Re: The potential of banner ads

From: John Gaskill <gm_at_info-central-usa.com>
Date: Fri 04 May 2001 11:51:58 -0500

ANDREW DEL <Andrewdel_at_aol.com> WROTE:

>I love reading about the discussion of the viability
>of online advertising, among other topics, but there
>are three important factors that I seldom hear that
>are central to this discussion:

>1. Econ 101 - What happens when oil producers produce
>too much oil? The supply goes up, while demand remains
>constant. The result is lower oil prices. The falling
>CPM rate is not a factor of ROI (see more on this
>below), but of supply and demand - very basic. There
>is a wealth of inventory out there that is
>significantly more than the current demand.
>(brokerage report recommendation snipped)

I am only going to comment on Andrew's first point.

If my flagging memory serves me right, Econ 101
also touches on the subject of "price elasticity."
Oil companies learned during the gas wars of the
1960's that gasoline was actually price elastic,
that is, when the price is lower, people use more
of it (the "quantity demanded increases").

Because banner advertising is not burned for fuel,
weather conditions are unlikely to effect the
quantity demanded. However, a substantial drop
in price is likely to increase the quantity demanded
by those who use the medium successfully as they
are now able to buy more impressions, clicks or
actions for their money than they were before.

Now that banner ad rates have fallen from lofty levels
many advertisers who were not in the market previously
are now experimenting with the medium. This is a plus
for the industry, for the advertisers and for web sites
selling impressions, clicks or actions.

But the word is also out. Costs of production are low.
Costs of distribution are low, and those who sell
space are "willing to negotiate."

No doubt the supply of available impressions will
always exceed the demand for those impressions
on the internet as a whole. As for clicks and actions,
time will tell.

The question is not whether ROI is the wrong tool
to analyze internet results, but what other tools are
available? The average internet advertiser may
be perfectly willing to find out what actual results
an online campaign produces, but the cost of learning
those facts may presently be too great. The byproduct
of a lack of certainty on the advertiser's part is to lower
the risk of loss by lowering the cost of testing the medium.

What else can they do that satisfies their need for media
and their duty to protect their firm's scarce resource$?

Regards all,

John Gaskill

John Gaskill
jg_at_info-central-usa.com
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Received on Fri May 04 2001 - 11:51:58 CDT