The Internet Commerce Briefing

Online advertising & digital marketing report

The Intermarket Group L.P.
www.intermarketgroup.com

Online Advertising & Digital Marketing Report

This document is intended for electronic delivery

Copyright  2002 by The Intermarket Group, L.P. All rights reserved. The entire contents of this publication are copyrighted by The Intermarket Group, L.P. and may not be translated, reproduced, stored in another retrieval system, posted on a website, or transmitted in any form or by any means, beyond that permitted by your Customer License Agreement and by Sections 107 and 108 of the 1976 United States Copyright Act, without prior written consent from the copyright owner. The charts, tables and data provided in this report are all sourced from publicly-available information produced by the attributed sources and remain the property of and are copyright by their respective owners. Requests for further information or for reprint permissions should be addressed to: The Intermarket Group, L.P., P.O. Box 500126, San Diego, California 92150-0126, USA. The following uses of this document are strictly prohibited unless otherwise provided for in your Customer License Agreement: • Transmittal via the Internet or any other network • Reproduction for sale or for further distribution • Posting on a website or intranet site All information contained in this publication is believed to be obtained from reliable sources. The publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the authors nor the publisher is engaged in offering legal, accounting or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

Published January 2002 ISBN No. 1-882113-16-0

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Online Advertising & Digital Marketing Report

Table Of Contents
Table of Contents ...................................................................... 2 List of Charts and Tables .......................................................... 3 Section I. Online Advertising Market Size and Composition .................................................. 4 Online Advertising Practices ...............................17

Section II.

Section III. E-mail Marketing Practices .................................28 Section IV. Leading Advertisers and Brands.........................37 Section V. Appendix Internet Users and Online Advertising ................42 Data Sources and Contact Information...............58

Other reports in the Internet Commerce Briefing series: Internet Population & Online Demographics Business-to-Consumer E-commerce

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Online Advertising & Digital Marketing Report

Charts and tables in this report
1.01 U.S. Online Advertising Expenditures (1/1996-9/2001) 1.02 U.S. Online Advertising Expenditures By Month (1999/2000) 1.03 U.S. Share Of Online Advertising Expenditures (1998-2005) 1.04 Global Online Advertising Expenditures By Region (2001/2005) 1.05 DoubleClick Ads Served Worldwide By Quarter (1999-2001) 1.06 Daily Banner Ad Impressions Per U.S. Internet User (20012005) 1.07 Leading Sectors For U.S. Online Advertising By Impressions 1.08 Leading Sectors For U.S. Online Advertising By Share Of Impressions 1.09 Leading Sectors For U.S. Online Advertising By Expenditures 1.10 U.S. Online Advertising Expenditures By Sector (1999-2001) 1.11 U.S. Online Advertising Expenditures By Sector (1998-2001) 1.12 Online Advertising Expenditures Breakout For U.S. Consumer-Related Sector (Q3-2001) 1.13 U.S. Online Advertising Expenditures By Ad Type (2000/2001) 1.14 U.S. Online Advertising Expenditures By Pricing Scheme (2000) 1.15 U.S. Online Advertising Expenditures By Pricing Scheme (2000/2001) 1.16 Estimated U.S. Online Advertising Expenditures (2001) 1.17 Estimated Growth Of U.S. Online Advertising Expenditures 1.18 U.S. Online Advertising Expenditure Growth (1998-2006) 1.19 U.S. Digital Marketing Expenditures (2000-2006) 1.20 U.S. Performance-Based Online Advertising Growth (20002005) 1.21 Wireless Advertising Expenditures By Region (2000-2005) 1.22 Online Share Of U.S. Advertising Expenditures (1996-2006) 1.23 Total U.S. Offline Advertising Expenditures (1999-2006) 1.24 U.S. Offline Advertising Expenditures By Media Category (2000/2001) 1.25 U.S. Offline Advertising Expenditures By Media Category (1996-2006) 2.01 Top Reasons Companies Advertise Online 2.02 Objectives Of Online Advertisements 2.03 Media Used To Drive Traffic To Websites 2.04 Effectiveness Of Select Media In Driving Traffic To Websites 2.05 Effectiveness Of Affiliate Marketing vs. Online Alternatives 2.06 Most Effective Advertising Media For Customer Acquisition 2.07 Most Effective Advertising Media For Branding 2.08 Sources Of Website Traffic Growth 2.09 Online Banners Served By Size Of Ad (Q4-2000) 2.10 Online Ad Dimensions Used By Advertisers (2000) 2.11 Full Banner Ad Rate Card Pricing 2.12 Average Rate Card Pricing For IAB Online Ad Units 2.13 U.S. Online Ad Campaign Size By Sector 2.14 Number Of Sites Purchased In U.S. Online Ad Campaigns 2.15 Effectiveness Of Online Advertising By Type Of Placement 2.16 Online/Offline Advertising Mix Among U.S. Online Retailers 2.17 U.S. Advertiser Plans For Streaming Media Ad Expenditures 2.18 Barriers To Increased Online Advertising Expenditures 3.01 U.S. E-mail Message Volume (1999-2003) 3.02 U.S. Opt-in E-mail Message Volume (1999-2003) 3.03 Frequency Of Promotional E-mails Among Leading Retailers 3.04 Types Of Permission E-mail Received By U.S. Internet Users 3.05 E-mail Volume Of U.S. Internet Users At Home And At Work 3.06 How Frequently Do U.S. Internet Users Check Their E-mail 3.07 Proportion Of U.S. Internet Users' E-mail That Is Spam/UCE 3.08 Reasons Internet Users Forward E-mail To Others 3.09 Total U.S. E-mail Marketing Expenditures (1999-2004) 3.10 U.S. E-mail Marketing Services Expenditures (1999-2003) 3.11 E-mail Marketing By U.S. Small Business (2001/2003/2005) 3.12 Payment Options Supported By E-mail Marketing Networks 3.13 U.S. E-mail Marketing Allocation Of Expenditures, Customer Acquisition vs. Retention 3.14 Objectives For Opt-in E-mail Marketing Campaigns 3.15 Internet User Open Rates For HTML Messages 3.16 Formats Supported By Internet Users' E-mail Clients 3.17 E-mail Format For Advertising Campaigns 4.01 Leading U.S. Online Advertisers By Expenditures 4.02 Leading U.S. Online Advertisers By Impressions 4.03 Leading Websites By Online Advertising Revenue 4.04 Leading U.S. Advertisers By Expenditures (All Media) 4.05 Leading Dot.com Brands Among U.S. Decision-Makers 4.06 Leading Technology Brands Among U.S. Consumers 4.07 Leading E-commerce Brands Among U.S. Internet Users 5.01 Communication Preferences Of U.S. Online Buyers 5.02 How U.S. Internet Users Learn About Websites 5.03 Primary Method For U.S. Internet Users To Learn About Websites 5.04 How U.S. Internet Users Search For Products Online 5.05 How Online Shoppers Get To Websites 5.06 Visibility Of Online Ads Among U.S. Internet Users At Home And At Work 5.07 Elapsed Time To Conversion For Online Ads 5.08 U.S. Internet Users' Likelihood of Clicking On Banner Ads 5.09 U.S. Consumer Attitudes About Clicking On Banner Ads 5.10 U.S. Click-Through Rates For Banner Ads vs. Opt-in E-mail 5.11 U.S. Click-Through Rate Comparison By Type Of Media 5.12 U.S. Wireless Advertising Response Rates By Format 5.13 U.S. Wireless Advertising Response Rates In SkyGo Service Trial 5.14 Attitudes Towards Banner Ads Among U.S. Internet Users At Home 5.15 Attitudes Towards Banner Ads Among U.S. Internet Users At Work 5.16 U.S. Internet Users' Attitudes Towards Spam/UCE 5.17 U.S. Internet Users' Attitudes Towards E-mail Marketing 5.18 U.S. Internet Users’ Attitudes Towards Rich E-mail 5.19 Internet User Preferences For Permission E-mail Volume 5.20 Online Activities Of U.S. Internet Users vs. eCoupon Users 5.21 Household Income Of U.S. Coupon Users 5.22 eCoupon Use Among U.S. Internet Users By Category 5.23 Redemption Of eCoupons By Category And Retail Channel 5.24 U.S. Online Consumer Preferences For Coupon Delivery 5.25 How Frequently U.S. Consumers Wish To Receive Coupons Via E-mail 5.26 Visibility Of Online Ads By Format 5.27 User Recognition Of Streaming Commercials

