Internet Commerce Briefing: Online Advertising & Digital Marketing Report

The Internet
Commerce Briefing
Online advertising
& digital marketing report
The Intermarket Group L.P.

www.intermarketgroup.com
Online Advertising & Digital Marketing Report
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Published January 2002

ISBN No. 1-882113-16-0
The Internet Commerce Briefing | 1

Table Of Contents
Table of Contents ...................................................................... 2

List of Charts and Tables .......................................................... 3
Section I. Online Advertising Market Size

and Composition .................................................. 4
Section II. Online Advertising Practices ...............................17
Section III. E-mail Marketing Practices .................................28
Section IV. Leading Advertisers and Brands.........................37
Section V. Internet Users and Online Advertising ................42
Appendix Data Sources and Contact Information...............58
Other reports in the Internet Commerce Briefing series:

Internet Population & Online Demographics
Business-to-Consumer E-commerce

Charts and tables in this report

1.01 U.S. Online Advertising Expenditures (1/1996-9/2001) 3.03 Frequency Of Promotional E-mails Among Leading Retailers
1.02 U.S. Online Advertising Expenditures By Month (1999/2000) 3.04 Types Of Permission E-mail Received By U.S. Internet Users
1.03 U.S. Share Of Online Advertising Expenditures (1998-2005) 3.05 E-mail Volume Of U.S. Internet Users At Home And At Work
1.04 Global Online Advertising Expenditures By Region 3.06 How Frequently Do U.S. Internet Users Check Their E-mail
(2001/2005) 3.07 Proportion Of U.S. Internet Users' E-mail That Is Spam/UCE
1.05 DoubleClick Ads Served Worldwide By Quarter (1999-2001) 3.08 Reasons Internet Users Forward E-mail To Others
1.06 Daily Banner Ad Impressions Per U.S. Internet User (2001- 3.09 Total U.S. E-mail Marketing Expenditures (1999-2004)
2005) 3.10 U.S. E-mail Marketing Services Expenditures (1999-2003)
1.07 Leading Sectors For U.S. Online Advertising By Impressions 3.11 E-mail Marketing By U.S. Small Business (2001/2003/2005)
1.08 Leading Sectors For U.S. Online Advertising By Share Of 3.12 Payment Options Supported By E-mail Marketing Networks
Impressions 3.13 U.S. E-mail Marketing Allocation Of Expenditures, Customer
1.09 Leading Sectors For U.S. Online Advertising By Expenditures Acquisition vs. Retention
1.10 U.S. Online Advertising Expenditures By Sector (1999-2001) 3.14 Objectives For Opt-in E-mail Marketing Campaigns
1.11 U.S. Online Advertising Expenditures By Sector (1998-2001) 3.15 Internet User Open Rates For HTML Messages
1.12 Online Advertising Expenditures Breakout For U.S. 3.16 Formats Supported By Internet Users' E-mail Clients
Consumer-Related Sector (Q3-2001) 3.17 E-mail Format For Advertising Campaigns
1.13 U.S. Online Advertising Expenditures By Ad Type
(2000/2001) 4.01 Leading U.S. Online Advertisers By Expenditures
1.14 U.S. Online Advertising Expenditures By Pricing Scheme 4.02 Leading U.S. Online Advertisers By Impressions
(2000) 4.03 Leading Websites By Online Advertising Revenue
1.15 U.S. Online Advertising Expenditures By Pricing Scheme 4.04 Leading U.S. Advertisers By Expenditures (All Media)
(2000/2001) 4.05 Leading Dot.com Brands Among U.S. Decision-Makers
1.16 Estimated U.S. Online Advertising Expenditures (2001) 4.06 Leading Technology Brands Among U.S. Consumers
1.17 Estimated Growth Of U.S. Online Advertising Expenditures 4.07 Leading E-commerce Brands Among U.S. Internet Users
1.18 U.S. Online Advertising Expenditure Growth (1998-2006)
1.19 U.S. Digital Marketing Expenditures (2000-2006) 5.01 Communication Preferences Of U.S. Online Buyers
1.20 U.S. Performance-Based Online Advertising Growth (2000- 5.02 How U.S. Internet Users Learn About Websites
2005) 5.03 Primary Method For U.S. Internet Users To Learn About
1.21 Wireless Advertising Expenditures By Region (2000-2005) Websites
1.22 Online Share Of U.S. Advertising Expenditures (1996-2006) 5.04 How U.S. Internet Users Search For Products Online
1.23 Total U.S. Offline Advertising Expenditures (1999-2006) 5.05 How Online Shoppers Get To Websites
1.24 U.S. Offline Advertising Expenditures By Media Category 5.06 Visibility Of Online Ads Among U.S. Internet Users At Home
(2000/2001) And At Work
1.25 U.S. Offline Advertising Expenditures By Media Category 5.07 Elapsed Time To Conversion For Online Ads
(1996-2006) 5.08 U.S. Internet Users' Likelihood of Clicking On Banner Ads
5.09 U.S. Consumer Attitudes About Clicking On Banner Ads
2.01 Top Reasons Companies Advertise Online 5.10 U.S. Click-Through Rates For Banner Ads vs. Opt-in E-mail
2.02 Objectives Of Online Advertisements 5.11 U.S. Click-Through Rate Comparison By Type Of Media
2.03 Media Used To Drive Traffic To Websites 5.12 U.S. Wireless Advertising Response Rates By Format
2.04 Effectiveness Of Select Media In Driving Traffic To Websites 5.13 U.S. Wireless Advertising Response Rates In SkyGo Service
2.05 Effectiveness Of Affiliate Marketing vs. Online Alternatives Trial
2.06 Most Effective Advertising Media For Customer Acquisition 5.14 Attitudes Towards Banner Ads Among U.S. Internet Users At
2.07 Most Effective Advertising Media For Branding Home
2.08 Sources Of Website Traffic Growth 5.15 Attitudes Towards Banner Ads Among U.S. Internet Users At
2.09 Online Banners Served By Size Of Ad (Q4-2000) Work
2.10 Online Ad Dimensions Used By Advertisers (2000) 5.16 U.S. Internet Users' Attitudes Towards Spam/UCE
2.11 Full Banner Ad Rate Card Pricing 5.17 U.S. Internet Users' Attitudes Towards E-mail Marketing
2.12 Average Rate Card Pricing For IAB Online Ad Units 5.18 U.S. Internet Users’ Attitudes Towards Rich E-mail
2.13 U.S. Online Ad Campaign Size By Sector 5.19 Internet User Preferences For Permission E-mail Volume
2.14 Number Of Sites Purchased In U.S. Online Ad Campaigns 5.20 Online Activities Of U.S. Internet Users vs. eCoupon Users
2.15 Effectiveness Of Online Advertising By Type Of Placement 5.21 Household Income Of U.S. Coupon Users
2.16 Online/Offline Advertising Mix Among U.S. Online Retailers 5.22 eCoupon Use Among U.S. Internet Users By Category
2.17 U.S. Advertiser Plans For Streaming Media Ad Expenditures 5.23 Redemption Of eCoupons By Category And Retail Channel
2.18 Barriers To Increased Online Advertising Expenditures 5.24 U.S. Online Consumer Preferences For Coupon Delivery
5.25 How Frequently U.S. Consumers Wish To Receive Coupons
3.01 U.S. E-mail Message Volume (1999-2003) Via E-mail
3.02 U.S. Opt-in E-mail Message Volume (1999-2003) 5.26 Visibility Of Online Ads By Format
5.27 User Recognition Of Streaming Commercials

Section I.
Online Advertising Market
Size and Composition

The year 2001 was unarguably among the most difficult and challenging yet
for the infant online advertising industry. After years of rapid growth, the industry
was hit for the first time by a double-digit decline in expenditures thanks to a
slowing U.S. economy and a literal collapse of the “dot com” economy.
Between 1996 and 2000, the Internet Advertising Bureau (IAB) estimates that
online advertising expenditures grew by an average 142% per year, from $268
million to more than $8.2 billion. Expenditures in Q4-2000 alone reached almost
$2.2 billion, according to the association, before declining by 12% in the first-
quarter of 2001. During the first three quarters of 2001, expenditures declined by
a total of 8.4%, to $5.6 billion from $6.1 billion for the comparable period in 2000.
Most analysts’ estimates of expenditures for the full year are just over $7 billion,
representing a year-over-year decline of more than 10%.
1.01 U.S. Online Advertising Expenditures (1/1996-9/2001)

Millions of dollars and percent change quarter-to-quarter
Online Ad Expenditures Qtr. Over Qtr. Growth

$3,000 80%
$2,162
$2,124
$1,986
$2,500
$1,953
$1,893
$1,868
60%
$1,792
$1,777
$2,000
40%
$1,217
$1,500
$934
$692 20%
$656
$1,000
$491
$423
$351
$336
$227
$214
0%
$130
$110
$500
$76
$52
$30
$0 -20%
Q1-1996
Q2-1996
Q3-1996
Q4-1996
Q1-1997
Q2-1997
Q3-1997
Q4-1997
Q1-1998
Q2-1998
Q3-1998
Q4-1998
Q1-1999
Q2-1999
Q3-1999
Q4-1999
Q1-2000
Q2-2000
Q3-2000
Q4-2000
Q1-2001
Q2-2001
Q3-2001
Source: IAB, 10/2001
1.02 U.S. Online Advertising Expenditures By Month (1999/2000)

Percent of total annual expenditures
1999 2000
20%
14.6%
13.1%
15%
10.8%
10.0%
9.8%
9.3%
9.0%
9.0%
8.5%
8.5%
8.4%
8.1%
8.0%
7.8%
7.7%
7.6%
7.5%
7.5%
10%
7.1%
6.7%
6.1%
6.0%
4.7%
4.3%
5%
0%
Jan. Feb. Mar. Apr. May Jun. Jly. Aug. Sep. Oct. Nov. Dec.
Source: IAB, 4/2001

The United States dominates online advertising, accounting for approximately

80% of all expenditures during 2001. Despite its outsized role in the industry, the
U.S. share of global expenditures has been declining slowly over the years and
this trend is expected to continue. By 2005, the U.S. is expected to account for
approximately 70% of global expenditures compared to 88% in 1998. After the
U.S., Europe is the second-largest online advertising market, accounting for 12%
of expenditures during 2001. The Asia/Pacific region is expected to experience
the greatest growth between 2001 and 2005, expanding from 6% of global
expenditures in 2001 to 10% in 2005.
1.03 U.S. Share Of Online Advertising Expenditures (1998-2005)

Percent of global online advertising expenditures
100%
88%
83% 81% 79%
80% 75% 73% 72% 70%
60%
40%
20%
0%
1998 1999 2000 2001 2002 2003 2004 2005
Source: eMarketer, 2000
1.04 Global Online Advertising Expenditures By Region (2001/2005)

