Report: Online Ads Boosting E-tailers

Online advertising campaigns result in significantly more traffic to e-tail Web sites and attract attentive visitors who are likely to linger, according to new research by Media Metrix (Nasdaq: MMXI) division AdRelevance.

The five-month study, conducted from January to May, is likely to be good news for e-commerce companies looking for the appropriate mix of online and offline marketing.

AdRelevance found "a strong positive correlation between online advertising and engaged visitors to online retail sites." The study defined "engaged visitors" as those people who spend more time per Web page than the average person -- at least three minutes a day -- and view more content on Internet retail sites.

Rethinking Online Ads

"Given the strong connection between online advertising and engaged users, and considering the market's need to see increased profits, online retailers should think twice before deciding to decrease Internet ad budgets in response to Nasdaq's fallout," said Charlie Buchwalter, Vice President of Media Research for AdRelevance.

During April, as a number of e-tailers began to run into trouble, there was a noticeable decline in Web advertising. The study found that during four of the five months reviewed, there was a percentage growth in advertisement impressions, peaking in February with a 19 percent growth in impressions. Advertising rebounded in May with a six percent growth in total impressions.

The study found that three product sectors drew the most traffic: books, music and movies; flowers, gifts and greeting cards; and computer hardware and software. Each of those sectors saw a high correlation between the number of advertising impressions delivered by the e-tailers and the number of engaged visitors who came to their sites. The flowers, gifts and greeting cards had a slightly lower correlation, although still remarkably high.

The lower results for flowers and the like could be attributed to the fact that those items are impulse items, while many consumers tend to do research and comparison shopping for items such as hardware and software.

Online Ads Good for Hot Products

According to the report, industry powerhouses have created brand awareness by running regular online ad campaigns consisting of millions of average monthly impressions. Smaller, lesser-known companies, however, have struggled with brand identity issues, and often have little to no online advertising. The study did not track actual purchases from the e-tailers.

The sites that had strong showings based on their high number of online ads included Amazon.com, eBay and PlanetRx.

The list of e-tail sites that had minimal online advertising and a correspondingly low percentage of unique visitors includes many companies in the middle of shakeout struggles, such as Toysmart.com, which is now closed, in bankruptcy and being sued by the Federal Trade Commission. Some of the other sites on that list are ToyTime.com, which is no longer in business, and Petstore.com, which was purchased by Pets.com in June.

Luxury retailers such as Fogdog.com and Ashford.com had a high percentage of online advertising, but a low correlation of unique visitors, which may indicate that consumers shopping for luxury items are not strongly influenced by advertising. A major hurdle for online luxury sites is that consumers are reluctant to buy expensive items sight unseen.

The Right Mix

According to Buchwalter, many of the more successful online retailers appear committed to online advertising, which they use to drive traffic and build awareness for their brand.

"Online retailers that don't quite have the same level of brand recognition, however, can still be competitive using online advertising." Buchwalter said.

Buchwalter added that the challenge for smaller companies is to find the right balance between online brand advertising and online direct marketing , saying that the businesses which find the right mix are likely to survive the shakeout.

Bottom Line

The study concluded that top dollars spent on offline campaigns are not necessarily a key to success for online businesses.

"Despite the trying efforts of many dot-coms to build their brands with big-budget television ad campaigns, the latest AdRelevance figures for the online retail sector suggest that money spent on online advertising is growing their businesses," Buchwalter said.