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Online Advertising & Digital Marketing Report

Section I.
Online Advertising Market Size and Composition

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The year 2001 was unarguably among the most difficult and challenging yet for the infant online advertising industry. After years of rapid growth, the industry was hit for the first time by a double-digit decline in expenditures thanks to a slowing U.S. economy and a literal collapse of the “dot com” economy. Between 1996 and 2000, the Internet Advertising Bureau (IAB) estimates that online advertising expenditures grew by an average 142% per year, from $268 million to more than $8.2 billion. Expenditures in Q4-2000 alone reached almost $2.2 billion, according to the association, before declining by 12% in the firstquarter of 2001. During the first three quarters of 2001, expenditures declined by a total of 8.4%, to $5.6 billion from $6.1 billion for the comparable period in 2000. Most analysts’ estimates of expenditures for the full year are just over $7 billion, representing a year-over-year decline of more than 10%.

1.01 U.S. Online Advertising Expenditures (1/1996-9/2001)
Millions of dollars and percent change quarter-to-quarter
Online Ad Expenditures Qtr. Over Qtr. Growth

$3,000 $2,124 $1,953 $1,893 $1,868 $2,500 $2,000 $1,500 $491 $1,000 $214 $227 $336 $351 $423 $76 $500 $0
Q1-1996 Q2-1996 Q3-1996 Q4-1996 Q1-1997 Q2-1997 Q3-1997 Q4-1997 Q1-1998 Q2-1998 Q3-1998 Q4-1998 Q1-1999 Q2-1999 Q3-1999 Q4-1999 Q1-2000 Q2-2000 Q3-2000 Q4-2000 Q1-2001 Q2-2001 Q3-2001

80% $1,986 $2,162 60% 40% 20% 0% -20%

$30

$52

$110

$130

$656

$692

$934

$1,217

$1,777

Source: IAB, 10/2001

1.02 U.S. Online Advertising Expenditures By Month (1999/2000)
Percent of total annual expenditures

1999 20%

2000 14.6% 8.4% Nov. Dec. 9.8%

7.5% 9.3%

6.1% 8.0%

6.7% 8.5%

7.1%

10% 4.3%

5%

0% Jan. Feb. Mar. Apr. May Jun. Jly. Aug. Sep. Oct.

4.7%

6.0%

7.8% 7.5%

7.6%

8.5% 7.7%

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10.8% 8.1%

15% 10.0% 9.0% 9.0%

Source: IAB, 4/2001

13.1%

$1,792

Online Advertising & Digital Marketing Report

The United States dominates online advertising, accounting for approximately 80% of all expenditures during 2001. Despite its outsized role in the industry, the U.S. share of global expenditures has been declining slowly over the years and this trend is expected to continue. By 2005, the U.S. is expected to account for approximately 70% of global expenditures compared to 88% in 1998. After the U.S., Europe is the second-largest online advertising market, accounting for 12% of expenditures during 2001. The Asia/Pacific region is expected to experience the greatest growth between 2001 and 2005, expanding from 6% of global expenditures in 2001 to 10% in 2005.