Percent of global online advertising expenditures
2001 2005
71%
North America
80%
15%
Europe
12%
10%
Asia/Pacific
6%
4%
Latin America
2%
0% 20% 40% 60% 80% 100%


1.05 DoubleClick Ads Served Worldwide By Quarter (1999-2001)

Billions of ads
250
200 185.0 181.0

162.0 168.0
149.0
150
125.1
100 77.2
43.8
50 29.6
20.9
0
Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2-
1999 1999 1999 1999 2000 2000 2000 2000 2001 2001
Source: Morgan Stanley, 8/2001
The Internet’s largest online advertising network, DoubleClick, reports that the
aggregate volume of banner ads that it served peaked during the fourth-quarter of
2000 at 185 billion before declining to 181 billion in the first-quarter of 2001 and
168 billion in the second-quarter.
The number of daily banner ad impressions per Internet user has continued to
grow, despite the decline in online advertising expenditures. AdRelevance
predicts that the typical Internet user will view an average of 705 banner ads per
day during 2002, representing a 16% increase over 2001. The growth in total
daily impressions per user is expected to slow over the next few years, according
to the company, which predicts a 13% increase in 2003, 10% the next year, and
only 8% in 2005.
1.06 Daily Banner Ad Impressions Per U.S. Internet User (2001-2005)

Total impressions per user per day
1200
950
880
900 800
705
610
600
300
0
2001 2002 2003 2004 2005
Source: AdRelevance, 2/2001

1.07 Leading Sectors For U.S. Online Advertising By Impressions

Thousands of impressions, excluding house ads, for each period
Impressions
Week Ending Week Ending
Sector 9/10/2001 Share 11/4/2001 Share
Retail 3,149,358 22% 4,422,044 20%
Web Media 2,810,156 20% 7,199,377 32%
Financial Services 2,476,339 18% 3,512,960 16%
Travel 1,120,494 8% 1,048,978 5%
Entertainment 1,109,916 8% 1,058,443 5%
Consumer Goods 922,457 7% 1,000,076 4%
Business-to-Business 785,788 6% 1,050,806 5%
Telecommunications 541,662 4% 863,604 4%
Hardware & Electronics 403,938 3% 339,562 2%
Software 348,812 2% 1,113,697 5%
Other 479,917 3% 692,073 3%
Total 14,148,837 100% 22,301,620 100%
Online advertising is currently dominated by companies from the retail, media,

and financial services sectors, according to data from AdRelevance. The three
sectors combined accounted for approximately two-thirds of all impressions at
different measurement points during the second-half of 2001.
1.08 Leading Sectors For U.S. Online Advertising By Share Of

Impressions
Percent of total impressions, excluding house ads, for each period
9/10/2001 11/4/2001
32%
Web Media
20%
20%
Retail 22%
16%
Financial Services 18%
5%
Travel 8%
5%
Entertainment
8%
5%
B-to-B
6%
5%
Software 2%
4%
Consumer Goods 7%
4%
Telecom 4%
2%
Hardware & Electronics 3%
3%
Other
3%
0% 10% 20% 30% 40% 50%

The breakdown of estimated online advertising expenditures by sector tracks

fairly closely with estimated impressions, based on data from both the IAB and
from CMRi. The two organizations, however, differ significantly in their estimates
of aggregate expenditures for each sector, with most IAB estimates between two-
and four-times higher than those of CMRi.
1.09 Leading Sectors For U.S. Online Advertising By Expenditures

Total expenditures in dollars by all companies in each sector
Aggregate Expenditures
Sector January - September 2001 Pct. of Total
Retail $432,553,803 23.7%
Media & Advertising $363,323,644 19.9%
Financial Services $260,633,494 14.3%
Local Services & Amusements $200,131,636 11.0%
Computers & Software $194,720,418 10.7%
Public Transportation, Hotels, Resorts $103,007,919 5.6%
Automotive, Accessories & Equipment $89,671,013 4.9%
Government & Organizations $62,844,864 3.4%
Telecommunications $61,724,212 3.4%
Insurance & Real Estate $56,221,210 3.1%
Source: CMRi AdNetTrackUS, 9/2001
1.10 U.S. Online Advertising Expenditures By Sector (1999-2001)

Percent of total online advertising expenditures
Q4-1998 Q4-1999 Q4-2000 Q3-2001

60%
50%
40%
32%
31%
29%
29%
30% 25%
21%
20%
19%
19%
19%
17%
17%
16%
16%
14%
20%
13%
12%
12%
10%
9%
7%
7%
6%
10%
N/A
0%
Computing Consumer Financial New Media Business All Others
Related Services Services
1.11 U.S. Online Advertising Expenditures By Sector (1998-2001)

Millions of dollars
Consumer Financial Business

Period Computing Related Services Media Services All Others
Q4-1998 $131.2 $190.2 $124.6 $ 45.9 n/a $164.0
Q4-1999 $284.3 $550.9 $302.1 $213.2 $124.4 $302.1
Q4-2000 $454.0 $691.8 $281.1 $194.6 $129.7 $410.8
Q1-2001 $340.8 $567.9 $246.1 $189.3 $113.9 $435.0
Q2-2001 $336.2 $560.4 $242.8 $186.8 $149.4 $392.4
Q3-2001 $340.5 $519.7 $215.0 $250.9 $179.2 $286.7
Source: IAB

Online advertisers in the consumer-related sector spent an estimated $1.65

billion during the first three quarters of 2001 and $1.13 billion during the first-half
of 2001, according to the IAB. Retail- and mail order-related advertising
accounted for one-half of total expenditures in the sector, followed by automobiles
(12%), travel/hotels (11%), and music (9%).
1.12 Online Advertising Expenditures Breakout For U.S. Consumer-

Related Sector (Q3-2001)
Millions of dollars
Retail/Mail Order $564
Other $135
Auto $135
Travel/Hotels $124
Music $102
Amusement $56
Toys/Games $11
$0 $100 $200 $300 $400 $500 $600 $700 $800
Source: IAB, 2001
1.13 U.S. Online Advertising Expenditures By Ad Type (2000/2001)

2000 Jan. - Sep. 2001
Classifieds 17%
7%
Rich Media 3%
2%
Referrals 2%
4%
Keyword Search 5%
1%
e-mail 3%
3%
7%
Others 3%
3%
Interstitals 4%
25%
Sponsorships 28%
35%
Banner And Tile Ads 48%
0% 10% 20% 30% 40% 50% 60%

The pricing model for online advertising changed only marginally between
1998 and 2000, according to the IAB. The largest share of expenditures during
that period were so-called “hybrid ads” which are based on some combination of
cost-per-thousand and performance-based pricing -- such as cost-per-click or
cost-per-lead -- with straight CPM deals accounting for most of the remaining
balance.
Performance-based ads have steadily expanded their share of overall online
ad expenditures, from 7% in 1999 to 10% in 2000. During the first nine months of
2001, the share of performance-based ads jumped by 30% to 13% of all
expenditures. CPM ads also increased in spite of the soft market, to 48% of total
expenditures, during the same period of 2001 while hybrid ads declined sharply to
39% of expenditures.
1.14 U.S. Online Advertising Expenditures By Pricing Scheme (2000)

"Hybrid" Ads
Performance- 47%
Based Ads
10%
CPM Ads
43%
Source: IAB, 5/2001
1.15 U.S. Online Advertising Expenditures By Pricing Scheme

(2000/2001)
2000 Jan.-Sep. 2001
39%
"Hybrid" Ads
47%
Performance- 13%
Based Ads 10%
48%
CPM Ads
43%
0% 10% 20% 30% 40% 50% 60%


GartnerG2 estimates that about 2,800 websites in the U.S. were supported at
least in part by advertising during 2001. Among those sites, however, the top 20 -
- or less than 1% -- collectively received approximately 80% of the aggregate
revenue.
Although online advertising expenditures declined sharply during 2001, the
outlook among most analysts is for a resumption of growth during 2002, albeit at
a much slower pace than the 100% annual rate between 1996 and 2000. The
most plausible growth forecasts for expenditures during 2002 range from the high
single-digits to the mid-teens.
1.16 Estimated U.S. Online Advertising Expenditures (2001)

Billions of dollars
Myers Mediaenomics $4.7
McCann Erickson $5.4
Jupiter Media Metrix $5.7
Forrester Research $6.0
Merrill Lynch $6.0
IDC $7.3
Veronis, Suhler & Assoc. $7.5
Goldman Sachs $7.6
Gartner Group $7.9
Yankee Group $8.6
$0 $2 $4 $6 $8 $10
Source: As noted, 2001
1.17 Estimated Growth Of U.S. Online Advertising Expenditures

Percent change from 2001 to 2002
Forrester Research 5%
Veronis, Suhler & Assoc. 8%
Meyers Mediaenomics 13%
Jupiter Media Metrix 19%
IDC 26%
Giga Information Group 39%
Datamonitor 40%
0% 10% 20% 30% 40% 50%

Online advertising expenditures are expected to roughly double over the next
five years. The most conservative forecast -- from Forrester Research -- predicts
compound annual growth of almost 11%, or a total of 67% for the period between
2001 and 2006. Jupiter Media Metrix and Myers Reports both expect more rapid
growth of 170% and 111% respectively for the five year period. Gartner Group
recently predicted that U.S. online advertising expenditures would grow by 138%,
from $7.9 billion in 2001 to $18.8 billion in 2005. The company also expects the
annual rate of growth to slow to 15% per year by 2005.
Jupiter predicted in addition that total spending for digital marketing --
including web, online advertising, e-mail marketing and related services -- would
reach $19.3 billion by 2006. Approximately one-half of that total, according to the
company, is expected to be allocated towards customer retention-related
communications. Forrester expects digital marketing expenditures in 2006 to
total $21 billion, $10 billion of which would go towards online advertising.
1.18 U.S. Online Advertising Expenditure Growth (1998-2006)

Billions of dollars
Jupiter Media Metrix Forrester Research Myers Mediaenomics

$20
$15.4
$16
$12.9
$10.6
$10.0
$9.9
$12
$9.1
$8.6
$8.4
$8.0
$7.6
$7.3
$7.1
$6.8
$6.3
$6.1
$6.0
$8
$5.7
$5.4
$5.3
$4.7
$4.3
$3.5
$2.8
$2.4
$2.1
$4
$1.3
N/A
$0
1998 1999 2000 2001 2002 2003 2004 2005 2006
1.19 U.S. Digital Marketing Expenditures (2000-2006)

