached at peter@iwidgets.com.

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