Editor’s note: This month, Newspapers & Technology will begin printing excerpts from The Online Advertising Sourcebook for Newspapers, authored by Saxotech.

The Sourcebook is an educational reference tool providing a thorough explanation of the state of online advertising and the technologies and methodologies available to improve a publisher’s revenue using online efforts.

Print copies of the book will be available at Saxotech’s booth (2038) at Nexpo in Chicago next month, with a limited number of complimentary copies available.

As a disruptive new advertising medium, the Internet is nothing new, really. There are strong parallels over the past century to draw from, whether it’s the onset of radio in the 1920s, broadcast television in the 1950s or cable TV in the 1980s. In fact, the terms “wireless and “www” began appearing in ads 85 years ago, long before they became part of the everyday media lexicon. In 1920, RCA’s logos and advertisements touted its own WWW - “World Wide Wireless” - with an image of the Earth coined with the words on the front of their annual report. Its emerging product, of course, was radio, or wireless telephony.

Just as the Internet had its roots in the U.S. military as a high-level communications tool in the 1970s, radio sprouted from a similar roots. From 1899 until the end of World War I, radio was seen primarily as a communications tool to help guiding ships and for relaying field orders in Europe. There was no vision of commercial viability or any application for home users until after WWI. It took more than 18 years for its evolution into a wide-reaching broadcast medium.

On the bandwagon

It’s interesting to note that, just as newspapers were among the first to seize the commercial Internet opportunity in the mid-1990s, so were they among the first to jump on the radio bandwagon in the 1920s. The first commercial radio broadcast came during the 1920 presidential election, when a Westinghouse office in Pittsburgh erected a makeshift radio station on its rooftop and the local newspaper relayed election returns by telephone from its offices a few blocks away. (Interestingly enough, the race was between two Ohio newspapermen - Warren Harding, publisher of the Marion Star and James M. Cox, publisher of the Dayton Daily News and founder of Cox Newspapers.)  

The chart shows each medium’s contribution to advertising growth in 2006. Online garners the largest contribution, with broadcast TV and direct mail close behind, followed by newspapers.
Source: AdAudit Services, Borrell Associates Inc.

From 1921 to 1922, radio stations quickly grew from five to more than 575. Programs and music were beginning to take to the airwaves. Radio sets were selling as fast as they could be made, and listening to the radio was a fad. Events around the world could now be experienced as they happened.  Just like the Internet 75 years later, people were free from constraints of time and space.  And as people gathered around radio sets, advertisers scrambled to tell them about their soap, cigarettes, cosmetics and appliances.

The growth of the Internet shows many of the same traits as early radio. While listenership soared into the mid-1920s, radio struggled to find a business model. By 1926, radio stations were failing at the rate of 15 percent per month. What finally made radio profitable was the emergence of the network and syndicated programs. The network allowed for linking scores of stations across the country, thus allowing for the placement of ads on the national level and radio’s subsequent profitability. Syndication was another idea that flourished - the packaging and selling of content along with sponsoring advertising.

Plenty of growth

All of this may be a fascinating history lesson, but what does it mean for anyone trying to ply Internet advertising? In understanding the past, we understand the future. And with just the first decade of the commercialized Internet behind us, the future holds plenty of growth. We are entering the decade of the 1930s for radio or the 1960s for television - just the beginning of each medium’s heyday. Advertising executives who understand this will have a better grasp on the task at hand.  

How big might the Internet become? As big as yellow pages advertising? As big as radio? Broadcast TV? Maybe even newspapers? Current trends suggest that it may be bigger than all of them. The growth rate of new technologies as far back as the introduction of electricity in 1873 show similar hockey-stick growth patterns. The Internet’s growth parallels that of radio and TV, but while it took each of them more than 30 years to reach 50 percent of all U.S. households, the Internet got there in about 20 years.

Early years of the Web

The Internet changes the ways companies connect with customers. After a century of being barraged with one-way marketing messages (Buy a Cadillac!), consumers have become more demanding and sophisticated (Build your own Cadillac Esplanade and take a test drive online!). They expect more information, more value. What’s so different about Internet advertising is that the balance of power has shifted to the consumer. It offers a level of interactivity with the consumer that other media can’t match.

The Internet isn’t a static medium of banner ads. It’s a dynamic medium capable of text, pictures, audio, video and interaction that 10 years from now may have people looking back at the 1990s as “the good old days” when media companies thought the Internet was about text, graphics and searchable classifieds.

