E-COMMERCE REPORT
Ad Costs on the Web Are Rising, but Perhaps a Bit Irrationally
By BOB TEDESCHI December 25, 2006
MEDIA executives and investors get a pleasant neck ache from watching the skyward path of online advertising revenues. But for those who have to pay for advertising, the trend is bringing some anxiety.
Prices for some online advertising are going up, and some retailers and brand marketers say the big question mark hanging over 2007 is whether publishers will be so emboldened by a strong advertising market that they will raise the prices of ads sharply.
"Everybody's excited about online advertising," said Mark Vadon, chief executive of the online jeweler Blue Nile. "But the rates keep going up and up and up."
Joanne Bradford, MSN's corporate vice president and chief media officer, would not specify the extent to which her site will raise prices next year, but she said that during the last two years "there's been unbelievable price pressure."
For instance, Ms. Bradford said that for the front pages of some popular MSN sections, prices rose tenfold. "That settled down quite a bit, and now we're starting to see price pressure more evenly spread across the network," she said.
According to Greg Stuart, chief executive of the Interactive Advertising Bureau, an industry group that represents online media companies, there are no reliable statistics on average advertising rates, in part because advertising agencies often negotiate special rates with publishers and keep those deals close to the vest. "Rates are going up, but effectiveness is going up too," he said, suggesting consumers were now more likely to make a purchase or request additional information than in previous years.
Online advertising revenues are expected to grow by 31 percent to $16.4 billion this year, according to a report by eMarketer, an Internet consultancy. That spending represents 6 percent of the overall advertising market. Revenues for 2007, eMarketer said, would most likely rise 19 percent, to $19.5 billion.