1.03 U.S. Share Of Online Advertising Expenditures (1998-2005)
Percent of global online advertising expenditures

100% 88% 80% 60% 40% 20% 0% 1998 1999 2000 2001 2002 2003 2004 2005
Source: eMarketer, 2000

83%

81%

79%

75%

73%

72%

70%

1.04 Global Online Advertising Expenditures By Region (2001/2005)
Percent of global online advertising expenditures

2001

2005 71%

North America

80% 15%

Europe

12% 10% 6% 4% 2%

Asia/Pacific

Latin America

0%

20%

40%

60%

80%

100%

Source: eMarketer, 2000

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Online Advertising & Digital Marketing Report

1.05 DoubleClick Ads Served Worldwide By Quarter (1999-2001)
Billions of ads

250 200 149.0 150 100 50 0 Q11999 Q21999 Q31999 Q41999 Q12000 Q22000 Q32000 Q42000 Q12001 Q22001 43.8 125.1 77.2 29.6 162.0 185.0

181.0

168.0

20.9

Source: Morgan Stanley, 8/2001

The Internet’s largest online advertising network, DoubleClick, reports that the aggregate volume of banner ads that it served peaked during the fourth-quarter of 2000 at 185 billion before declining to 181 billion in the first-quarter of 2001 and 168 billion in the second-quarter. The number of daily banner ad impressions per Internet user has continued to grow, despite the decline in online advertising expenditures. AdRelevance predicts that the typical Internet user will view an average of 705 banner ads per day during 2002, representing a 16% increase over 2001. The growth in total daily impressions per user is expected to slow over the next few years, according to the company, which predicts a 13% increase in 2003, 10% the next year, and only 8% in 2005.

1.06 Daily Banner Ad Impressions Per U.S. Internet User (2001-2005)
Total impressions per user per day

1200 950 900 705 610 600 880 800

300

0 2001 2002 2003 2004 2005

Source: AdRelevance, 2/2001

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Online Advertising & Digital Marketing Report

1.07 Leading Sectors For U.S. Online Advertising By Impressions
Thousands of impressions, excluding house ads, for each period

Sector Retail Web Media Financial Services Travel Entertainment Consumer Goods Business-to-Business Telecommunications Hardware & Electronics Software Other Total

Week Ending 9/10/2001 3,149,358 2,810,156 2,476,339 1,120,494 1,109,916 922,457 785,788 541,662 403,938 348,812 479,917 14,148,837

Impressions Week Ending Share 11/4/2001 22% 4,422,044 20% 7,199,377 18% 3,512,960 8% 1,048,978 8% 1,058,443 7% 1,000,076 6% 1,050,806 4% 863,604 3% 339,562 2% 1,113,697 3% 692,073 100% 22,301,620

Share 20% 32% 16% 5% 5% 4% 5% 4% 2% 5% 3% 100%

Source: AdRelevance, 11/2001

Online advertising is currently dominated by companies from the retail, media, and financial services sectors, according to data from AdRelevance. The three sectors combined accounted for approximately two-thirds of all impressions at different measurement points during the second-half of 2001.

1.08 Leading Sectors For U.S. Online Advertising By Share Of Impressions
Percent of total impressions, excluding house ads, for each period

9/10/2001 Web Media Retail Financial Services Travel Entertainment B-to-B Software Consumer Goods Telecom Hardware & Electronics Other 0% 2% 4% 7% 4% 4% 2% 3% 3% 3% 10% 20% 30% 5% 8% 5% 8% 5% 6% 5%

11/4/2001 32% 20% 20% 22%

16% 18%

40%

50%

Source: AdRelevance, 11/2001

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Online Advertising & Digital Marketing Report

The breakdown of estimated online advertising expenditures by sector tracks fairly closely with estimated impressions, based on data from both the IAB and from CMRi. The two organizations, however, differ significantly in their estimates of aggregate expenditures for each sector, with most IAB estimates between twoand four-times higher than those of CMRi.

1.09 Leading Sectors For U.S. Online Advertising By Expenditures
Total expenditures in dollars by all companies in each sector

Sector Retail Media & Advertising Financial Services Local Services & Amusements Computers & Software Public Transportation, Hotels, Resorts Automotive, Accessories & Equipment Government & Organizations Telecommunications Insurance & Real Estate

Aggregate Expenditures January - September 2001 $432,553,803 $363,323,644 $260,633,494 $200,131,636 $194,720,418 $103,007,919 $89,671,013 $62,844,864 $61,724,212 $56,221,210

Pct. of Total 23.7% 19.9% 14.3% 11.0% 10.7% 5.6% 4.9% 3.4% 3.4% 3.1%

Source: CMRi AdNetTrackUS, 9/2001

1.10 U.S. Online Advertising Expenditures By Sector (1999-2001)
Percent of total online advertising expenditures

Q4-1998 60% 50% 29% 31% 32% 29% 40% 20% 16% 21% 19% 30% 20% 10% 0% Computing Consumer Related

Q4-1999

Q4-2000

Q3-2001

19% 17% 13% 12%

7% 12% 9% 14%

Financial Services

New Media

N/A

Business Services

7% 6% 10%

Source: IAB, 10/2001

1.11 U.S. Online Advertising Expenditures By Sector (1998-2001)
Millions of dollars Consumer Related Financial Services Business Services

Period

Computing

Media

Q4-1998 Q4-1999 Q4-2000 Q1-2001 Q2-2001 Q3-2001

$131.2 $284.3 $454.0 $340.8 $336.2 $340.5

$190.2 $550.9 $691.8 $567.9 $560.4 $519.7

$124.6 $302.1 $281.1 $246.1 $242.8 $215.0

$ 45.9 $213.2 $194.6 $189.3 $186.8 $250.9

n/a $124.4 $129.7 $113.9 $149.4 $179.2

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25% 17% 19% 16% All Others
All Others

$164.0 $302.1 $410.8 $435.0 $392.4 $286.7
Source: IAB

Online Advertising & Digital Marketing Report

Online advertisers in the consumer-related sector spent an estimated $1.65 billion during the first three quarters of 2001 and $1.13 billion during the first-half of 2001, according to the IAB. Retail- and mail order-related advertising accounted for one-half of total expenditures in the sector, followed by automobiles (12%), travel/hotels (11%), and music (9%).