Since the development of the Web browser in 1994, many of the basic digital technologies that existed in the pre-browser era (1974-1993) regulated its early growth. Many Web sites were “static” sites of text, pictures and links. For example, a newspaper site would be filled with links to published stories. These static sites were easy to make and inexpensive to develop.

The first ads on the Web in 1993 offered static versions of printed ads or company logos. Some contained contact information and urged the user to call.

Database apps

Another category of sites that developed was driven by databases. These sites delivered information based on a user’s input (such as filling out a form or selecting something from a list provided in a drop-down box). Responses were turned into dynamically drawn Web pages. This interaction makes up a “dynamic” site. An example is Google, or a newspaper’s real estate classified site that allows users to search for a home by number of bedrooms, price or location.

The next phase was personalization. Personalization requires a user to enter information such as age, gender, ZIP code, stocks of interest, or other personal preferences at a dynamic site. In return, the user sees tailored information or site features. Most often, this user-specific information is left on the user’s computer in the form of a cookie (special text stored on the user’s hard drive), which helps the Web browser remember the user’s identity. At Amazon.com, visitors can enter a username and the site will offer recommendations of merchandise you may be interested in based on your preferences (and even past purchases).

Broadband and beyond

Today, half of all Internet users are on a high-speed connection, ushering in a new era of online marketing. Static sites have begun yielding to “rich media,” or those featuring video, audio animation or special effects. Advertisers’ love affair with the “rich media” of television has begun to transfer to the Internet, where flashy video and animation can be combined with consumer interactivity. While the early days of the Internet seemed to focus on eroding print advertising, the next phase seems to have television advertising in the crosshairs.

The promise of rich media and the creative possibilities it could open is alluring. A 2003 survey by online ad vendor DoubleClick revealed that rich media produced greater brand recognition and higher sales than static online ads. Another study has shown that the clickthrough rate for rich media is four times that of static ads. And finally, spending on rich media ads is expected to increase dramatically, overtaking banner ads in 2008.

In 1996, the HP Pong banner ad became a strong start for what has become known as online advergames. Marketers have been using such games in ads successfully since then to increase brand engagement. “Punch the Monkey” is one of the most well-known.

Adding interactive features to rich media ads holds possibilities that are even more exciting to marketers than games. The combination of animation, sound and video with interactive features will undoubtedly become more popular as online advertising grows. By 2008, 39 percent of Internet ad spending is expected to be on rich media.

Multiple options

Rich media offers things that traditional media cannot. TV and newspapers may indeed reach a wider audience, but an online ad campaign offers targeting to the masses. In many cases, the same ads that appear in the traditional media can now be used online with a response mechanism added.

Advertisers aren’t the only ones leading the charge to this new interactive medium. Newspapers, TV and radio stations have found success integrating their advertising campaigns so that readers, viewers or listeners are driven to the Internet to respond.

This type of cross-media advertising package has grown very popular over the past five years. User information is captured online, and a response system of personalized information begins a circle of communications.

We’ve begun to see the evolution of rich media in three ways:

*Recycled TV spots: Look for more use of TV commercials on the Internet. Local car dealers are already beginning to use their TV ads online.

*Floating and expanding banners:  Floating and expanding ads pack a big impact into a small space. These ads grab attention with motion and impact. Users can control the ad and many disappear within seconds if there is no response.

*Sound enabled: A real estate site in Kentucky, opiaproperties.com, has a Web page of video clips that consists of each agent talking to the user and describing his or her strengths and virtues. Some sound-enabled ads only begin if a cursor is run over the image. Eventually, clever uses of audio may allow two-way communication.

Other trends that will likely emerge in the next few years:

*Blogs, RSS and podcasts: The number of Americans accessing podcasts is expected to double from about 5 million to more than 10 million in 2006. Large advertisers such as Best Buy, Acura and Volvo are already sponsoring podcasts. 

*Search marketing: Paid search will continue to lead in online advertising revenue. It has now reached 42 percent of 2005’s ad dollar spending.

*Mobile marketing: Some estimates predict that mobile marketing and advertising spending will reach $219 million in 2006. Advertisers need to understand how to reach iPods, MP3s, cell phones, BlackBerries and other on-the-go devices.

*Permission-based marketing: New technologies and applications will allow consumers to better control their e-mail from unwanted spam and marketers. It is important to get permission to deliver targeted messages to the right people when they want to receive it.

Just as radio evolved from broadcasts of mere piano recitals or late-night transmissions of election returns to full-fledged shows, so the Internet it seems is on an evolutionary path that will take another decade - or two - to completely unfold.