E-Commerce Report: Advertising Grows Easier on Portals

By Bob Tedeschi


When the sky began falling on dot- com companies this year, e-commerce sages predicted good things for businesses strong enough to hold on through the holidays. Not only would there be less competition for customers, the thinking went, but e-tailers would be able to negotiate better business terms from manufacturers and vendors, whose client lists had evaporated.

An early case in point may be coming from e-tailers and their relationships with portal sites like Yahoo, America Online and others. From 1998 until this spring, these and other portals signed multiyear, multimillion-dollar advertising contracts with a long list of e-tailers dot-coms that in many cases signed the deals at the urging of their venture capitalist backers.

The venture capitalists, eager to cash out their investments in the form of public stock offerings, knew that the public markets valued sites with heavy Internet traffic. The portals, recognizing that only they could deliver such traffic, were able to exert this leverage to land multiyear advertising deals that often topped $100 million. E- commerce executives recall that the portals often gave them take-it-or-leave it terms.

Now, as the dot-com scrap heap grows, and portals scramble to fill holes created by each week's e-tailing failures, surviving merchants say the portals are ready to make advertising deals on much more attractive terms than in the past. (The portals contend that they are merely getting better at creating efficient advertising packages for merchants.)

As a result, some companies that had shied away from portal deals for fear of breaking their ad budgets now find themselves able to advertise on some of the Web's most hallowed real estate.

"These days, you don't have to put so much at risk to find a reasonable business arrangement," said Al Noyes, executive vice president for sales and marketing at SmarterKids.com. The company is an online toy merchant that advertises on AOL, Yahoo and Microsoft's MSN.

Mr. Noyes declined to quote specific financial terms of those deals, but he said that in the last 18 months, the cost of advertising on portals had decreased about 75 percent. Perhaps more important, he said, the portals have become more flexible about permitting advertisers to buy ads on specific areas of the sites, rather than requiring them to buy ads in bulk, which could end up running on any area.

"A lot of that wasn't productive," Mr. Noyes said. "Now they're developing techniques so we don't waste the traffic."

Online media buyers say the portals are also increasingly willing to base their fees on the number of sales that result from the advertising. Such packages are often called performance-based or R.O.I. for, return on investment deals. And they are much less palatable to portals and other sellers of ad space, because the deals put greater pressure on them to deliver sales and demonstrate that advertisers are getting their money's worth.

"It's nice that prices have come down a little," said Sharon Katz, vice president and director of media at Modem Media, an online advertising firm. "But what's great is the flexibility in the hybrid deals, which have some up-front fee, and then payments for each click or sale. Hybrid deals have been around awhile, but now they're more weighted toward performance," as measured by sales or clicks.

Ms. Katz said the portals had, until this year, frequently worked directly with senior executives within the e-commerce companies, who were often less savvy or less interested in negotiating advertising deals that produced a return on their investment. The stock price jolt that resulted from a portal deal announcement was frequently enough of a return to justify the cost.

But more recently, she said, e-commerce executives are increasingly making their advertising decisions in league with advertising firms, which are more focused on tracking an ad campaign's sales results. In addition, she said, there have been considerable improvements in both advertising techniques and the technologies used to monitor advertising performance. "We're all getting smarter about this," Ms. Katz said. "So the portals can be really useful tools for our clients."

Representatives from the portals, meanwhile, also say things have changed, but not necessarily because of the dot-com crash. Jed Savage, director of national sales for MSN, said his company's advertising prices had not declined, "and we've always been flexible, and have tried to be very much in tune with what our partners want to get out of these deals."

Mr. Savage also said the company was "constantly evolving" the ways merchants could advertise within the various MSN properties. "We've just created better packages," he said. For instance, Mr. Savage said the company had previously kept its online store MSN Shop in one place on the site. But this last summer, MSN began splitting off different components of the shop to relevant editorial sections like business gifts in the business information area of the site.

Other major portals noted similar adjustments. Wendy Goldberg, a spokeswoman for AOL, said the company's advertising rates had not decreased. "We've always been pretty flexible in how we structure deals," Ms. Goldberg said. "There are so many ways we can serve advertisers, and that's always evolving, so we just have more stuff to offer now."

Anil Singh, Yahoo's chief sales and marketing officer, said that in the last year his company, too, had expanded the options for advertisers.

Whether from the greater sophistication that comes with experience or the humility bred by a shrinking clientele, portals are more accommodating and e-tailers are happy about it.

"The landscape for e-tailing has changed," said Steve Hamlin, vice president of QVC's online division, iQVC. "Because of that, the terms for ad deals among the portals are significantly better."

Mr. Hamlin said that last year, one portal, which he declined to identify, refused to complete a deal unless iQVC agreed to display the portal's name prominently on iQVC's pages. Mr. Hamlin said he turned down the deal. "Those kinds of demands are going away," he said.

Mr. Noyes, of SmarterKids.com, said that in 1998 and 1999, he "had to do a lot of explaining to venture capitalists and internally about why we weren't doing these big deals." But "a lot of those deals were about branding for branding's sake," he said. "For direct marketers, which is what online retailers are, that's just unproductive."

Mr. Noyes said that because the portals had become more flexible in the services they offered and SmarterKids was better at tracking sales of visitors who came to the site after viewing an online ad portal deals now made sense.

"No doubt, these sites have assets that online retailers can take advantage of," he said. "So this is very promising."


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