1.12 Online Advertising Expenditures Breakout For U.S. ConsumerRelated Sector (Q3-2001)
Millions of dollars

Retail/Mail Order Other Auto Travel/Hotels Music Amusement Toys/Games $0 $11 $100 $200 $300 $400 $500 $56 $135 $135 $124 $102

$564

$600

$700

$800

Source: IAB, 2001

1.13 U.S. Online Advertising Expenditures By Ad Type (2000/2001)
Percent of total online advertising expenditures

2000 Classifieds Rich Media Referrals Keyword Search e-mail Others Interstitals Sponsorships Banner And Tile Ads 0% 10% 20% 30% 3% 2% 2% 4% 5% 1% 3% 3% 7% 3% 3% 4% 17% 7%

Jan. - Sep. 2001

25% 28% 35% 48% 40% 50% 60%

Source: IAB, 10/2001

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Online Advertising & Digital Marketing Report

The pricing model for online advertising changed only marginally between 1998 and 2000, according to the IAB. The largest share of expenditures during that period were so-called “hybrid ads” which are based on some combination of cost-per-thousand and performance-based pricing -- such as cost-per-click or cost-per-lead -- with straight CPM deals accounting for most of the remaining balance. Performance-based ads have steadily expanded their share of overall online ad expenditures, from 7% in 1999 to 10% in 2000. During the first nine months of 2001, the share of performance-based ads jumped by 30% to 13% of all expenditures. CPM ads also increased in spite of the soft market, to 48% of total expenditures, during the same period of 2001 while hybrid ads declined sharply to 39% of expenditures.

1.14 U.S. Online Advertising Expenditures By Pricing Scheme (2000)
Percent of total online advertising expenditures

PerformanceBased Ads 10%

"Hybrid" Ads 47%

CPM Ads 43%
Source: IAB, 5/2001

1.15 U.S. Online Advertising Expenditures By Pricing Scheme (2000/2001)
Percent of total online advertising expenditures

2000

Jan.-Sep. 2001 39%

"Hybrid" Ads 47%

PerformanceBased Ads

13% 10%

48% CPM Ads 43% 0% 10% 20% 30% 40% 50% 60%

Source: IAB, 10/2001

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Online Advertising & Digital Marketing Report

GartnerG2 estimates that about 2,800 websites in the U.S. were supported at least in part by advertising during 2001. Among those sites, however, the top 20 - or less than 1% -- collectively received approximately 80% of the aggregate revenue. Although online advertising expenditures declined sharply during 2001, the outlook among most analysts is for a resumption of growth during 2002, albeit at a much slower pace than the 100% annual rate between 1996 and 2000. The most plausible growth forecasts for expenditures during 2002 range from the high single-digits to the mid-teens.

1.16 Estimated U.S. Online Advertising Expenditures (2001)
Billions of dollars

Myers Mediaenomics McCann Erickson Jupiter Media Metrix Forrester Research Merrill Lynch IDC Veronis, Suhler & Assoc. Goldman Sachs Gartner Group Yankee Group $0 $2 $4

$4.7 $5.4 $5.7 $6.0 $6.0 $7.3 $7.5 $7.6 $7.9 $8.6 $6 $8 $10

Source: As noted, 2001

1.17 Estimated Growth Of U.S. Online Advertising Expenditures
Percent change from 2001 to 2002

Forrester Research Veronis, Suhler & Assoc. Meyers Mediaenomics Jupiter Media Metrix IDC Giga Information Group Datamonitor 0%

5% 8% 13% 19% 26% 39% 40% 10% 20% 30% 40% 50%

Source: As noted, 2001

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Online Advertising & Digital Marketing Report

Online advertising expenditures are expected to roughly double over the next five years. The most conservative forecast -- from Forrester Research -- predicts compound annual growth of almost 11%, or a total of 67% for the period between 2001 and 2006. Jupiter Media Metrix and Myers Reports both expect more rapid growth of 170% and 111% respectively for the five year period. Gartner Group recently predicted that U.S. online advertising expenditures would grow by 138%, from $7.9 billion in 2001 to $18.8 billion in 2005. The company also expects the annual rate of growth to slow to 15% per year by 2005. Jupiter predicted in addition that total spending for digital marketing -including web, online advertising, e-mail marketing and related services -- would reach $19.3 billion by 2006. Approximately one-half of that total, according to the company, is expected to be allocated towards customer retention-related communications. Forrester expects digital marketing expenditures in 2006 to total $21 billion, $10 billion of which would go towards online advertising.

1.18 U.S. Online Advertising Expenditure Growth (1998-2006)
Billions of dollars

Jupiter Media Metrix $20 $16

Forrester Research

Myers Mediaenomics $15.4 $9.1 $8.4 2005 $19.3 2006 2006 $10.0 $9.9

$12 $8.6 $7.1 $6.1 $5.4 $7.6 $4.3 $8 $2.1 $1.3 N/A $3.5 $2.8 $2.4 $5.7 $6.0 $4.7 $6.8 $6.3 $5.3

$10.6

$4 $0

1998

1999

2000

2001

2002

2003

2004

$8.0 $7.3 $13.8 2005

Source: As noted, 2001

1.19 U.S. Digital Marketing Expenditures (2000-2006)
Billions of dollars

$25 $20 $15 $10 $6.2 $5 $1.5 $0 2000 2001 2002 2003 2004 $3.7 $2.0 $9.5

Source: Jupiter Media Matrix, 8/2001

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$12.9

Online Advertising & Digital Marketing Report

1.20 U.S. Performance-Based Online Advertising Growth (2000-2005)
Billions of dollars

Performance-based Expenditures $8

Percent Of Total Expenditures 40% 28% 30% 30% $4.1

$6 22% $4 23%

25%

27%

$3.2 $2.5 $1.9 $1.1 $1.4

20%

$2

10%

$0 2001 2002 2003 2004 2005 2006

0%

Source: Jupiter Media Metrix, 7/2001

Wireless advertising is little more than embryonic in its evolution for a variety of reasons, including limitations in current form factors -- such as small screen sizes, and difficulties with data entry -- limited-bandwidth, high-latency connectivity, and consumer resistance to the general concept. Ovum predicts, however, that the market will begin to gain some momentum during 2002, with total worldwide revenues of slightly more that $1 billion. Commercial messages can be communicated to wireless users through a variety of forms and methods, including: • Alerts and other types of time- or location-sensitive notifications • Commerce-enabled e-mail messages that allow the recipient to purchase by clicking on an advertisement • Links embedded in an advertisement that enable the recipient to click over the sender’s website or respond by clicking or calling • Time- or location-sensitive discounts or coupons that recipients can redeem • Sponsored content such as city guides, stock quotes, or news headlines • Traditional telemarketing pitches targeting mobile wireless phone users

