Earlier this week I heard on Marketplace that the banner ad started 15 years ago.  On October 27, 1994 the web site Hotwired.com posted banner ads for Volvo, MCI, Club Med and 1-800-Collect. The click rate was 78%!   Those were the days.

In 2007, BusinessWeek reported that the average click rate on a banner ad was 0.2% according to Eyeblaster , a New York-based online ad firm.  According to Advertising Age, the click rate for display ads has dropped 50% in less than two years.

Thursday’s Wall Street Journal had a quote from Carol Bartz, the CEO of Yahoo, “Are we leading up to “I’m both too old and too stupid to know what the Internet is’?”  Her remark was in response to a question about her experience but it made me think about a potential generational gap in Internet usage. 

At a book club meeting almost a year ago, several members asked for a description of Twitter, as if it was a foreign country or new-fangled religion they had heard about.  One member provided an excellent summary based on his usage of the site but several were left trying to get their heads around why anyone in their right mind would use Twitter.   Once again Twitter came up during a recent book club meeting.  No one new had tried out the service in the 10 months since our last discussion.  It made me wonder if the technological gap is not just rich versus poor but also young versus old.  As the remark by Carol Bartz indicates, there is a general perception that the Internet is a young person’s game.  High profile anecdotes have reinforced that assumption.  According to a July 2008 Frank Rich Op Ed piece in the New York Times, John McCain doesn’t know how to use a computer.

For marketers, this represents a challenge and an opportunity.  To me, it is further proof that we need to develop integrated campaigns with both online and offline channels for outbound communication and inbound response.  You cannot assume that everyone will be on the Internet 24/7.  Broadcast media, print ads, direct mail, etc. can play an important role in reaching an older audience that may not be on the Internet as frequently and they reinforce your message to those who are active on the Internet.  A recent report found that displaying a URL within a  Yellow Pages print ad drove an increase in online leads.  Of course, you should measure the interaction of online and offline behavior to see what drives the most responses and to optimize future campaigns.

Modeling is a powerful tool that is worth considering when determining how best to spend your marketing dollar.  At its simplest, modeling looks for patterns in data to predict future behavior.  That data could be past behavior.  If someone bought diapers last week, it is very likely they will buy them again this week.  It could also include demographics such as age and gender or, in a B2B context firmographics, the number of employees and annual sales volume.  Attitudinal information, such as willingness to purchase a product, could also be used in a model.  The power of modeling comes from the fact that it weighs all of the factors and results in a unique algorithm that predicts future behavior.  Instead of the usual “spray and pray” approach, modeling enables you to focus your dollars where they will have the most effect.

Two articles in the Wall Street Journal last week offered real life examples of how models can solve business problems.  I have seen clients use attrition models and proportional hazard models to determine which customers are likely to leave.  Google is building an attrition model to identify which of its employees are most likely to leave the company for another opportunity.  Presumably Google will target those employees most likely to leave and be able to retain valuable talent that might otherwise walk out the door.

Chrysler’s digital agency has designed a media modeling system according to the Wall Street Journal.  It sounds like a marketing mix model and is being used to allocate Chrysler’s marketing dollars.  At a basic level, this model tells Chrysler how much money needs to be spent on marketing to drive a certain number of vehicle sales based on the web traffic generated.  By monitoring online activity and tying it to their marketing campaigns, Chrysler has determined how many web visits translate into sales.  The media modeling system, including enhancements based on the ongoing performance of television advertisements, has helped Chrysler determine how to structure their marketing campaign and tweak marketing in real time to drive results.

These two examples may not fit your exact situation but they highlight the power and value of modeling.

Today’s Wall Street Journal had the following comment by Colleen DeCourcy, chief digital officer at Omnicom’s TBWA:

“Banner ads will be the new junk mail.  More and more, reputable companies won’t be buying up the space around the Web sites you visit.  Clicking these ads will become less and less legitimate as brands will endeavor to do things that add more value to you in the social-media and customer-service space.”

SodaHead.com seems to be the exception to the conventional wisdom that click through rates for banner ads are low.  SodaHead is an online community and according to a Wall Street Journal article a few weeks ago, “SodaHead ads enjoy click and conversion rates of as much as 10 times the industry average.”  As I wrote in an earlier post, click through rates for banner ads are typically much less than 1%.  The click through rate refers to the number of times a banner ad was clicked.  For example, if a banner ad was displayed 100 times and it was clicked on once, the click through rate would be 1%.

There are several ways that you can try to increase the likely click through rate.  You can optimize placement by displaying your banner ad on a website with synergy.  Alternatively, you can use rich media to make the ad more noticeable and engaging.  Personalization is also likely to increase clicks.  So how does SodaHead do it?  They ask provocative questions and engage viewers by asking for their opinions.

Though SodaHead has a high click through rate, what is their return on investment (ROI)?  My question remains.  What is the value of a banner ad?  As the Wall Street Journal article points out, SodaHead has yet to make money.

If there is a silver lining to this recession for marketers, it may be the focus on analysis and measurable results.  With every marketing dollar being scrutinized and questions being asked about return on marketing investment, every  tactic is being reevaluated.  For a long time, I have questioned the value of web banners.  They are easy to ignore and, as a result, have lower response rates than other marketing vehicles.  Advocates justify the low response rates by pointing to their relative low cost.  Others say that rich media will breath life into banner ads but I remain unconvinced.

Recent articles make me think I am not the only one.  Mike Shields of Mediaweek wrote about display ads a few weeks ago.  He quoted Greg March of Wieden + Kennedy as saying “Advertisers want to deliver impact, and I don’t think the impact for these ads is always that strong.”  Shields wrote that “click-through rates for banner [ads] rarely approach 1 percent”.  I have seen much smaller rates than that.

A recent BtoB special report on 2009 marketing plans, found that 30.6% of B2B marketers surveyed were planning on increasing their spending on banners.  This sounds promising except that other online tactics had higher growth percentages:  email 68.3%, search 50.0%, web-casting 42.9%, web site development 66.3%, and social media 46.6%. 

With new tools, analysts may be able to measure the impact of online ad campaigns, taking into account every ad served up to the user regardless of whether or not she clicks on it.  Hopefully we will soon be able to answer the question, what is the value of a banner ad?