Billions of dollars
$25
$19.3
$20
$15 $13.8
$9.5
$10
$6.2
$5 $3.7
$1.5 $2.0
$0
2000 2001 2002 2003 2004 2005 2006
Source: Jupiter Media Matrix, 8/2001

1.20 U.S. Performance-Based Online Advertising Growth (2000-2005)

Billions of dollars
Performance-based Expenditures Percent Of Total Expenditures
$8 40%
30%
27% 28%
$6 25% 30%
22% 23%
$4.1
$4 $3.2 20%
$2.5
$1.9
$2 $1.4 10%
$1.1
$0 0%
2001 2002 2003 2004 2005 2006
Source: Jupiter Media Metrix, 7/2001
Wireless advertising is little more than embryonic in its evolution for a variety
of reasons, including limitations in current form factors -- such as small screen
sizes, and difficulties with data entry -- limited-bandwidth, high-latency
connectivity, and consumer resistance to the general concept. Ovum predicts,
however, that the market will begin to gain some momentum during 2002, with
total worldwide revenues of slightly more that $1 billion.
Commercial messages can be communicated to wireless users through a
variety of forms and methods, including:
• Alerts and other types of time- or location-sensitive notifications
• Commerce-enabled e-mail messages that allow the recipient to purchase by
clicking on an advertisement
• Links embedded in an advertisement that enable the recipient to click over
the sender’s website or respond by clicking or calling
• Time- or location-sensitive discounts or coupons that recipients can redeem
• Sponsored content such as city guides, stock quotes, or news headlines
• Traditional telemarketing pitches targeting mobile wireless phone users
1.21 Wireless Advertising Expenditures By Region (2000-2005)

Millions of dollars
Region 2000 2002 2003 2005

North America $4mn $363mn $1,212mn $4,558mn
Europe $2mn $443mn $1,522mn $5,979mn
Asia/Pacific $7mn $409mn $1,271mn $4,705mn
Middle East/Africa $0 $10mn $60mn $528mn
Latin America $0 $0 $20mn $631mn
Source: Ovum, 2000

The share of total U.S. advertising expenditures allocated to online media has
grown steadily, from only 0.2% in 1996 to almost 2.5% in 2001. Myers Reports
expects that growth to continue and predicts online advertising will account for
almost 5% of total spending by 2006.
The Kelsey Group estimates that the approximately 10 million small and
medium-sized businesses in the U.S. spend an average of $4,700 per year on
advertising, marketing, and promotional services across all local media. In 2000,
this translated to approximately $33 billion spent by these companies on yellow
pages, newspapers, direct mail, coupons, websites, banners, and other locally-
targeted advertising and promotional media. The company predicts that
spending for local online media among this group will expand from 2% of total
advertising expenditures in 2000 to more than 5% in 2006.
Although online advertising expenditures are expected to resume their growth
again in 2002, Myers predicts that overall spending for offline advertising will
continue to decline through 2003 before growth resumes again in 2004. The
company expects spending for most offline media to remain stagnant for the
foreseeable future, with growth driven primarily by television and radio.
1.22 Online Share Of U.S. Advertising Expenditures (1996-2006)

Percent of total advertising expenditures
6%
4.9%
5%
4.2%
3.7%
4%
3.2%
2.7%
3% 2.4%
2.1%
2% 1.3%
0.9%
1% 0.5%
0.2%
0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Myers Reports, 8/2001
1.23 Total U.S. Offline Advertising Expenditures (1999-2006)

Billions of dollars
$250
$200.7
$200 $192.0 $188.1 $187.3 $191.3 $192.0 $192.4
$186.9
$150
$100
1999 2000 2001 2002 2003 2004 2005 2006

During 2001, Myers estimates that expenditures across all offline media
declined by 4.3% over 2000 to $192 billion. The biggest declines in spending
during the first nine months of 2001 occurred among national newspapers (-
21.5%), national spot radio (-18.6%) and spot television (-17.9%), according to
CMR. Cable television, outdoor, and Sunday magazines were the only media
with ad growth during the same period.
CMR estimates that ad spending among magazines declined by 5.1% during
the first nine months of 2001. The Publishers Information Bureau (PIB) estimates
that magazine advertising revenue declined by 4.5% for the entire year and that
total ad pages declined by 11.7% from 2000. Among the different magazine
categories, PIB estimates that declines in ad revenue were greatest for
business/finance titles (-31.5%), outdoor/recreation (-21.4%), and news-weeklies
(-18.6%). The fastest growth in ad revenues was among men’s magazines
(+15.7%), teen magazines (+14.9%), and women’s health titles (+8.5%).
1.24 U.S. Offline Advertising Expenditures By Media Category

(2000/2001)
Millions of dollars
Expenditures
Media Jan.-.Sep. 2001 Jan.-Sep. 2000 % Change
Network Television $14,058 $15,279 -8.0%
Magazines $11,895 $12,533 -5.1%
Spot Television $10,773 $13,123 -17.9%
Cable Television $7,843 $7,679 2.1%
Sunday Newspapers $7,471 $8,139 -8.2%
Daily Newspapers $5,892 $6,269 -6.0%
Syndication-National $2,406 $2,326 3.4%
National Newspapers $2,190 $2,788 -21.5%
Outdoor $1,853 $1,807 2.6%
National Spot Radio $1,613 $1,981 -18.6%
Sunday Magazines $792 $766 3.4%
Network Radio $622 $699 -11.0%
Source: CMR, 12/2001
1.25 U.S. Offline Advertising Expenditures By Media Category (1999-2006)

Millions of dollars
Media 1999 2000 2001 2002 2003 2004 2005 2006

Newspapers $46,958 $48,400 $49,368 $49,862 $49,363 $49,363 $48,623 $48,136
Broadcast TV $41,448 $45,902 $41,926 $40,796 $39,752 $40,397 $39,627 $37,982
Cable TV $11,153 $13,418 $14,344 $15,390 $16,998 $19,017 $20,841 $23,281
Radio $16,744 $19,088 $17,752 $17,042 $16,701 $17,369 $17,369 $16,848
Yellow Pages $12,463 $12,712 $12,458 $12,333 $12,210 $12,088 $11,907 $11,669
Magazines $15,508 $17,834 $17,299 $16,780 $17,116 $17,544 $17,719 $18,251
Outdoor $1,840 $2,153 $2,174 $2,131 $2,088 $2,130 $2,151 $2,173
Other $40,800 $41,208 $36,675 $33,741 $33,066 $33,397 $33,731 $34,068
Total $186,914 $200,716 $191,997 $188,074 $187,296 $191,304 $191,968 $192,406

Section II.
Online Advertising
Practices

Branding is the principal objective behind most online marketing efforts,

according to AdRelevance. The company reports that more than 60% of all
online ads are related in some way to brand building and that 45% are designed
primarily to build brand awareness. Only one-third of online ads are specifically
intended to drive either sales or website traffic, according to the company.
Myers Reports estimates that 85% of companies who advertise online
nevertheless do so at least in part to drive website traffic -- the most-frequently
mentioned objective -- followed closely by general branding, which was cited by
82% of advertisers. Among major U.S. companies surveyed by the Association
of National Advertisers, one-half said that developing or improving brand loyalty
was the primary objective behind their online advertising during 2000, up from
40% the previous year.
2.01 Top Reasons Companies Advertise Online

Percent of companies that advertise online
Drive Traffic To Site 85%
Brandbuilding 82%
Branding: Integrated Marketing 75%
Branding: Sponsorship Opportunities 72%
Targeting: Sponsorship Opportunities 71%
0% 20% 40% 60% 80% 100%

2.02 Objectives Of Online Advertisements

Percent of online ads
Branding,
Positioning
15% Branding,
No Strategy
Feature/Benefits
6%
1%
Direct
Response, Drive
Sales
14%
Branding,
Awareness
Direct
45%
Response, Drive
Traffic
19% Source: AdRelevance, 1/2001

2.03 Media Used To Drive Traffic To Websites

Percent of respondents; multiple responses accepted
Online Banner Ads 96%
E-mail To Customers 66%
Public Relations 60%
Magazines 60%
Opt-in E-mail Lists 58%
Direct Mail 52%
Television 52%
Newspapers 48%
Radio 48%
Affiliate Programs 46%
Sponsorships 32%
0% 20% 40% 60% 80% 100%

Source: Forrester Research, 2001
(n=50 marketing managers)
2.04 Effectiveness Of Select Media In Driving Traffic To Websites

Effectiveness on a scale of 1 (poor) to 5 (great)
E-mail To Customers 4.1
Affiliate Programs 3.8
Direct Mail 3.4
Television 3.2
Public Relations 3.1
Online Banner Ads 2.8
Magazines 2.7
Sponsorships 2.7
Radio 2.6
Newspapers 2.6
Opt-in E-mail Lists 2.5
0 1 2 3 4 5

Forrester Research reported that a majority of marketing executives from

online retailers it surveyed in 1999 believed affiliate marketing was among the
most effective methods for generating sales and building their online brands. The
only online alternative that most survey respondents thought outperformed
affiliate marketing was e-mail to current customers. Fifty-seven percent of
respondents thought that affiliate marketing was superior to offline advertising,
77% felt the same about sponsorships and 78% for portal deals.
An analysis by affiliate marketing consultants Fiore and Collins estimated that
the cost of acquiring new customers during 2001 was approximately $9.00 each
for affiliate programs. In contrast, they estimated the cost increased to $21.00
per new customer for online advertising and $24.00 per new customer for e-mail
marketing.
Affiliate programs generated approximately 13% of online retail sales during
2000, according to Forrester. By 2003, the company predicts that such programs
will account for 21% of online sales to consumers.
2.05 Effectiveness Of Affiliate Marketing vs. Online Alternatives

Percent of online retailer marketing executives
Better About The Same Worse
13%
E-mail To Current
25%
Customers
63%
57%
Offline Advertising 14%
29%
78%
Sponsorships 6%
17%
78%
Portal Deals 7%
15%
83%
Portal Shopping
7%
Areas
10%
90%
Banners 5%
5%
0% 20% 40% 60% 80% 100%


Targeted e-mail, banner ads, and linking arrangements with partner sites were the
most widely used advertising media among both pure-play Internet retailers as well as
the more established multi-channel retailers, according to a 2000 survey by
PriceWaterhouseCoopers. When it comes to assessing which media are most effective
for acquiring new customers and for building brand recognition, the
PriceWaterhouseCoopers survey found significantly different approaches. A large
plurality of pure-play Internet retailers indicated that targeted e-mail was the most
effective in acquiring new customers followed in distant second by television advertising,
off-site links, and search engine placement. The multi-channel retailers, in contrast,
employed a broader mix of media with roughly the same proportion of companies
indicating that targeted e-mail, portal/ISP/community site deals, magazine advertising,
direct mail, and off-site links were all highly effective in acquiring new customers.
2.06 Most Effective Advertising Media For Customer Acquisition

Percent of companies surveyed
Pure-Play Internet Retailers Multi-Channel Retailers
Search Engine n/a

Placement 5.6%
Catalog Cross 17.9%

Promotion 2.8%
Portal/ISP/Community 17.9%
Site Deals 2.8%
12.8%
Targeted E-mail
44.4%
10.3%
Direct Mail
n/a
10.3%
Links on Partner Sites
5.6%
7.7%
Magazine Advertising
n/a
5.1%
Television Advertising
5.6%
0% 20% 40% 60%

Source: PriceWaterhouseCoopers
Although the role of search engine placement and its effectiveness was ranked low by
the Internet retailers surveyed by PriceWaterhouseCoopers, search engines and
directories were rated as either excellent or very good for website promotion by 48% of
companies surveyed by ActivMedia. Other favored methods of promotion, according to
ActivMedia, are off-site links and buttons (23%), online PR and press releases (17%),
reciprocal ads and links (16%), affiliate programs (10%), and paid banner ads (6%).
Among larger sites -- those processing more than 500 orders per month -- only 36% rate
search engines and directories as excellent/very good compared to 67% of mid-level
sites (100 to 500 orders per month) and 54% of smaller sites. High volume sites were
more likely than others to focus their promotional efforts on offline media and on on-
going e-mail communications with existing customers.

