Target also leads the pack when it comes to paid search spending, a new report finds.
Display ads make a comeback, building on advances in targeting and ad formats that do more than scream "click here."
If today's online marketers climb into a time machine and revisit the digital budgets of yesteryear—read: the late 1990s—they'd uncover an era when their predecessors spent nearly all—about 89%—of their digital budgets on display ads and paid for 40% of those ads based solely on the number of times host web sites served ads to web site visitors, visitors the web site operators and advertisers knew very little about.
Spending nearly all of a digital budget on an ad format that provided little in measureable returns may be unfathomable to today's metric-driven marketers. But in 1998, spending on paid search engine marketing was so small it was lumped into the "other" category by the Interactive Advertising Bureau trade group's annual Internet advertising revenue report. The Internet offered little beyond display for marketers to spend money on in 1998.
Display advertising's early selling point was its ability to build awareness for the advertiser, an investment in brand building designed to pay off down the line. But in the early 2000s, search engines took off and brought a new form of marketing that allowed each advertiser to measure each click and every penny spent. Paid search ads went from accounting for virtually no spending in 1998 to 35% of online ad spend in 2003 and 46% in 2008. Search's rise came at the expense of display, which slid to 41% in 2003 and 33% in 2008, according to the IAB.
But that slide has come to a halt, as display ads accounted for 35% of digital marketing budgets in 2011, the IAB says. Two developments mainly account for the turnaround. First, there are new ways to use the vast amounts of data being collected by online marketers to better target ads to consumers likely to buy from a particular advertiser. Second, there are new display ad formats that allow advertisers to create ads that are more personalized and engaging than ever, and that even incorporate Facebook posts as they appear on the social network.
It's still early days, and there is plenty of experimenting going on, but retailers already are making use of these new online display possibilities in intriguing ways.
Targeting and prospecting
FreshPair.com illustrates the evolution underway. The web-only underwear e-retailer added online display ads to its arsenal only about three years ago. It started with the retargeting format that can be most easily measured and now is testing online display ads aimed at bringing in new customers.
Previously, the 12-year-old e-retailer focused its marketing investments in paid search, taking steps to move up in natural search, and e-mail because the impact of those ad forms on the bottom line was clear and measurable, says Kaitlin Moughty, senior marketing manager. She says display today is edging closer to that. "Everyone questions the capabilities of display, but with more transparency and more reporting, those black hole questions are being answered," she says.
"What's taken place in display is that it was a static inventory form that never performed well from a direct ROI standpoint," says Tony Zito, CEO of mediaForge, a marketing services vendor that FreshPair.com works with for display advertising. "The influx of data has changed that dramatically."
Most of FreshPair.com's display ads today are retargeted ads: They are shown to consumers who have visited FreshPair.com as they navigate to other web sites and are designed to bring them back to FreshPair.com. Moughty says retargeted ads are the easiest to justify because they naturally have higher engagement, click-through and conversion rates than more general display ads. That's because the consumers viewing the ads have already demonstrated an interest in the e-retailer.
Moughty says FreshPair.com is treading more cautiously at using display ads for prospecting for new customers and brand building. But the e-retailer has tested a few campaigns and plans some more, Moughty says.
To create the most recent of those, the e-retailer worked with mediaForge to target FreshPair.com ads to consumers whose online behavior and demographic information mirrored the profile of existing FreshPair.com customers. Moughty says she shared with mediaForge the e-retailer's goals for the campaign and the vendor placed the ads based on FreshPair.com consumer data, mediaForge's own data, and that of the ad networks it works with.
An e-retailer can place display ads directly with ad networks, but Moughty says she finds it more effective to work with a vendor like mediaForge that has a lot of experience with the ad networks and is better able to solve technical problems. "On a self-serve model it was hard to find a contact or get answers," she says. "The animation in our ad wouldn't get approved and we wouldn't be able to find out why. When you align with a partner, they work through those types of issues."
Moughty also says the vendor landscape has changed when it comes to display, and that's helped introduce pricing models more appealing to advertisers that don't have massive budgets. FreshPair.com pays mediaForge based on performance, which means if campaigns don't meet pre-established goals, mediaForge doesn't get paid. "A few years ago, there was the feeling you needed to spend $25,000 or $50,000 a month, and that isn't the case anymore. They really want you to be successful because that means they are successful," Moughty says.
Display ads today also come in a greater number of sizes and can include more content designed to catch consumers' eyes. Some web sites that show ads also are getting better at placing ads alongside content related to the ad, improving the likelihood of the ad being seen by consumers interested in what the advertiser is selling. That's what AOL Advertising is doing with a display ad unit it calls Project Devil. AOL Advertising is a unit of AOL Inc., and sells ads on all AOL sites, which includes highly trafficked sites like The Huffington Post.