1.21 Wireless Advertising Expenditures By Region (2000-2005)
Millions of dollars

Region North America Europe Asia/Pacific Middle East/Africa Latin America

2000 $4mn $2mn $7mn $0 $0

2002 $363mn $443mn $409mn $10mn $0

2003 $1,212mn $1,522mn $1,271mn $60mn $20mn

2005 $4,558mn $5,979mn $4,705mn $528mn $631mn

Source: Ovum, 2000

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Online Advertising & Digital Marketing Report

The share of total U.S. advertising expenditures allocated to online media has grown steadily, from only 0.2% in 1996 to almost 2.5% in 2001. Myers Reports expects that growth to continue and predicts online advertising will account for almost 5% of total spending by 2006. The Kelsey Group estimates that the approximately 10 million small and medium-sized businesses in the U.S. spend an average of $4,700 per year on advertising, marketing, and promotional services across all local media. In 2000, this translated to approximately $33 billion spent by these companies on yellow pages, newspapers, direct mail, coupons, websites, banners, and other locallytargeted advertising and promotional media. The company predicts that spending for local online media among this group will expand from 2% of total advertising expenditures in 2000 to more than 5% in 2006. Although online advertising expenditures are expected to resume their growth again in 2002, Myers predicts that overall spending for offline advertising will continue to decline through 2003 before growth resumes again in 2004. The company expects spending for most offline media to remain stagnant for the foreseeable future, with growth driven primarily by television and radio.

1.22 Online Share Of U.S. Advertising Expenditures (1996-2006)
Percent of total advertising expenditures

6% 4.9% 5% 4% 3% 2% 0.9% 1% 0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Myers Reports, 8/2001

4.2% 3.7% 3.2% 2.1% 1.3% 0.2% 0.5% 2.4% 2.7%

1.23 Total U.S. Offline Advertising Expenditures (1999-2006)
Billions of dollars

$250

$200.7 $200 $186.9 $192.0 $188.1 $187.3 $191.3 $192.0 $192.4

$150

$100 1999 2000 2001 2002 2003 2004 2005 2006

Source: Myers Reports, 8/2001

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Online Advertising & Digital Marketing Report

During 2001, Myers estimates that expenditures across all offline media declined by 4.3% over 2000 to $192 billion. The biggest declines in spending during the first nine months of 2001 occurred among national newspapers (21.5%), national spot radio (-18.6%) and spot television (-17.9%), according to CMR. Cable television, outdoor, and Sunday magazines were the only media with ad growth during the same period. CMR estimates that ad spending among magazines declined by 5.1% during the first nine months of 2001. The Publishers Information Bureau (PIB) estimates that magazine advertising revenue declined by 4.5% for the entire year and that total ad pages declined by 11.7% from 2000. Among the different magazine categories, PIB estimates that declines in ad revenue were greatest for business/finance titles (-31.5%), outdoor/recreation (-21.4%), and news-weeklies (-18.6%). The fastest growth in ad revenues was among men’s magazines (+15.7%), teen magazines (+14.9%), and women’s health titles (+8.5%).

1.24 U.S. Offline Advertising Expenditures By Media Category (2000/2001)
Millions of dollars

Media Network Television Magazines Spot Television Cable Television Sunday Newspapers Daily Newspapers Syndication-National National Newspapers Outdoor National Spot Radio Sunday Magazines Network Radio

Expenditures Jan.-.Sep. 2001 Jan.-Sep. 2000 $14,058 $15,279 $11,895 $10,773 $7,843 $7,471 $5,892 $2,406 $2,190 $1,853 $1,613 $792 $622 $12,533 $13,123 $7,679 $8,139 $6,269 $2,326 $2,788 $1,807 $1,981 $766 $699

% Change -8.0% -5.1% -17.9% 2.1% -8.2% -6.0% 3.4% -21.5% 2.6% -18.6% 3.4% -11.0%
Source: CMR, 12/2001

1.25 U.S. Offline Advertising Expenditures By Media Category (1999-2006)
Millions of dollars

Media Newspapers Broadcast TV Cable TV Radio Yellow Pages Magazines Outdoor Other Total

1999 $46,958 $41,448 $11,153 $16,744 $12,463 $15,508 $1,840 $40,800 $186,914

2000 $48,400 $45,902 $13,418 $19,088 $12,712 $17,834 $2,153 $41,208 $200,716

2001 $49,368 $41,926 $14,344 $17,752 $12,458 $17,299 $2,174 $36,675 $191,997

2002 $49,862 $40,796 $15,390 $17,042 $12,333 $16,780 $2,131 $33,741 $188,074

2003 $49,363 $39,752 $16,998 $16,701 $12,210 $17,116 $2,088 $33,066 $187,296

2004 $49,363 $40,397 $19,017 $17,369 $12,088 $17,544 $2,130 $33,397 $191,304

2005 $48,623 $39,627 $20,841 $17,369 $11,907 $17,719 $2,151 $33,731 $191,968

2006 $48,136 $37,982 $23,281 $16,848 $11,669 $18,251 $2,173 $34,068 $192,406

Source: Myers Reports, 8/2001

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Online Advertising & Digital Marketing Report

Section II.
Online Advertising Practices

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Online Advertising & Digital Marketing Report

Branding is the principal objective behind most online marketing efforts, according to AdRelevance. The company reports that more than 60% of all online ads are related in some way to brand building and that 45% are designed primarily to build brand awareness. Only one-third of online ads are specifically intended to drive either sales or website traffic, according to the company. Myers Reports estimates that 85% of companies who advertise online nevertheless do so at least in part to drive website traffic -- the most-frequently mentioned objective -- followed closely by general branding, which was cited by 82% of advertisers. Among major U.S. companies surveyed by the Association of National Advertisers, one-half said that developing or improving brand loyalty was the primary objective behind their online advertising during 2000, up from 40% the previous year.