2.07 Most Effective Advertising Media For Branding

Percent of companies surveyed
Pure-Play Internet Retailers Multi-Channel Retailers
Catalog Cross Promotion

15.4%
n/a
Television Advertising
15.4%
16.7%
Direct Mail 12.8%
n/a
Links on Partner Sites 10.3%
5.6%
Portal/ISP/Community Site Deals 10.3%
11.1%
In-Store Cross Promotion 7.7%
n/a
Magazine Advertising 7.7%
5.6%
Banner Ads 5.5%
5.6%
Targeted E-mail
2.6%
11.1%
Outdoor Advertising
2.6%
11.1%
0% 10% 20% 30%

Source: PriceWaterhouseCoopers
Four-in-five (79%) major U.S. companies surveyed by the Association of

National Advertisers used online advertising during 2000. Among those
companies, 92% used banner ads, 75% used search engine positioning, 70%
used sponsorships, and 67% used e-mail marketing.
Although effective advertising and marketing efforts are important for success in the
online space, Jupiter Media Metrix contends that only 17% of website traffic growth is
attributable to online advertising. Seasonality is the most important source of increased
traffic, accounting for 46% of growth, according to the company, followed by simple
growth in the overall Internet population, which contributes 37% of traffic growth.
2.08 Sources Of Website Traffic Growth

Percent contribution to overall website traffic growth
Online
Advertising
Internet 17%
Population
Growth
37%
Seasonality
46%

The traditional banner ad accounted for more than one-in-three (36%) online
ads served during the fourth quarter of 2000, according to AdRelevance, while
the vertical banner was barely on the radar screen with its 1% share. By mid-year
2001, the vertical banner had doubled its share to about 2% -- or approximately
280 million impressions between January and June -- even though it was still
available on only 21% of the sites tracked by AdRelevance. During the same
period, the share for full banners declined to slightly more than 30%.
2.09 Online Banners Served By Size Of Ad (Q4-2000)

Percent of all online banner ads served during quarter
Full Banner 36%
Half Banner 20%
Short Button 16%
Micro Button 16%
Medium Button 6%
Tall Button 4%
Short Banner 1%
Vertical Banner 1%
0% 10% 20% 30% 40% 50%
2.10 Online Ad Dimensions Used By Advertisers (2000)

Percent of online advertisers
Full Banner 80%
Half Banner 14%
Short Banner 3%
Vertical Banner 6%
Tall Button 13%
Medium Button 14%
Short Button 25%
Micro Button 16%
0% 20% 40% 60% 80% 100%


2.11 Full Banner Ad Rate Card Pricing

Dollars per thousand impressions
Mean CPM Rate Median CPM Rate

50
40
30.52 30.00 31.09
28.28 29.37
30 26.00 25.00 25.00
20
10
0
Q1-Q2 2000 Q3-2000 Q4-2000 Q1-Q2 2001
AdRelevance reports that full, non-negotiated rate card pricing for online
banner ads declined during 2000 and then held steady during the first-half of
2001 at an average CPM of just below $30.00. Although few advertisers actually
pay the published CPM rates, the company points out that they serve as a
starting point for negotiation and are useful for identifying trends in site pricing
strategy.
The average full banner CPM hit a low in the fourth-quarter of 2000 at just
over $28.00 before ticking upwards to $29.37 in the first- and second-quarters of
2001. The vertical banner remained the most expensive among the standard IAB
units, according to AdRelevance, at $35.00 per thousand impressions while the
increasingly popular 88 x 31 pixel micro button was the least expensive at a CPM
of $11.85. The company reports that many advertisers are now leveraging the
small size and low price of the micro button ads to saturate the web with tiny
brand awareness messages.
2.12 Average Rate Card Pricing For IAB Online Ad Units

Dollars per thousand impressions
Vertical Banner $35.29
Full Banner $29.37
Half Banner $27.64
Tall Button $22.81
Short Button $19.54
Medium Button $16.94
Micro Button $11.85
$0 $10 $20 $30 $40 $50

The online advertising market is comprised of many advertisers who schedule

smaller campaigns and a relatively small number of very large advertisers who
account for the bulk of activity, according to research by AdRelevance. The
median campaign during the fourth-quarter of 2000 was 27,000 impressions and
more than one-half (55%) of all advertisers made buys for only one site. Only 1%
of online advertisers purchased impressions on 100 or more websites.
The company also found that the number of impressions purchased varied
significantly between sectors, with campaigns in the hardware and electronics
and the financial services sectors running more than three-times as many
impressions as the overall average.
2.13 U.S. Online Ad Campaign Size By Sector

Median number of impressions in thousands
Hardware And Electronics 186

Financial Services 114
Telecommunications 94
Software 67
Consumer Goods 61
Automotive 40
Travel 33
Web Media 29
Entertainment 29
B-to-B 27
Retail 18
0 50 100 150 200

2.14 Number Of Sites Purchased In U.S. Online Ad Campaigns

Number of companies
1 Site 10,065
2 Sites 2,692
3 To 4 Sites 2,053
5 To 8 Sites 1,397
9 To 15 Sites 961
16 To 25 Sites 450
26 To 50 Sites 396
51 To 75 Sites 171
76 To 100 Sites 86
101 To 200 Sites 126
200+ Sites 58
0 2,000 4,000 6,000 8,000 10,000 12,000

The most effective placement for online ad buys is as “featured store

merchant,” according to a substantial majority of web publishers surveyed by
Performics, scoring 8.9 on an effectiveness scale of 1 to 10 with 10 being the
most effective and 5 being average. Outbound opt-in e-mails are also rated as
highly effective in generating sales, although HTML e-mails scored measurable
higher than text e-mails at 8.7 versus 7.9. Surprisingly, placement within specific
shopping categories and homepage placements are rated as least effective,
however, both still receive scores well into the positive range at 7.6 and 7.3
respectively.
2.15 Effectiveness Of Online Advertising By Type Of Placement

Effectiveness on a scale of 1 to 10, with 10 being very effective and 1 not effective
Homepage Placement 7.3
Placement Within A Specific Shopping

7.6
Catgeory
Text E-mails 7.9
Placement On A Specials Page/Section 8.1
HTML E-mails 8.7
Featured Store Merchant 8.9
0 2 4 6 8 10
Source: Performics, 8/2001
As the U.S. economy slowed and the ranks of pure-play Internet retailers
shrank throughout 2001, the size and composition of media expenditures also
changed. Boston Consulting Group estimates that between Q1- and Q3-2001 the
share of advertising budgets allocated to offline media by online retailers -- both
pure-play and click-and-mortar -- declined almost 50% while spending for online
media increased to more than three-quarters (78%) of total expenditures.
2.16 Online/Offline Advertising Mix Among U.S. Online Retailers

Percent of total advertising expenditures
Q1-2001 Q3-2001
22%
Offline Media
39%
78%
Online Media
61%
0% 20% 40% 60% 80% 100%

Source: Boston Consulting Group/Shop.org, 12/2001

Streaming media is expected to post the fastest growth during the next few
years among the different varieties of online advertising media, according to
Yankee Group, expanding from only $44 million in 2000 to $3.1 billion by 2005. A
survey of online advertisers and their agencies conducted by the company in
early 2001 found that more than one-half (56%) of respondents plan to increase
their spending on streaming media advertising. A related survey also found that
advertisers believed streaming media advertising was second only to e-mail in
terms of effectiveness.
2.17 U.S. Advertiser Plans For Streaming Media Ad Expenditures

Percent of agencies/advertisers who use streaming media ads
Plan To Buy
More
56%
Plan To Buy
Less
9%
Plan To Buy
About The
Same
35% Source: Yankee Group, 2001
A 2001 survey of marketing executives and their agencies by Myers Reports

found that budget limitations were the most common barrier to companies
increasing their online advertising expenditures. More significant, however, were
the large number of executives who expressed concerns about various aspects
of online advertising performance and performance benchmarking. Almost one-
half or marketing executives and 57% of agencies cited low click-through rates as
a barrier to their increasing spending and more than one-third of each were
concerned about low conversion rates, high cost-per-thousand ad rates, and
difficulties in measuring return on investment.
2.18 Barriers To Increased Online Advertising Spending

Percent of each type of executive
Marketing Agency
Executives Executives
Budget limitations 58% 92%
Low click-through rates 49% 57%
High CPMs 45% 44%
Can’t measure ROI 38% 40%
Low conversion rates 33% 35%
Inadequate research 32% 48%
Web’s branding abilities 30% 43%
Lack of measurement standards 29% 40%
Inadequate sales competence 27% 27%
Fragmentation of market 23% 26%
Bandwidth limitations 19% 21%
Poor stewardship of schedule 6% 15%
Creative standards not compatible 3% 17%
Source: Myers Reports, 2001

Section III.
E-mail Marketing
Practices

E-mail is the most popular online activity, with surveys indicating that more
people use e-mail than any other online service, including surfing the web. IDC
estimates that at the end of 2001 there were approximately 137 million e-mail
boxes among U.S. users at work and another 102 million among users at home.
Opt-in e-mail marketing and similar types of permission marketing are the only
appropriate approaches for integrating e-mail into a digital marketing effort. Opt-
in e-mail message volume is growing at roughly twice the rate of overall e-mail
message volume, according to most analysts, and is expected to account for
about one-in-five e-mails by 2003. Including opt-in, there are three principal types
of permission-based e-mail:
• House List Messages -- These include company newsletters, promotions,
and various types of updates sent to a company’s own e-mail list
• Sponsored E-mail Messages -- Stand-alone newsletters, bulletins, and e-
zines which carry advertising and are sent regularly to subscribers who
request them
• Opt-in E-mail Messages -- Messages sent to generic lists of individuals who
have indicated an interest in receiving e-mail related to specific topics
3.01 U.S. E-mail Message Volume (1999-2003)

