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Ryan: Despite Current Woes, Online Ads Have Bright Future

NEW YORK -- DoubleClick chief executive Kevin Ryan took center stage Wednesday morning to defend his flagging industry.

Speaking at Jupiter Media Metrix's sixth annual Online Advertising Forum, Ryan's speech -- entitled "What's Working Best in Online Advertising Today" -- aimed to inject a shot of optimism into what's admittedly a dismal current state of affairs. (Even the Forum's official title this year is "What's Wrong with Online Advertising.")

"All the positive things we need to fundamentally launch the industry are there," he said. "We need to take it to the next level. When I look at all the studies we've done and seen across the Internet, the Internet going to grow rapidly ... and will be rewarded with unbelievable results in the coming years."

Ryan said that while the industry has stunted its growth by focusing on click-through rates as its chief metric to date, it remains important to keep click-throughs in mind, albeit in the proper context.

"One positive thing about click-throughs is, last week, for example, just on the ads that DoubleClick served, we had 50 million clicks -- 50 million times that someone saw an Internet ad ... and said 'I want to see more information,'" he said. "Can someone from any print publication or any network definitely give any audited numbers that show that? That's a challenge ... that I don't think anyone would take."

"One thing that sets us back is that there are so many ads out there ... so while click-through rates seem small," the actual number of clicks is large, he added. "Certainly, Internet advertising does drive a tremendous, staggering amount of traffic."

Similarly, Ryan said that online advertising's greatest strength is its ability to track and measure -- a power that needs to be taken more seriously and promoted more vigorously.

"The great thing about the Internet is that people tend to focus on click-throughs, but you can go out and measure branding, and get definitive results that are statistically significant," he said, referencing an earlier study performed in conjunction with the Interactive Advertising Bureau.

More such studies, which lend credence to online ad firms' new claims that the medium has a significant branding component, would benefit the industry tremendously, Ryan said.

DoubleClick's Ryan also said that the Internet gets unfairly dismissed by traditional advertisers -- for instance, those who say that e-mail marketing is unlikely to take off because of the deluge of mail that most Internet users receive daily.

"The biggest trap here ... is that people say everyone thinks 'I get too much e-mail,'" he said. "That was what they said 10 years ago ... in the catalog market. Now, there's way more catalogs than there were 10 years ago -- that market wasn't even close to saturation."

In contrast, Ryan said he foresees big profits looming in e-mail, especially as a CRM tool -- in which companies attract, retain and upsell consumers as a day-to-day part of their sales process.

"The e-mail cycle drives the business," he said. "All of those things wrapped together ... are unbelievably powerful, and the results are very easy to analyze and test."

Additionally, Ryan said he saw e-mail and online ads being a bigger part of an integrated campaign.

"All these things are better when integrated into the overall campaign," he said. "If e-mail is tied into an ad campaign, and is tied into an offline campaign, they can work together in very powerful ways."

Indeed, according to Ryan, there's nothing intrinsically wrong about the way the online ad industry is working at present. Instead, "how we're doing today is actually about 95 percent linked to the economy ... the consumer side is doing fine, but the technology side [which comprises most online advertisers] is doing poorly."

"As [telecom, technology and finance] sectors cut back their advertising drastically ... bizarrely, DoubleClick and other companies will see auto advertising up, and technology advertising down," Ryan said. "It doesn't make sense that online ads work for cars, not for technology. People will figure that out. They will not draw the conclusion that Internet advertising isn't working."

But Ryan conceded that while the industry is doing much right -- focusing on wooing traditional B2C clients, on branding, and on larger interactive ad units -- there's nevertheless much that can be done better.

For instance, he said the industry could improve its work in measuring the impact of frequency on branding, and especially, the impact of online campaigns on offline sales.

"We need to show the impact of what happens -- how many people saw an ad online and bought something in a store," he said. "Putting that together can be very powerful in showing overall impact. Right now, we're fighting a battle with one arm tied behind our back -- trying to show on-the-spot interact ... That's not capturing the full value there."

Ryan also said the industry needs to cut down on what he termed "friction costs," or the costs of transacting media buys and sales.

"In the Internet space, 10 percent [of a media buy] goes to the agency, while 25 percent has to go to [the costs of] selling it," he said. "So 35 percent never goes to the publisher -- and for some companies, that's as high as 50 percent. If that were the model in television, there's not one TV station or network that would make money."

To help the situation, Ryan prescribed a combination of improved technology and more rational business practices.

"For instance, and we're to blame for this ... we offered to let clients switch creative, so they're changing the banner 18 times a campaign -- and we're not charging anything for that today," he said. "That [practice] is going to have to be eliminated."