2.01 Top Reasons Companies Advertise Online
Percent of companies that advertise online

Drive Traffic To Site

85%

Brandbuilding

82%

Branding: Integrated Marketing

75%

Branding: Sponsorship Opportunities

72%

Targeting: Sponsorship Opportunities

71% 0% 20% 40% 60% 80% 100%

Source: Myers Reports, 2/2001

2.02 Objectives Of Online Advertisements
Percent of online ads Branding, Positioning 15% No Strategy 6% Direct Response, Drive Sales 14% Branding, Awareness 45%

Branding, Feature/Benefits 1%

Direct Response, Drive Traffic 19%

Source: AdRelevance, 1/2001

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Online Advertising & Digital Marketing Report

2.03 Media Used To Drive Traffic To Websites
Percent of respondents; multiple responses accepted

Online Banner Ads E-mail To Customers Public Relations Magazines Opt-in E-mail Lists Direct Mail Television Newspapers Radio Affiliate Programs Sponsorships 0% 20% 32% 40% 60% 80% 66% 60% 60% 58% 52% 52% 48% 48% 46%

96%

100%

Source: Forrester Research, 2001 (n=50 marketing managers)

2.04 Effectiveness Of Select Media In Driving Traffic To Websites
Effectiveness on a scale of 1 (poor) to 5 (great)

E-mail To Customers Affiliate Programs Direct Mail Television Public Relations Online Banner Ads Magazines Sponsorships Radio Newspapers Opt-in E-mail Lists 0 1 2 2.8 2.7 2.7 2.6 2.6 2.5 3 4 3.4 3.2 3.1 3.8

4.1

5

Source: Forrester Research, 2001

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Online Advertising & Digital Marketing Report

Forrester Research reported that a majority of marketing executives from online retailers it surveyed in 1999 believed affiliate marketing was among the most effective methods for generating sales and building their online brands. The only online alternative that most survey respondents thought outperformed affiliate marketing was e-mail to current customers. Fifty-seven percent of respondents thought that affiliate marketing was superior to offline advertising, 77% felt the same about sponsorships and 78% for portal deals. An analysis by affiliate marketing consultants Fiore and Collins estimated that the cost of acquiring new customers during 2001 was approximately $9.00 each for affiliate programs. In contrast, they estimated the cost increased to $21.00 per new customer for online advertising and $24.00 per new customer for e-mail marketing. Affiliate programs generated approximately 13% of online retail sales during 2000, according to Forrester. By 2003, the company predicts that such programs will account for 21% of online sales to consumers.

2.05 Effectiveness Of Affiliate Marketing vs. Online Alternatives
Percent of online retailer marketing executives

Better 13% 25%

About The Same

Worse

E-mail To Current Customers

63% 57%

Offline Advertising

14% 29% 78%

Sponsorships

6% 17% 78%

Portal Deals

7% 15%

Portal Shopping Areas

83% 7% 10% 90%

Banners

5% 5% 0% 20% 40% 60% 80% 100%

Source: Forrester Research, 1999

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Online Advertising & Digital Marketing Report

Targeted e-mail, banner ads, and linking arrangements with partner sites were the most widely used advertising media among both pure-play Internet retailers as well as the more established multi-channel retailers, according to a 2000 survey by PriceWaterhouseCoopers. When it comes to assessing which media are most effective for acquiring new customers and for building brand recognition, the PriceWaterhouseCoopers survey found significantly different approaches. A large plurality of pure-play Internet retailers indicated that targeted e-mail was the most effective in acquiring new customers followed in distant second by television advertising, off-site links, and search engine placement. The multi-channel retailers, in contrast, employed a broader mix of media with roughly the same proportion of companies indicating that targeted e-mail, portal/ISP/community site deals, magazine advertising, direct mail, and off-site links were all highly effective in acquiring new customers.

2.06 Most Effective Advertising Media For Customer Acquisition
Percent of companies surveyed

Pure-Play Internet Retailers
Search Engine Placement Catalog Cross Promotion Portal/ISP/Community Site Deals Targeted E-mail Direct Mail Links on Partner Sites Magazine Advertising Television Advertising n/a 5.6% 17.9% 2.8% 17.9% 2.8% 12.8%

Multi-Channel Retailers

44.4% 10.3% n/a 10.3% 5.6% 7.7% n/a 5.1% 5.6%

0%

20%

40%

60%

Source: PriceWaterhouseCoopers

Although the role of search engine placement and its effectiveness was ranked low by the Internet retailers surveyed by PriceWaterhouseCoopers, search engines and directories were rated as either excellent or very good for website promotion by 48% of companies surveyed by ActivMedia. Other favored methods of promotion, according to ActivMedia, are off-site links and buttons (23%), online PR and press releases (17%), reciprocal ads and links (16%), affiliate programs (10%), and paid banner ads (6%). Among larger sites -- those processing more than 500 orders per month -- only 36% rate search engines and directories as excellent/very good compared to 67% of mid-level sites (100 to 500 orders per month) and 54% of smaller sites. High volume sites were more likely than others to focus their promotional efforts on offline media and on ongoing e-mail communications with existing customers.

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Online Advertising & Digital Marketing Report

2.07 Most Effective Advertising Media For Branding
Percent of companies surveyed

Pure-Play Internet Retailers
Catalog Cross Promotion Television Advertising Direct Mail Links on Partner Sites Portal/ISP/Community Site Deals In-Store Cross Promotion Magazine Advertising Banner Ads Targeted E-mail Outdoor Advertising

Multi-Channel Retailers 15.4%

n/a 15.4% 16.7% 12.8% n/a 10.3% 5.6% 10.3% 11.1% 7.7% n/a 7.7% 5.6% 5.5% 5.6% 2.6% 11.1% 2.6% 11.1% 0% 10% 20% 30%

Source: PriceWaterhouseCoopers

Four-in-five (79%) major U.S. companies surveyed by the Association of National Advertisers used online advertising during 2000. Among those companies, 92% used banner ads, 75% used search engine positioning, 70% used sponsorships, and 67% used e-mail marketing. Although effective advertising and marketing efforts are important for success in the online space, Jupiter Media Metrix contends that only 17% of website traffic growth is attributable to online advertising. Seasonality is the most important source of increased traffic, accounting for 46% of growth, according to the company, followed by simple growth in the overall Internet population, which contributes 37% of traffic growth.