Billions of messages per year
1,200
1,035
1,000
840
800
677
600 536
394
400
200
0
1999 2000 2001 2002 2003
3.02 U.S. Opt-in E-mail Message Volume (1999-2003)

Billions of messages per year
E-mail Messages Sent Opt-in Messages As A Share Of All E-mail
350 25%
21.9%
300 18.9%
20%
250 14.9% 227.0
200 12.0% 15%

10.2% 159.1
150 10%
101.2
100 64.1
40.1 5%
50
0 0%
1999 2000 2001 2002 2003

3.03 Frequency Of Promotional E-mails Among Leading Retailers

Number of e-mails sent per month
Retailer February 2001 January 2001 December 2000

1-800-FLOWERS.COM 3 3 3
800.com 2 2 5
Amazon.com 1 1 1
BananaRepublic.com 3 4 4
BarnesandNoble.com 2 2 5
ClickRewards 2 2 5
FTD.com 2 1 2
Microsoft 2 3 5
MSN 4 4 9
NetFlix 9 -- --
Outpost.com 5 5 5
Sears.com 4 7 --
Victoria’s Secret 4 3 2
Williams-Sonoma 0 1 2
Wine.com 5 4 5
Source: Iconocast, 2001
Almost two-thirds (65%) of Internet users are interested in receiving activity

statements by e-mail and 44% their bills by e-mail, according to NFO
WorldGroup. More than one-half (54%) already receive online versions of offline
publications by e-mail and 13% have actually cancelled one or more print
subscriptions in favor of the digital counterpart. Valentine Radford found that the
number of online consumers who actually enjoy receiving electronic newsletters
periodically has remained steady at about four-in-five over three different surveys
conducted during 2000 and 2001.
NFO also reports that almost three-in-four (71%) Internet users already
receive permission e-mail from online retailers announcing special offers. A
March 2001 survey of Internet users by Jupiter Media Metrix found that 85% of
online buyers were either very likely or somewhat more likely to return to a site
after receiving an e-mail message from a retailer.
3.04 Types Of Permission E-mail Received By U.S. Internet Users

Percent of Internet users
E-tailer Special Offers 71%
Household Tips, Recipies, Crafts 57%
Humor 55%
Travel 55%
Entertainment 49%
Weather 47%
Local News 38%
Offers From Local Retailers 27%
0% 20% 40% 60% 80%
Source: NFO World Group, 8/2001

3.05 E-mail Volume Of U.S. Internet Users At Home And At Work

Number of messages received per day
Users At Home Users At Work

60%
50%
42%
40%
28%
27%
30%
19%
13%
20%
12%
10%
10%
9%
8%
6%
6%
10%
2%
2%
2%
1%
0%
5 Or 6 To 10 11 To 15 16 To 20 21 To 30 31 To 40 41 To 50 More
Less Than 50
Source: Gallup Organization, 6/2001
The average Internet user receives 11 e-mails at home per day and 24 e-mails
at work, according to a June 2001 survey by the Gallup Organization. The
median number of daily e-mails received at home and at work are 8 and 12
respectively.
By 2006, Jupiter Media Metrix predicts that the average Internet user will
receive approximately 4,200 e-mails per year, more than 40% of which will be
spam or UCE (unsolicited commercial e-mail).
3.06 How Frequently Do U.S. Internet Users Check Their E-mail

30%
25%
20% 17%
15% 13% 12% 12% 12% 13%

11%
10% 8%
5% 2%
0%
<1 1 to 2 3 to 4 5 to 6 7 to 8 9 to 10 11 to 15 16 to 20 > 20
Hour Hours Hours Hours Hours Hours Hours Hours Hours
Cluttered e-mail boxes and spam have already become an issue for many
Internet users. Although the largest share of users report that only 10% or less of
the e-mail they receive is spam, almost 40% indicated in the Gallup survey that
one-third or more of their e-mail is spam and almost one-in-five indicated that a
majority of the messages they receive are spam.

3.07 Proportion Of U.S. Internet Users’ E-mail That Is Spam/UCE

Percent of all e-mail received each week at home and at work
91% To 100%
1%
10% Or Less
71% To 90%
30%
7%
51% To 70%
10%
11% To 20%
41% To 50% 16%
10%
31% To 40% 21% To 30%

11% 15%
Word of mouth is one of the most common means by which Internet users
learn about new websites and it is the key to any viral marketing effort. Forrester
Research estimates that 53% of Internet users learn about sites by word of mouth
and Jupiter Media Metrix estimates that 45% of online consumers choose e-
commerce sites based at least in part on word of mouth. Almost one-in-five
(18%) Internet users use word of mouth as the primary means of learning about
new sites, according to IMT Strategies.
The most common reasons why Internet users forward e-mails on to others
are they are either relevant to the recipient’s interests or they are considered
amusing.
3.08 Reasons Internet Users Forward E-mail To Others

Relevant 41%
Funny 35%
Work-Related 7%
Informative 6%
Cool 4%
New Technology 4%
Prize/Coupon/Reward 1%
0% 10% 20% 30% 40% 50%

Source: IMT Strategies, 9/2001

Forrester Research estimates that combined expenditures for e-mail

marketing and customer communications by U.S. companies exceeded $600
million during 2000. That amount is expected to grow to almost $1.3 billion during
2001 and $2.3 billion by the end of 2002. Estimates of e-mail marketing
expenditures by Jupiter Media Metrix are almost identical, although the
company’s forecast for 2004 is almost 10% higher, at $5.2 billion compared to
Forrester’s forecast of $4.8 billion.
A June 2001 research report by Aberdeen Group predicted that spending on
e-mail marketing services would reach approximately $600 million in 2001, up
75% from 2000. Spending from 1999 to 2000 expanded by more than 270%,
according to the company.
3.09 Total U.S. E-mail Marketing Expenditures (1999-2004)

Millions of dollars
Jupiter Media Metrix Forrester Research

$8,000
$5,200
$4,770
$6,000
$3,758
$3,500
$4,000
$2,325
$2,100
$1,300
$1,291
$2,000
$643
$600
$160
$156
$0
1999 2000 2001 2002 2003 2004
Source: As Noted, 2000
3.10 U.S. E-mail Marketing Services Expenditures (1999-2003)

Millions of dollars
$1,500
$1,260
$1,200
$942
$900
$600
$600
$345
$300
$92
$0
1999 2000 2001 2002 2003
Source: Aberdeen Group, 6/2001

3.11 E-mail Marketing By U.S. Small Business (2001/2003/2005)

In millions
2001 2003 2005

Businesses using e-mail marketing 1.6mn 3.7mn 4.6mn
E-mail marketing expenditures $398mn $1,319mn $2,238mn
Source: Kelsey Group, 5/2001
The Kelsey Group predicts that small businesses in the U.S. will aggressively
adopt e-mail marketing over the next four years. The company estimates that
11% of small businesses spent approximately $211 million on e-mail marketing
during 2000. That share is expected to expand to 16% of small businesses in
2001 and 42% in 2005 when they are predicted to spend an estimated $2.2 billion
on e-mail marketing.
3.12 Payment Options Supported By E-mail Marketing Networks

Percent of e-mail marketing networks
Cost Per Thousand 100%
Cost Per Click 53%
Cost Per
38%
Acquisition
0% 20% 40% 60% 80% 100%

Source: Opt-in New s, 3/2001
3.13 U.S. E-mail Marketing Allocation Of Expenditures, Customer

Acquisition vs. Retention
Percent of total e-mail marketing expenditures
Customer
Acquisition
34%
Customer
Retention
66%

Unlike banner ads and sponsorships, which are more often than not intended
for brandbuilding, Opt-In News reports that the principal objective of most e-mail
marketing campaigns is to acquire new customers or generate sales from
existing customers. The company estimates that 71% of e-mail campaigns were
designed primarily for direct response purposes versus only 16% which were
designed for branding purposes. Forrester Research estimates that 34% of total
e-mail marketing expenditures are allocated to new customer acquisition while
66% is allocated to customer retention and generating additional sales from
existing customers.
3.14 Objectives For Opt-in E-mail Marketing Campaigns

Percent of opt-in e-mail advertisers
Customer
35%
Acquisition
Service Sales 23%
Product Sales 18%
Branding 16%
Other 5%
0% 10% 20% 30% 40% 50%

Source: Opt-In New s, 8/2001
3.15 Internet User Open Rates For HTML Messages

Percent of messages received
Acquisition 39.4%
Retention 58.0%
Overall 51.0%
0% 20% 40% 60% 80%

Source: IMT Strategies, 1999

Substantially more than one-half (60%) of Internet users today use e-mail
client software that is capable of supporting HTML e-mail, according to Jupiter
Media Metrix. Opt-In News, however, reports that two-thirds of the e-mail
campaigns among marketing executives it surveyed in March 2001 employed text
messages. Although the open rates and click-through rates are generally higher
for HTML e-mail than text messages, many Internet users at work have text-only
messaging software such as Lotus Notes. In addition, IT administrators are
increasingly blocking HTML e-mail and e-mail attachments to protect their
systems from mail-borne viruses and other types of malicious code.
3.16 Formats Supported By Internet Users’ E-mail Clients

Text Only
40%
HTML And Text

60%
3.17 E-mail Format For Advertising Campaigns

Percent of e-mail advertising
HTML E-mail
34%
Text E-mail
66%
Source: Opt-in New s, 3/2001

Section IV.
Leading Advertisers
and Brands

The ranks of leading online advertisers are dominated by companies from the
retail, financial and entertainment sectors, according to both CMRi and
AdRelevance. Online retailer Amazon.com and the eBay trading community are
ranked, not surprisingly, among the top five online advertisers in terms of both
impressions and expenditures during the first nine months of 2001.
4.01 Leading U.S. Online Advertisers By Expenditures

Total expenditures in dollars for online advertising
Expenditures
Rank Advertiser Jan.-Sep. 2001 Sector
1 eBay Inc. $35,731,219 Retail
2 General Motors Corp. $35,520,684 Automotive
3 Providian Financial Corp. $23,581,190 Financial
4 Amazon.com Inc. $22,884,132 Retail
5 Classmates Online Inc. $21,831,884 Entertainment
6 Barnes & Noble Inc. $21,595,465 Retail
7 AOL Time Warner Inc. $19,242,581 Entertainment
8 JP Morgan Chase & Co. $18,011,060 Financial
9 BankOne Corp. $17,295,526 Financial
10 Vivendi Universal $15,963,171 Entertainment
4.02 Leading U.S. Online Advertisers By Impressions

Thousands of impressions during quarter, excluding house ads
Impressions
Rank Advertiser Q3-2001 Sector
1 Amazon.com Inc. 12,316,972 Retail
2 Columbia House 5,438,788 Entertainment
3 eBay Inc. 5,746,873 Retail
4 BarnesandNoble.com 4,902,329 Retail
5 Orbitz 5,040,898 Services
6 Classmates Online Inc. 4,909,343 Entertainment
7 Cassava Enterprises 4,042,223 Entertainment
8 Bertelsmann AG 3,814,016 Entertainment
9 AOL Time Warner Inc. 3,433,876 Entertainment
10 Providian Financial Corp. 5,559,735 Financial
During 2000, four-in-five (79%) major U.S. companies used online advertising,
up from 66% in 1999, according to the Association of National Advertisers. The
average amount spent by these companies during 2000 was $2.4 million,
accounting for an average 2.9% of their total advertising budgets. The
association also reports that the average company increased its spending for
online advertising by 24% between 1999 and 2000.

