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2002: Interactive Marketing Hits the Comeback Trail

In the aftermath of a disastrous 2001, the online advertising industry had nowhere to go but up. And the industry, slowly and fitfully, did respond in 2002, showing hints by the end of the year that it was prepared to turn the corner on the two-year downturn brought on by the dot-com meltdown.

On the last day of the year, IAR looks back at some of the trends that shaped the last 12 months.

Publishers Gain, AOL Loses

After six straight quarters of negative growth, the online advertising industry began growing again in the third quarter, according to the Interactive Advertising Bureau. But the IAB's numbers, which show a 1 percent growth rate, somewhat obscured the differing fortunes of AOL from other major Web publishers.

At AOL, 2002 was annus horribilis, with the expects 22 percent growth in ad revenues. Meanwhile, the interactive divisions of other media companies, such as New York Times Digital and Washingtonpost.Newsweek Interactive, said ad sales were up considerably during the year. Overall, the Online Publishers Association said its members increased ad revenues by an average of 23.8 percent in the first three quarters of the year.

Search is King

Leading the way for the industry's comeback was the strength of paid search listings. The leading player in the field, Overture, enjoyed the bounties of paid search's popularity, expecting to pull in over $650 million in revenues in 2002. Yet it also gained a new rival: Google. In February, Google entered the paid listings business, wagering that it could leverage its dominance in algorithmic search and become a formidable alternative to Overture.

Google made a splash in May, when it snagged AOL from Overture. Added to the contract wins from EarthLink and AskJeeves, Google appeared ready to take on Overture. However, the battle for paid listings supremacy is increasingly taking place abroad, and Overture ended the year with a string of wins of ISPs and portals in key countries, such as Freeserve in the United Kingdom and Wanadoo in France. In Japan, where Yahoo! Japan rules the roost, Overture and Google settled for a draw, splitting a short-term deal.

The potency of the search business was highlighted in December, when Yahoo! swooped in to buy struggling search-listings provider Inktomi for $235 million. The company's CEO, Terry Semel, called paid search "a beautiful system," and set up a move away from Google in favor of bringing search in-house.

Spam, Pop-Ups Gain Unpopularity

The interactive marketing industry saw spam and pop-ups rise to the top of the list of irritants reported by users.

As Internet users tired of receiving unwanted e-mails for mortgages and Nigerian bank scams, many ISPs responded with enhanced spam filters. The new filters have posed challenges for the industry, which has struggled to make sure its messages are not marked as spam or diverted to a user's bulk mail folder.

Meanwhile, the prolonged online advertising downturn led many publishers to turn to offering pop-up advertisements. Although Nielsen//NetRatings estimate pop-ups (and pop-unders) accounted for just 2 percent of ad impressions in the first seven months of the year, some publishers and ISPs responded to user complaints with anti-pop-up services. EarthLink led the way for ISPs, with AOL following suit. IVillage was the first publisher to declare it would no longer serve third-party pop-up ads, after 92.5 percent of its users fingered them as their biggest irritant.

Some industry analysts wondered whether pop-up ads had seen their day. However, top pop-up advertisers, such as Orbitz, and publishers, like NYTimes.com, said the format was effective and would continue to be an element of online marketing programs.

On the legal front, publishers took aim at Gator, filing a lawsuit against the adware company accusing it of copyright infringement for serving ads that obscure their Web pages. They were joined later in the year by UPS and hotel-chain operator Six Continents, which filed similar lawsuits against the company.

For its part, Gator said it was stepping in where publishers failed, offering advertisers a chance to serve ads to those consumers most likely to become customers.

Ad Units: Bigger, Flashier is Better

While publishers disagreed with Gator over its methods, many moved to make their ad units more attractive to advertisers by offering bigger, more dynamic forms. The IAB unveiled a suite of standard ad units in an attempt to allow advertisers to create ads that could run across a variety of sites. Notably absent from the six units suggested was the much-vilified 468 x 60 banner ad, which had become a symbol of the industry's two years of woes.

Along with adopting the larger units, publishers sought to mimic Gator's contextual advertising by serving more targeted ads. Washingtonpost.com began requiring users to answer a three-question survey; and NYTimes.com began offering dayparts.

Rich media continued to expand, with the big three portals -- Yahoo!, AOL and MSN -- making their sites available for third-party rich media ads. Some publishers were more audacious. Salon, struggling to stay afloat, rolled out "ultramercials" that allowed users access to premium content in exchange for watching a four-screen advertisement.

What Lies Ahead

With 2002 ending, many in the interactive marketing industry are looking forward, with cautious optimism, to next year. After ending the year with momentum, the market hopes to return to consistent, if more incremental, growth.

Later this week, IAR will look to 2003 and what lies ahead.