Trends Report – Internet Advertising
Internet advertising still manages to capture at least one or two headlines daily. More importantly, the stories continue to paint upbeat forecasts for the industry. According to reports, if companies perform according to the average predicted growth for the industry, they should see an increase of 25% this year compared to last. Much of the current optimism is spurred by the incredibly strong postings by public companies that derive significant portions of their revenue from internet advertising, Yahoo being one of them.
Few companies have the brand equity and profitability that Yahoo does, especially for an entity that doesn’t exist in the real world, so to speak. In all of the webdome, only a handful come close – Google, eBay, AOL, PayPal, and Amazon being the ones that come to mind. I have long been a fan of Google and eBay, who purchased PayPal. They have proven beyond a doubt their ability to succeed. AOL is a story in and of itself. The fifth company on that list, Amazon, is also considered a success. BusinessWeek magazine, for instance, considers Amazon’s founder Jeff Bezos to be one of the greatest innovators of the last 75 years. At 40, Jeff Bezos heads a company whose brand is in the top 100 of worldwide companies. Ranked 66th, it places just behind eBay and Yahoo who are ranked 60 and 61 respectively. These are impressive feats considering companies such as Motorola, Porsche, Hertz, Starbucks, and Heineken all rank behind the three internet giants.
Looking at Amazon through the lens of internet advertising, it deserves credit for embracing the power of affiliate marketing. Amazon has long been considered a pioneer in online direct marketing and continues to run one of the most successful and well-liked programs. To provide some historical context on their involvement in the internet advertising space, in February 2000, at a time when most companies were just starting, Amazon even received a patent on the technology behind running an affiliate program. They applied for it in 1997 which itself shows their level of commitment to the industry and confirms their pioneering status. Of the powerful internet brands, only eBay compares with respect to their understanding and ability to leverage affiliate advertising.
Many companies in our space followed in Bezos’ footsteps, in that like him they succeeded based on timing, strategy, and marketing. Where those in online direct marketing space have differed and where, in many respects, the online direct marketers deserve more credit is in their ability to do what Amazon has not. Those in the online direct marketing space make money, and they do it fast. In its first ten years of being in business, Amazon.com lost $3 billion dollars. It took more than five years for the business to have its first profitable quarter, and it will take countless more before the company becomes truly profitable. Yahoo, Google, and eBay on the other hand are all profitable, having earned more than one billion dollars in net profits after tax.
Strategic marketing expert Al Reis believes that Amazon, while the best known brand for retail online, has actually made several key mistakes. Amazon CEO Jeff Bezos says that he wants “to create something that transcends his own company,” doing what Sony did by helping make Japan known for quality. Ultimately, it comes down to answering what it is that we really want to do. What business are we really in and how many lines of business should we have? Amazon is now profitable and has a great brand, so it might seem like there is no reason for them not to go into other businesses (which they already have). Sony, the company referenced by Bezos, is probably the world’s most recognized electronics brand, known in our industry most for its gaming systems used in incentive promotion campaigns. If one was to emulate a company, would Sony be the one to choose? Looking at other incentive promotion offers, one might want to pick Nintendo. Although they have a single product and made 1/13 the revenue of Sony over the past decade, they made more in cumulative profit.
As we look into 2005 and wonder how we might make this year as good as the year just past, it might seem like diversifying is the way to go. Looking at other companies that have faced similar market opportunities and competitive challenges, the answer might just wind up being counter to what we think. The trend for 2005 will be understanding the key levers that helped successful companies succeed. These companies, when they wanted to grow, they went narrow. They focused. When they wanted to go into a new business line, they either created the category, or in the case of GAP, they created a new company, Old Navy, rather than Discount Gap. What will you do to stay ahead? This year will have more competition than any year thus far.