AdRelevance reports that Fortune 100 companies established an increasingly

significant presence in online advertising between mid-2000 and mid-2001. The
company estimates that 92 of the 100 have collectively advertised 199 divisions,
204 brands, and 1,223 products online since the third-quarter of 2000. The top
five Fortune 100 online advertisers during the first-half of 2001 include:
Impressions
Advertiser (Jan.-Jun. 2001)
CitiGroup, Inc. 2.2 billion
J.P. Morgan Chase & Co. 1.8 billion
Dell Computer Corp. 1.7 billion
AT&T Corp. 1.3 billion
Wal-Mart Stores, Inc. 1.2 billion
4.03 Leading Websites By Online Advertising Revenue

Total expenditures in dollars
Ad Revenue
Rank Advertiser Jan.-Sep. 2001 Sector
1 Yahoo! $284,363,625 Portal
2 AOL.com $252,630,839 Portal
3 Excite $118,195,570 Portal
4 Lycos $86,341,416 Portal
5 Netscape $79,103,793 Portal
6 AltaVista $66,606,230 Search
7 Webcrawler $51,006,160 Search
8 ESPN.com $34,755,251 Entertainment
9 MSN $27,284,477 Portal
10 Weather.com $26,245,144 News
4.04 Leading Advertisers By Expenditures (All Media)

Total expenditures in dollars
Expenditures
Rank Advertiser Jan..-.Sep. 2001 Jan.-Sep. 2000 % Change
1 General Motors $1,570mn $2,191mn -28.4%
2 Philip Morris $1,161mn $1,462mn -20.6%
3 Procter & Gamble $1,122mn $1,172mn -4.3%
4 AOL Time Warner $1,097mn $980mn 11.9%
5 DaimlerChrysler $976mn $1,134mn -14.0%
6 Ford Motor $927mn $880mn 5.4%
7 Walt Disney $718mn $745mn -3.6%
8 Johnson & Johnson $681mn $707mn -3.7%
9 Pfizer $600mn $615mn -2.3%
10 PepsiCo $592mn $609mn -2.7%
Source: CMR, 12/2001

4.05 Leading Dot.com Brands Among U.S. Decision-Makers

CoreBrand Power score for each company/brand
Q2-2000
CoreBrand Power
Company/Brand Name Score (1) Type of Company
America Online 34.8 ISP/Content
Lycos 32.1 Portal
Priceline.com 31.7 E-commerce
Ameritrade 31.2 Financial
Excite 26.7 Portal
Alta Vista 26.5 Search
Earthlink Network 24.0 ISP
Juno.com 23.0 ISP
Mindspring Enterprises 22.2 ISP
Go Network 20.4 Portal
Egghead.com 20.0 E-commerce
iVillage 16.6 Content
CDnow.com 14.9 E-commerce
ZDnet 14.8 Content
HotBot 13.5 Search
About.com 11.7 Portal
Wingspan.com 9.5 Financial
(1) The CoreBrand Power score gauges how familiar and favorable a company is to key business
decision-makers comprised of vice presidents or higher at the top 20% of U.S. corporations.
Source: Corporate Branding, 12/2000
Among American consumers, more than 90% are familiar with the IBM and
Microsoft brands, according to Forrester Research, which is significantly higher
than their individual market penetration rates at 17% and 40% respectively.
Similarly, Yahoo! is recognized by 86% of consumers but less than one-in-three
(29%) have actually used the online portal.
4.06 Leading Technology Brands Among U.S. Consumers

Trust measured on a scale of 1 (distrust a lot) to 5 (trust a lot) and market penetration measured
among all U.S. consumers
Consumer Market
Company/Brand Name Trust Penetration Type of Company
Amazon.com 4.52 9% E-commerce
Apple 4.41 7% Technology
Handspring 4.41 1% Technology
Gateway 4.38 10% Technology
Dell Computer 4.35 10% Technology
IBM 4.33 17% Technology
Palm 4.29 3% Technology
AOL 4.28 18% ISP
eBay 4.22 10% E-commerce
Yahoo! 4.16 29% Portal
Napster 4.14 8% Entertainment
E*Trade 4.13 2% Financial
Earthlink 4.09 4% ISP
Microsoft 4.05 40% Technology
MSN 4.01 15% ISP

Forrester also found that Internet users generally recognized more brands
than offline consumers. This was especially true for online brands such as
Amazon.com and Yahoo!, but also applied to brands unrelated to the Internet.
For example, the brand recognition for Yahoo! was 25% higher among online
consumers than among offline consumers while 12% more online consumers
recognized the Sony brand, 15% more for the Motorola brand, 16% more for
Mitsubishi, and 19% more for Circuit City.
4.07 Leading E-commerce Brands Among U.S. Internet Users

Percent of Internet users who recognize brand
Amazon.com 92%
BarnesandNoble.com 86%
eBay.com 83%
Gateway.com 82%
Toysrus.com 73%
Ticketmaster.com 69%
Priceline.com 65%
Bestbuy.com 62%
eToys.com 61%
CompUSA.com 61%
Dell.com 54%
JCPenney.com 54%
Landsend.com 52%
Walmart.com 52%
GAP.com 51%
CDnow.com 44%
Egghead.com 44%
KBkids.com 43%
Bluelight.com 42%
Travelocity.com 30%
Buy.com 30%
Drugstore.com 26%
Autobytel.com 24%
0% 20% 40% 60% 80% 100%

Source: Odyssey, 2000

Section V.
Internet Users and Online
Advertising

Almost four-in-five (78%) online buyers prefer permission-based e-mail over all
other options as the means companies should employ to communicate with them,
according to an August 2001 survey by NFO WorldGroup. The NFO survey also
found that:
• None of the respondents preferred telemarketing or in-person sales calls

• Eighty-eight percent had made at least one purchase in response to a
permission e-mail; 80% had purchased online and 68% purchased offline
• Thirty-seven percent had clicked-through from an e-mail and purchased
immediately at least once during 2001, up from 20% last year
• Respondents had made an average of 15 online purchases in the past year,
spending $1,023.00; 91% had made at least one online purchase during
2001 compared to 71% the previous year
5.01 Communication Preferences Of U.S. Online Buyers

Percent of online buyers
Permission-
Based E-mail
No Preference 78%
3%
Unsolicited E-
mail 2%
Postal Mail
17%
Source: NFO WorldGroup, 8/2001
5.02 How U.S. Internet Users Learn About Websites

Search Engine 73.4%
E-mail Message 72.8%
Word Of Mouth 53.0%
Banner Ad 48.3%
Print Article 43.2%
TV Commercial 41.4%
Magazine Ad 37.5%
Radio Ad 19.8%
0% 20% 40% 60% 80% 100%

Source: Forrester Research, 3/2001

Gartner Group reports that brand value and past experience play a significant
role in Internet users’ choices about which sites they decide to patronize. The
company’s research has found that 59% of online buyers typically limit their
purchases to only a handful of sites that they find familiar and comfortable.
If Internet users are unsure about which website to visit when shopping online,
typing the desired product name into a search engine is the most frequently
mentioned method for determining where to go. Search engines and e-mail are
also common means of learning about new websites.
5.03 Primary Method For U.S. Internet Users To Learn About

Websites
Search Engine 29%
E-mail From A Friend 18%
Link From Another Site 13%
Newspaper Or Magazine Ad 12%
Banner Or Other Web Ad 4%
Personal Conversation 3%
Television 2%
Radio 2%
Hardcopy Catalog 2%
E-mail From A Company 1%
Direct Mail 1%
E-mail Newsletter 1%
Outdoor Ads < 1%
Online Discussion Groups < 1%
0% 10% 20% 30% 40%

Source: IMT Strategies, 2000/2001

5.04 How U.S. Internet Users Search For Products Online

Type Product Name Into Search Engine 28%
Go Straight To Store URL 23%
Type Brand Name Into Search Engine 9%
Type Store Name Into Search Engine 5%
Go To Shopping Channel Of Search

5%
Engine
0% 10% 20% 30% 40% 50%
Most online buyers do very little cross-shopping between multiple sites,

according to Jupiter Media Metrix, which reports that many simply prefer to return
to the same sites they have done business with in the past. More than 80% of
online buyers complete their purchases at the first site they visit when shopping
for books, toys or music. Shoppers interested in computer- and travel-related
purchases are the most likely to visit competing sites before making a final
decision.
A May 2001 survey of Internet users by Knowledge Systems & Research
found that more than half (56%) of Internet users go directly to a specific website
when they are shopping online while only one-third (32%) typically start out at a
portal or search engine.
5.05 How Online Shoppers Get To Websites

Go Directly To
Don't Shop Online Store
Online 56%
12%
Begin At Online
Mall, Portal, Or
Search Engine
32%
Source: Know ledge Systems & Research, 5/2001

Internet users are more likely to notice online ads and respond to them when
they are at home rather than at work, according to the Online Publishers
Association. More than one-half (53%) of Internet users surveyed for the
organization by Millward Brown also indicated that they were more likely to buy
online from home compared to only 18% who were more likely to buy at work.
Survey respondents were, however, almost three times more likely to notice
business-related ads while at work than when they were online at home.
5.06 Visibility Of Online Ads Among U.S. Internet Users At Home

And At Work
More Likely At Work About The Same

More Likely At Home
Notice Online Ads 12% 65% 22%
Notice Ads For

Consumer Products 11% 57% 32%
& Services
Notice Ads For

Business Products & 34% 53% 13%
Services
Click On Ads 12% 48% 41%
0% 20% 40% 60% 80% 100%

