However, the correlation between the size of Web audiences and their value to advertisers is not direct. In print, the relationship between audience size and advertising spending is simple, because the prices of ads derive largely from a publisher’s audited statement of circulation; media planners buy the total audience. Online, it’s more complicated because the currency of display advertising is ad impressions, or the number of times a specific ad is served to a particular part of a website. “Audience numbers don’t affect my buying decisions very much,” explains David L. Smith, the chief executive and founder of Mediasmith, an interactive-media planning and buying agency whose clients include the National Geographic Channel and Sega. “If we were buying the total audience of a site, it would be different. But most of the time we buy packages of impressions.”
Jim Spanfeller, who is a past chair and current board member of the Interactive Advertising Bureau (IAB), the industry association that represents sellers of online advertising, agrees with Smith that unreliable audience measurement doesn’t directly affect ad spending, at least at larger sites: “If you’re an established site like Forbes.com, you’re selling on an ad-impression basis. The problem arises when an agency is thinking about moving money from one medium, like print or television, onto the Web.” Then, Spanfeller says, media planners can’t show their clients whether Web audiences replicate or complement the audiences that advertisers are reaching through traditional media. “We need believable numbers so that we can do cross-media comparisons,” he says. Additionally, bad audience measurement “hurts smaller sites with more targeted audiences that don’t have a lot of impressions”–the class of sites that Spanfeller, like many digerati, says occupies “the long tail.”
Thus, the real consequence of the audience measurement problem is a chilling effect on the transfer of advertising from older media to new. Meanwhile, another form of online advertising is growing quickly–but it’s not the ads publishers sell. The numbers clarify. Spending on “keyword” or search advertising (the sponsored links that appear near search results on Google.com and other search sites) grew 21 percent in 2008, mostly at the expense of print, local television and radio, and Yellow Pages advertising; it now constitutes 45 percent of all online advertising. That’s because the effectiveness of keywords is unambiguous: advertisers pay directly for click-throughs or purchases. There’s no need to appeal to anything so disputed as the size or composition of Web audiences. This growth in keyword advertising has mainly benefited the search firms. By comparison, the display advertising that media companies sell grew only 4 percent the same year.
Four percent growth might sound all right to some, but it occurs at the same time that advertising revenues in print are falling rapidly. For instance, ad spending in newspapers will decline from $50.8 billion in 2007 to $45 billion by 2012, according to Borrell Associates, a research firm. Even Forbes is sweating. As a private company, it does not disclose its revenues, but the number of ad pages in its magazine has been shrinking since 2000. At the same time, the company’s online advertising revenues are reported to be between $55 million and $70 million, a figure Spanfeller did not dispute. That’s not so much for a publication with an audience of 20 (or even seven!) million. In the glory days of print advertising, publications with much smaller audiences earned as much or more: Red Herring, which I once edited, earned more than $50 million in print advertising revenue in 2000, and its circulation was only 350,000 readers, according to Ted Gramkow, the magazine’s former publisher.
Display advertising was meant to fund the great shift of readers to new media. It’s not happening. For more than 100 years, advertising paid publishers and underwrote their production of great journalism; now, those ad monies are being funneled to search firms that create nothing but code. As Roger McNamee says: “Getting this right is absolutely necessary for publishers to be able to continue to do interesting things.”