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A few of the well-known magazines shuttered because of falling advertising revenues.

Online, advertisers are spending a small fraction of what they used to spend for space in traditional media. This presents a big problem for media companies. Although they save money by distributing their products over the Internet, they still incur sizable fixed costs to create content. How can these companies make money?

Possible answers are to rely more on revenue from subscriptions and direct sales (see “Convergence Is King”) or to shift to a nonprofit model supported by grants and donations. But these strategies alone rarely close the finance gap. Most media companies must convince advertisers that the online display advertising they sell–the banners, boxes, and so on–is worth more than advertisers currently think.

The research firm eMarketer estimates that in 2009, advertisers spent $22.4 billion online in the United States. Unfortunately for publishers, “keyword” or search advertising–the links sold by Google and other search engines–is taking an ever larger portion of that money, squeezing out display ads. In 2008, search advertising grew 25 percent, while display grew only 9 percent. Advertisers are reluctant to pay for display ads because of limits on how well audiences and their behavior can be tracked online. Traditionally, broadcast and print companies provided detailed and trusted information about the size and demographic makeup of their audiences. But no existing information source has succeeded in giving advertisers the confidence to increase their investment in online advertising, says Paula Storti, founder of Worldwalk Media, a global marketing and advertising agency.

An accurate count of a website’s audience is essential, since advertisers will pay more if 10 different people view an ad than if one user views the ad 10 times. Two main methods dominate online audience measurement. The first is analysis of cookies stored on visitors’ browsers and in publishers’ “log files”–a history of Web page requests. The second relies on audience profiling using panels of consumers. There is no consensus on which gives advertisers a better picture of a website’s audience. Companies that rely on cookies and log-file analysis, such as Omniture (recently acquired by Adobe), ­WebTrends, and Coremetrics, provide very limited demographic information and are frequently accused of overcounting audience size because of factors such as individuals who use multiple computers and privacy software that automatically deletes cookies. Panel-based metrics companies such as ­ComScore and Nielsen Online recruit Web users to answer detailed demographic surveys and have their browsing monitored by software installed on their home computers. Panels provide the demographic information that ad buyers are accustomed to getting from media such as magazines and television, but the method undercounts websites’ audiences, especially when visitors browse from work. In particular, panels often grossly underestimate the audiences of smaller sites.

Web analytics companies are now seeking to correct for undercounting by incorporating audience profiles into log-file analyses or statistical models of overall Internet traffic (see “But Who’s Counting?” March/April 2009). San Francisco startup Quantcast is perhaps the farthest down this path, combining log-based measurement with demographic information from market research firms and Internet service providers (see “Companies to Watch”).

The growth of the mobile Internet–with its diversity of technologies, devices, communication protocols, operating systems, and systems for supporting images, cookies, and JavaScript–further complicates audience measurement. Startups such as Mobilytics, Bango, AdMob (recently purchased by Google), Localytics, and Motally have developed software tags that publishers can build into their websites and mobile apps to track audiences. Only one thing is for sure: if media companies want to stay in business, they’d better find a solution that advertisers like–fast.

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