Source: Online Publishers Association/MBIQ Media Consumption Study, 11/2001
5.07 Elapsed Time To Conversion For Online Ads

Percent of Internet users who respond to online ads
Clickthrough-to-Conversion View-to-Conversion
11%
0 To 29 Minutes
61%
4%
30 To 59 Minutes
9%
13%
1 To 24 Hours
11%
34%
1 To 7 Days
11%
38%
8 To 30 Days
8%
0% 10% 20% 30% 40% 50% 60% 70%

Source: AdKnow ledge, Q3-2000

Among Internet users who click on online ads and who ultimately convert --
either by registering, requesting information, or completing a purchase -- the
majority (61%) take less than 30 minutes to do so, according to a Q3-2000
analysis by AdKnowledge. Almost one-in-five (19%) take one day or longer to
convert after their initial click-through.
AdKnowledge also found that one-third (32%) of total conversions actually
entailed no click-through by users. Those individuals simply visited advertiser
websites by typing in a URL or through some other method after viewing an
online ad. The elapsed “view-to-conversion” time among this group of Internet
users was significantly longer than among users who actually clicked on ads.
Among the various online activities that Internet users engage in, Forrester
Research found that individuals were most likely to click on a banner ad while
they were researching a product or using a search engine. Conversely,
individuals were least likely to click on a banner ad while they were reading news.
5.08 U.S. Internet Users’ Likelihood of Clicking On Banner Ads

Extremely
Activity Likely Likely Unlikely
Reading News 6% 39% 55%
Researching Products 9% 59% 35%
Shopping for Products 6% 65% 29%
Using a Search Engine 6% 81% 13%
5.09 U.S. Consumer Attitudes About Clicking On Banner Ads

Percent of Internet users responding to question: “How likely are you to click on a banner ad…”
Likely Neutral Unlikely
42.4%
When Researching
25.5%
Consumer Products
31.5%
21.1%
When Offered A
19.7%
Free Product
58.7%
26.6%
When Shown A
25.1%
Discount
47.7%
When Shopping For 21.3%

A Particular 17.7%
Product 60.3%
0% 20% 40% 60% 80%

Click-through rates for online banner ads have declined steadily, from an average
0.71% in January 1999 to 0.31% in December 1999 and 0.29% during the first-half of
2000, according to Nielsen/NetRatings. Most analysts during 2000 and 2001 estimated
that click-through rates changed little during that period, but their estimates of average
click-through rates were significantly higher than Nielsen/NetRatings at 0.5% to 1%.
AdKnowledge reports that click-through rates in the second quarter of 2000 for ads
tied to specific search keywords were measurably higher than ads with Run-of-Site
(ROS) placement. The results for ads with keyword placement on portal sites were more
than twice that with ROS placement; on news/content sites and other non-portal sites,
click-through rates with keyword placement were approximately 50% higher than with
ROS placement, according to AdKnowledge.
5.10 U.S. Click-Through Rates For Banner Ads vs. Opt-in E-mail
Percent of Internet users who click on each type of ad
Banner Ads Opt-in E-mail
7%
24/7 Media
1%-2%
2.5%-10%
Forrester Research
0.5%
12.5%
Tower Group
1%
5%-15%
Winterberry Group
1%
Jupiter Media 5%-15%

Metrix 0.6%
10%-15%
Aberdeen Group
1%-2%
2%-20%
FloNetwork
2%
0% 5% 10% 15% 20% 25%
Source: As Noted, 2000

The click-through rates for opt-in e-mail messages is approximately ten-times

that for banner ads, according to most analysts. MindArrow reports that the
average click rate for opt-in e-mail, based on an analysis from 2000, was 5.4%
compared to 0.4% for banner ads and 1.5% for postal direct mail. The response
rate for rich media banners was almost ten-times higher than regular banners,
according to MindArrow, at an average 3.8%.
Several studies, however, indicate that a high click-through rate does not
automatically correlate with a high conversion or buy rate. AdKnowledge found that
campaigns generating the highest click-through rates also generated the most
conversions only 14% of the time; put another way, this means that more than four-out-
of-five times the campaign with the highest click-through rate generated a lower ultimate
conversion rate than campaigns with lower click-through rates.
5.11 U.S. Click-Through Rate Comparison By Type Of Media

Percent of recipients who respond to message
10%
8%
6% 5.4%
3.8%
4%
2% 1.5%
0.4%
0%
Banner Ads Direct Mail Rich Media Opt-in E-mail
Banners
Source: MindArrow , 2000
Among mobile wireless Internet users, 91% indicated that they would be either
somewhat or highly influenced by wireless advertisements, according to a survey
conducted by WindWire in late 2000. The same survey estimated average
wireless advertising response rates at 19% for click-through and 12% for call-
through. The rich graphic ad format generated the highest response rate,
according to WindWire.
5.12 U.S. Wireless Advertising Response Rates By Format

Average call-/click-through rate
Rich Text 21%
Rich Graphic 24%
Interstitial 10%
0% 5% 10% 15% 20% 25% 30%
Source: WindWire, 2000

A trial among 1,000 mobile wireless users in Boulder, Colorado by SkyGo

during early 2001 experienced overall click-through rates of between 15% and
25% for wireless push ads. Three percent of the participants made a purchase as
a result of viewing an ad and 7% said they would use wireless coupons at the
point of purchase. Advertisers participating in the trial paid between $25-75/CPM
for basic “run of service” ads and between $75-150/CPM for permission-based
ads to a highly targeted opt-in audience.
This does not mean, however, that companies have free reign to send
unsolicited advertising to mobile wireless users. A majority of mobile wireless
users surveyed by Boston Consulting Group (BCG) were not willing to accept
untargeted push advertising. The same individuals, however, would be interested
in personalized, user-specific offers. Almost one-half (46%) of users surveyed by
Jupiter Media Metrix expressed no interest in receiving ads on their wireless
phones or PDAs; 36% were interested in receiving ads in the form of subsidized
content or access and 35% via subsidized devices.
5.13 Wireless Advertising Response Rates In SkyGo Service Trial

Percent of wireless ads delivered
Opened Ads 64.0%
Ads Resulted In
Action/Planned 15.0%
Action
Ads Resulted In
On- Or Off-line 2.9%
Purchase
0% 20% 40% 60% 80%

Source: SkyGo, 2/2001

The majority of Internet users both at home and at work generally believe that
there is too much advertising online today. Among users at home, three-in-four
find online ads annoying and 70% believe that they provide little or no useful
information. Sixty percent of users at work report that few if any online ads offer
anything relevant to them.
5.14 Attitudes Towards Banner Ads Among U.S. Internet Users At

Home
Percent of online consumer households
Disagree Agree
75%
Are annoying
25%
30%
Provide essential
information
70%
Make it easy to 45%

find important
information 55%
0% 20% 40% 60% 80% 100%

Source: Valentine Radford, 3/2001
5.15 Attitudes Towards Banner Ads Among U.S. Internet Users At

Work
Percent of Internet users at work
Agree Disagree
Has Too Much 38%

Advertising 62%
Has Advertising That 60%

Is Relevant To Me 40%
Has Adertising I 87%

Remember For A
Long Time 13%
0% 20% 40% 60% 80% 100%
Source: Online Publishers Association/MBIQ Media Consumption Study, 11/2001

Although a substantial majority (87%) of Internet users dislike receiving spam

or other varieties of unsolicited commercial e-mail (UCE), Gallup reports that
more than one-in-ten (13%) either do not mind or actually find it interesting and
useful on occasion. In the competition for most annoying practice, online “pop-
up” ads beat out spam by almost two-to-one (65% vs. 34%), according to Gallup.
Greenfield Online reports that new Internet users are generally more receptive
to e-mail marketing efforts than veteran users. A majority (54%) of users who
have been online for less than one year find e-mail useful for learning about new
products compared to 44% of veteran users, according to Greenfield. On the flip-
side, a majority of veteran users (53%) think that they receive too many e-mail
offers and promotions versus one-third on new users.
5.16 U.S. Internet Users’ Attitudes Towards Spam/UCE

Hate Spam 42%
Find It Annoying But Don't Hate It 45%
Have No Strong Feelings Either Way 9%
Sometimes Find It Interesting 4%
Really Like To Receive Spam 0%
0% 10% 20% 30% 40% 50% 60%
5.17 U.S. Internet Users’ Attitudes Towards E-mail Marketing

Percent of online consumer households
Users Online More Than Four Years

Users Online Less Than One Year
E-mail is a great way to find out about new 44%

products or promotions 54%
I receive too many e-mail offers and 53%

promotions 33%
I wish it were easier to unregister from e- 45%

mail offers 31%
I delete most e-mail ads without reading 39%

them 21%
I often buy things advertised to me through e- 15%

mail 18%
0% 20% 40% 60% 80%

Source: Greenfield Online, 8/2000

Among online consumers, 60% prefer HTML e-mail over text e-mail and 80%
like to receive rich media e-mail, according to Valentine Radford. Many of the
individuals who enjoy rich media, however, prefer that e-mails provide links to the
content rather than embed it into the message itself.
The delivery frequency preferences of opt-in e-mail recipients are divided fairly
evenly with 30% interested in receiving messages several times per week, 31%
interested in once per week and 34% desiring delivery only twice per month or
less frequently. Among the different delivery options, once per week was the
most popular, with 31% of recipients specifying that option.
5.18 U.S. Internet Users’ Attitudes Towards Rich E-mail

Percent of online consumers
Disagree Agree
80%
Enjoy rich media e-
mail
20%
60%
Prefer HTML e-mail
over text
40%
72%
Prefer receiving a
link to rich media
28%
0% 20% 40% 60% 80% 100%

5.19 Internet User Preferences For Permission E-mail Volume

Percent of opt-in e-mail subscribers
Daily 12%
Couple Times A
18%
Week
Once A Week 31%
Every Other Week 10%
Once A Month 18%
Less Than Once A

6%
Month
Don't Know 5%
0% 10% 20% 30% 40% 50%

Source: NFO Interactive/FloNetw ork, 2000

5.20 Online Activities Of U.S. Internet Users vs. eCoupon Users

Percent of Internet users in each group
All Internet Users E-coupon Users
94%
Have Shopped Online
78%
59%
Have Purchased Online
42%
Have Purchased Offline After Shopping 67%

Online 48%
68%
Have Clicked On Web Ads
49%
Have Purchased An Item After Seeing 16%