2.08 Sources Of Website Traffic Growth
Percent contribution to overall website traffic growth

Internet Population Growth 37%

Online Advertising 17%

Seasonality 46%
Source: Jupiter Media Metrix, 6/2001

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Online Advertising & Digital Marketing Report

The traditional banner ad accounted for more than one-in-three (36%) online ads served during the fourth quarter of 2000, according to AdRelevance, while the vertical banner was barely on the radar screen with its 1% share. By mid-year 2001, the vertical banner had doubled its share to about 2% -- or approximately 280 million impressions between January and June -- even though it was still available on only 21% of the sites tracked by AdRelevance. During the same period, the share for full banners declined to slightly more than 30%.

2.09 Online Banners Served By Size Of Ad (Q4-2000)
Percent of all online banner ads served during quarter

Full Banner Half Banner Short Button Micro Button Medium Button Tall Button Short Banner Vertical Banner 0% 1% 1% 10% 20% 30% 6% 4% 16% 16% 20%

36%

40%

50%

Source: AdRelevance, 7/2001

2.10 Online Ad Dimensions Used By Advertisers (2000)
Percent of online advertisers

Full Banner Half Banner Short Banner Vertical Banner Tall Button Medium Button Short Button Micro Button 0% 16% 20% 40% 60% 3% 6% 13% 14% 25% 14%

80%

80%

100%

Source: AdRelevance, 10/2000

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Online Advertising & Digital Marketing Report

2.11 Full Banner Ad Rate Card Pricing
Dollars per thousand impressions

Mean CPM Rate 50 40 30.52 30.00 30 20 10 0 Q1-Q2 2000 Q3-2000 31.09 26.00

Median CPM Rate

28.28 25.00

29.37 25.00

Q4-2000

Q1-Q2 2001
Source: AdRelevance, 7/2001

AdRelevance reports that full, non-negotiated rate card pricing for online banner ads declined during 2000 and then held steady during the first-half of 2001 at an average CPM of just below $30.00. Although few advertisers actually pay the published CPM rates, the company points out that they serve as a starting point for negotiation and are useful for identifying trends in site pricing strategy. The average full banner CPM hit a low in the fourth-quarter of 2000 at just over $28.00 before ticking upwards to $29.37 in the first- and second-quarters of 2001. The vertical banner remained the most expensive among the standard IAB units, according to AdRelevance, at $35.00 per thousand impressions while the increasingly popular 88 x 31 pixel micro button was the least expensive at a CPM of $11.85. The company reports that many advertisers are now leveraging the small size and low price of the micro button ads to saturate the web with tiny brand awareness messages.

2.12 Average Rate Card Pricing For IAB Online Ad Units
Dollars per thousand impressions

Vertical Banner Full Banner Half Banner Tall Button Short Button Medium Button Micro Button $0 $10 $29.37 $27.64 $22.81 $19.54 $16.94 $11.85 $20 $30

$35.29

$40

$50

Source: AdRelevance, 7/2001

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Online Advertising & Digital Marketing Report

The online advertising market is comprised of many advertisers who schedule smaller campaigns and a relatively small number of very large advertisers who account for the bulk of activity, according to research by AdRelevance. The median campaign during the fourth-quarter of 2000 was 27,000 impressions and more than one-half (55%) of all advertisers made buys for only one site. Only 1% of online advertisers purchased impressions on 100 or more websites. The company also found that the number of impressions purchased varied significantly between sectors, with campaigns in the hardware and electronics and the financial services sectors running more than three-times as many impressions as the overall average.

2.13 U.S. Online Ad Campaign Size By Sector
Median number of impressions in thousands

Hardware And Electronics Financial Services Telecommunications Software Consumer Goods Automotive Travel Web Media Entertainment B-to-B Retail 40 33 29 29 27 18 67 61 94 114

186

0

50

100

150

200

Source: AdRelevance, 2/2001

2.14 Number Of Sites Purchased In U.S. Online Ad Campaigns
Number of companies

1 Site 2 Sites 3 To 4 Sites 5 To 8 Sites 9 To 15 Sites 16 To 25 Sites 26 To 50 Sites 51 To 75 Sites 76 To 100 Sites 101 To 200 Sites 200+ Sites 0 2,692 2,053 1,397 961 450 396 171 86 126 58 2,000 4,000 6,000 8,000

10,065

10,000

12,000

Source: AdRelevance, 2/2001

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Online Advertising & Digital Marketing Report

The most effective placement for online ad buys is as “featured store merchant,” according to a substantial majority of web publishers surveyed by Performics, scoring 8.9 on an effectiveness scale of 1 to 10 with 10 being the most effective and 5 being average. Outbound opt-in e-mails are also rated as highly effective in generating sales, although HTML e-mails scored measurable higher than text e-mails at 8.7 versus 7.9. Surprisingly, placement within specific shopping categories and homepage placements are rated as least effective, however, both still receive scores well into the positive range at 7.6 and 7.3 respectively.

2.15 Effectiveness Of Online Advertising By Type Of Placement
Effectiveness on a scale of 1 to 10, with 10 being very effective and 1 not effective

Homepage Placement Placement Within A Specific Shopping Catgeory Text E-mails Placement On A Specials Page/Section HTML E-mails Featured Store Merchant

7.3 7.6 7.9 8.1 8.7 8.9

0

2

4

6

8

10

Source: Performics, 8/2001

As the U.S. economy slowed and the ranks of pure-play Internet retailers shrank throughout 2001, the size and composition of media expenditures also changed. Boston Consulting Group estimates that between Q1- and Q3-2001 the share of advertising budgets allocated to offline media by online retailers -- both pure-play and click-and-mortar -- declined almost 50% while spending for online media increased to more than three-quarters (78%) of total expenditures.