Online Ad 11%
46%
Find Banner Ads Helpful
39%
0% 20% 40% 60% 80% 100%

Source: CyberDialogue, 5/2001
Coupon offers are among the most effective types of website promotions for
generating sales, according to an August 2001 survey by Performics. The survey
of web publishers who sell online advertising found that only “dollar off”
promotions were more effective, while coupons edged out even free shipping,
and percent-off and free gift with purchase promotions.
CyberDialogue estimates that almost one-in-five (18%) adult Internet users
downloaded an eCoupon during the first quarter of 2001. A Fall 2000 estimate by
NPD Group was that 27% of Internet users had downloaded an eCoupon at least
once. Among current eCoupon users, CyberDialogue reports that they are more
likely than the average Internet user to have shopped online and are significantly
more likely to click-through on online ads and purchase products or services
online.
5.21 Household Income Of U.S. Coupon Users

As a percent of each group
Adult Internet E-coupon Offline Coupon

Household Income Users Users Users
Less than $40,000 33% 32% 49%
$40,000 to $74,999 38% 41% 32%
More than $75,000 29% 27% 19%
Source: CyberDialogue, FSI Council of N. America, 2001 from eMarketer

The use of eCoupons is most common in shopping for groceries, followed in a

distant second and third place by books and health-related products, according to
NPD. The company estimates that the highest redemption rates for eCoupons,
however, are for toys, music, and books, where 80% or more of coupons are
ultimately redeemed.
NPD reports that overall redemption rates for eCoupons are much higher than
for coupons related to mailorder catalogs. In many product categories, eCoupons
are redeemed at rates comparable to those for retail stores, although the specific
rates within each category can vary significantly between the two channels.
5.22 eCoupon Use Among U.S. Internet Users By Category

Percent of eCoupon users
Groceries 59%
Books 32%
Health 30%
Music 26%
Beauty 17%
Fast Food 16%
Toys 14%
Apparel 14%
Electronics 13%
Restaurant 13%
0% 10% 20% 30% 40% 50% 60% 70%
Source: NPD Group, 2000
5.23 Redemption Of eCoupons By Category And Retail Channel

Percent of coupons redeemed within each category
Retail
Item Online Catalog Store Phone Other
Apparel 39% 2% 45% 1% 13%
Beauty 58% 1% 29% 11% 1%
Books 83% 1% 4% -- 12%
Electronics 60% 1% 23% -- 16%
Fast Food -- -- 96% -- 4%
Groceries 4% -- 94% -- 2%
Health 55% -- 42% -- 2%
Music 80% 1% 4% -- 15%
Restaurant 2% 14% 81% -- 2%
Toys 87% -- 12% -- 1%
Source: NPD Group, 2000

5.24 U.S. Online Consumer Preferences For Coupon Delivery

E-mail
55%
Snail Mail
Newspapers 16%
29%
The majority (55%) of coupon users who are also online now prefer to receive
coupons via e-mail, according to Valentine Radford. Only 29% prefer to clip their
coupons from newspapers and only 16% prefer to receive them through the mail.
Companies should nevertheless exercise restraint, however, inasmuch as a
substantial majority of online consumers prefer to receive eCoupons via e-mail
only occasionally. Less than one-in-four (22%) indicated an interest in receiving
them often or very often.
5.25 How Frequently U.S. Consumers Wish To Receive Coupons Via

E-mail
60%
50%
40% 35%
28%
30%
20% 16%
13%
9%
10%
0%
Very Often Often Sometimes Seldom Never

Online ads which contain rich media -- such as audio or video -- are, not
surprisingly, more visible than conventional banner ads, according to Arbitron.
This may be due at least in part to the novelty of such ads which are still fairly
rare. Data from Arbitron also indicates that Internet users with broadband access
are somewhat more likely than dial-up users to have seen an online ad with
streaming audio and were almost twice as likely to have seen a streaming video
commercial.
5.26 Visibility Of Online Ads By Format

Percent of Internet users who frequently/sometimes pay attention
60%
52%
50% 46%
40%
40%
30%
20%
10%
0%
Banner Ads Audio Ads Video Ads
Source: Arbitron, 2/2001
5.27 User Recognition Of Streaming Commercials

Broadband Users Dial-up Users
30%
Heard A
Commercial Online
38%
14%
Seen A
Commercial Online
27%
0% 10% 20% 30% 40% 50% 60%

Source: Arbitron, 7/2001

Appendix
Data Sources

The charts, tables, and other data provided in this report are all sourced from
published, publicly-available information produced by the following organizations:
ActivMedia Research Gartner Group, Inc./GartnerG2

www. activmediaresearch.com www.gartner.com
Accenture Global Reach
www.ac.com www.glreach.com
ACNielsen Goldman Sachs Group, Inc.
www.acnielsen.com www.gs.com
Advertising.com Gomez Advisors Inc.
www.advertising.com www.gomez.com
The Arbitron Company Greenfield Online, Inc.
www.arbitron.com www.greenfieldonline.com
Arthur Andersen Harris Interactive Inc.
www.arthurandersen.com www.harrisinteractive.com
Bank of Tokyo-Mitsubishi Insight Express
www.btmny.com www.insightexpress.com
BIGresearch International Data Corp. (IDC)
www.bigresearch.com www.idcresearch.com
Bizmetric Inc. Internet Advertising Bureau (IAB)
www.bizmetric.com www.iab.net
BizRate.com Jupiter Media Metrix
www.bizrate.com www.jup.com
The Boston Consulting Group Paul Kagan Associates, Inc.
www.bcg.com www.kagan.com
Cahners InStat Group Kinetic Strategies
www.instat.com www.kineticstrategies.com
CMRi Knowledge Systems & Research
www.cmr.com www.ksrinc.com
Cognitiative Inc. KPMG International
www.cognitiative.com www.kpmg.com
comScore Networks Mediamark Research
www.comscore.com www.mediamark.com
Consumer Electronics Morgan Stanley Dean Witter
Association (CEA) www.msdw.com
www.techhome.org Myers Reports
Content Intelligence www.myers.com
www.contentintelligence.com National Retail Federation (NRF)
Cultural Access Group www.nrf.com
www.accesscag.com NetValue
CyberDialogue, Inc. www.netvalue.com
www.cyberdialogue.com NextCard Inc.
eMarketer, Inc. www.nextcard.com
www.emarketer.com Nielsen/NetRatings Inc.
Employment Policy www.netratings.com
Foundation The NPD Group Inc.
www.epf.org www.npd.com
Ernst & Young LLP Odyssey L.P.
www.ey.com www.odysseylp.com
eTForecasts Online Publishers Association
www.etforecasts.com www.online-publishers.org
Forrester Research Ovum
www.forrester.com www.ovum.com
The Gallup Organization Performics Inc.
www.gallup.com www.performics.com

Pew Research Center Universal McCann

www.pewinternet.org www.mccan.com
J.D. Power & Associates U.S. Census Bureau
www.jdpa.com www.census.gov
PriceWaterhouseCoopers Valentine Radford, Inc.
www.pwcglobal.com www.valrad.com
Rasmussen Research Inc. Veronis Suhler
www.portraitofamerica.com www.veronissuhler.com
Roper Starch Worldwide Inc. Visa USA
www.roper.com www.visa.com
Scarborough Research Vividence Corp.
www.scarborough.com www.vividence.com
Taylor Nelson Sofres and The Yankee Group
TNS Intersearch www.yankeegroup.com
www.tnsofres.com Zona Research
UCLA Internet Project www.zonaresearch.com
www.ccp.ucla.edu

Internet Commerce Briefing: Online Advertising &amp; Digital Marketing Report

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Internet Commerce Briefing: Online Advertising &amp; Digital Marketing Report

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Published January 2002

The Internet Commerce Briefing | 1

Table of Contents ...................................................................... 2

Section I. Online Advertising Market Size

Section II. Online Advertising Practices ...............................17

Section III. E-mail Marketing Practices .................................28

Section IV. Leading Advertisers and Brands.........................37

Section V. Internet Users and Online Advertising ................42

Appendix Data Sources and Contact Information...............58

Other reports in the Internet Commerce Briefing series:

The Internet Commerce Briefing | 2

Charts and tables in this report

The Internet Commerce Briefing | 3

The Internet Commerce Briefing | 4

1.01 U.S. Online Advertising Expenditures (1/1996-9/2001)

Online Ad Expenditures Qtr. Over Qtr. Growth

1.02 U.S. Online Advertising Expenditures By Month (1999/2000)

Source: IAB, 4/2001

The Internet Commerce Briefing | 5

The United States dominates online advertising, accounting for approximately

1.03 U.S. Share Of Online Advertising Expenditures (1998-2005)

1.04 Global Online Advertising Expenditures By Region (2001/2005)

0% 20% 40% 60% 80% 100%

The Internet Commerce Briefing | 6

1.05 DoubleClick Ads Served Worldwide By Quarter (1999-2001)

200 185.0 181.0

Source: Morgan Stanley, 8/2001

1.06 Daily Banner Ad Impressions Per U.S. Internet User (2001-2005)

The Internet Commerce Briefing | 7

1.07 Leading Sectors For U.S. Online Advertising By Impressions

Online advertising is currently dominated by companies from the retail, media,

1.08 Leading Sectors For U.S. Online Advertising By Share Of

0% 10% 20% 30% 40% 50%

Source: AdRelevance, 11/2001

The Internet Commerce Briefing | 8

The breakdown of estimated online advertising expenditures by sector tracks

1.09 Leading Sectors For U.S. Online Advertising By Expenditures

1.10 U.S. Online Advertising Expenditures By Sector (1999-2001)

Q4-1998 Q4-1999 Q4-2000 Q3-2001

1.11 U.S. Online Advertising Expenditures By Sector (1998-2001)

Consumer Financial Business

The Internet Commerce Briefing | 9

Online advertisers in the consumer-related sector spent an estimated $1.65

1.12 Online Advertising Expenditures Breakout For U.S. Consumer-

Retail/Mail Order $564

$0 $100 $200 $300 $400 $500 $600 $700 $800

Source: IAB, 2001

1.13 U.S. Online Advertising Expenditures By Ad Type (2000/2001)

2000 Jan. - Sep. 2001

0% 10% 20% 30% 40% 50% 60%

Source: IAB, 10/2001

The Internet Commerce Briefing | 10

1.14 U.S. Online Advertising Expenditures By Pricing Scheme (2000)

1.15 U.S. Online Advertising Expenditures By Pricing Scheme

2000 Jan.-Sep. 2001

0% 10% 20% 30% 40% 50% 60%

The Internet Commerce Briefing | 11

1.16 Estimated U.S. Online Advertising Expenditures (2001)

Myers Mediaenomics $4.7

Internet Commerce Briefing: Online Advertising & Digital Marketing Report

Internet Commerce Briefing: Online Advertising & Digital Marketing Report