2.16 Online/Offline Advertising Mix Among U.S. Online Retailers
Percent of total advertising expenditures

Q1-2001

Q3-2001

22% Offline Media 39%

78% Online Media 61%

0%

20%

40%

60%

80%

100%

Source: Boston Consulting Group/Shop.org, 12/2001

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Online Advertising & Digital Marketing Report

Streaming media is expected to post the fastest growth during the next few years among the different varieties of online advertising media, according to Yankee Group, expanding from only $44 million in 2000 to $3.1 billion by 2005. A survey of online advertisers and their agencies conducted by the company in early 2001 found that more than one-half (56%) of respondents plan to increase their spending on streaming media advertising. A related survey also found that advertisers believed streaming media advertising was second only to e-mail in terms of effectiveness.

2.17 U.S. Advertiser Plans For Streaming Media Ad Expenditures
Percent of agencies/advertisers who use streaming media ads

Plan To Buy More 56% Plan To Buy Less 9%

Plan To Buy About The Same 35%

Source: Yankee Group, 2001

A 2001 survey of marketing executives and their agencies by Myers Reports found that budget limitations were the most common barrier to companies increasing their online advertising expenditures. More significant, however, were the large number of executives who expressed concerns about various aspects of online advertising performance and performance benchmarking. Almost onehalf or marketing executives and 57% of agencies cited low click-through rates as a barrier to their increasing spending and more than one-third of each were concerned about low conversion rates, high cost-per-thousand ad rates, and difficulties in measuring return on investment.

2.18 Barriers To Increased Online Advertising Spending
Percent of each type of executive

Budget limitations Low click-through rates High CPMs Can’t measure ROI Low conversion rates Inadequate research Web’s branding abilities Lack of measurement standards Inadequate sales competence Fragmentation of market Bandwidth limitations Poor stewardship of schedule Creative standards not compatible

Marketing Executives 58% 49% 45% 38% 33% 32% 30% 29% 27% 23% 19% 6% 3%

Agency Executives 92% 57% 44% 40% 35% 48% 43% 40% 27% 26% 21% 15% 17%

Source: Myers Reports, 2001

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Online Advertising & Digital Marketing Report

Section III.
E-mail Marketing Practices

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Online Advertising & Digital Marketing Report

E-mail is the most popular online activity, with surveys indicating that more people use e-mail than any other online service, including surfing the web. IDC estimates that at the end of 2001 there were approximately 137 million e-mail boxes among U.S. users at work and another 102 million among users at home. Opt-in e-mail marketing and similar types of permission marketing are the only appropriate approaches for integrating e-mail into a digital marketing effort. Optin e-mail message volume is growing at roughly twice the rate of overall e-mail message volume, according to most analysts, and is expected to account for about one-in-five e-mails by 2003. Including opt-in, there are three principal types of permission-based e-mail: • House List Messages -- These include company newsletters, promotions, and various types of updates sent to a company’s own e-mail list • Sponsored E-mail Messages -- Stand-alone newsletters, bulletins, and ezines which carry advertising and are sent regularly to subscribers who request them • Opt-in E-mail Messages -- Messages sent to generic lists of individuals who have indicated an interest in receiving e-mail related to specific topics

3.01 U.S. E-mail Message Volume (1999-2003)
Billions of messages per year

1,200 1,035 1,000 840 800 600 394 400 200 0 1999 2000 2001 2002 2003
Source: eMarketer, 2001

677 536

3.02 U.S. Opt-in E-mail Message Volume (1999-2003)
Billions of messages per year

E-mail Messages Sent 350 300 250 200 10.2% 150 12.0%

Opt-in Messages As A Share Of All E-mail 21.9% 18.9% 14.9% 159.1 101.2 10% 5% 0% 227.0 15% 25% 20%

100 50 0 1999 40.1

64.1

2000

2001

2002

2003
Source: eMarketer, 2001

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Online Advertising & Digital Marketing Report

3.03 Frequency Of Promotional E-mails Among Leading Retailers
Number of e-mails sent per month

Retailer 1-800-FLOWERS.COM 800.com Amazon.com BananaRepublic.com BarnesandNoble.com ClickRewards FTD.com Microsoft MSN NetFlix Outpost.com Sears.com Victoria’s Secret Williams-Sonoma Wine.com

February 2001 3 2 1 3 2 2 2 2 4 9 5 4 4 0 5

January 2001 3 2 1 4 2 2 1 3 4 -5 7 3 1 4

December 2000 3 5 1 4 5 5 2 5 9 -5 -2 2 5
Source: Iconocast, 2001

Almost two-thirds (65%) of Internet users are interested in receiving activity statements by e-mail and 44% their bills by e-mail, according to NFO WorldGroup. More than one-half (54%) already receive online versions of offline publications by e-mail and 13% have actually cancelled one or more print subscriptions in favor of the digital counterpart. Valentine Radford found that the number of online consumers who actually enjoy receiving electronic newsletters periodically has remained steady at about four-in-five over three different surveys conducted during 2000 and 2001. NFO also reports that almost three-in-four (71%) Internet users already receive permission e-mail from online retailers announcing special offers. A March 2001 survey of Internet users by Jupiter Media Metrix found that 85% of online buyers were either very likely or somewhat more likely to return to a site after receiving an e-mail message from a retailer.

3.04 Types Of Permission E-mail Received By U.S. Internet Users
Percent of Internet users

E-tailer Special Offers Household Tips, Recipies, Crafts Humor Travel Entertainment Weather Local News Offers From Local Retailers 0% 20% 27% 40% 60% 38% 57% 55% 55% 49% 47%

71%

80%

Source: NFO World Group, 8/2001

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Online Advertising & Digital Marketing Report

3.05 E-mail Volume Of U.S. Internet Users At Home And At Work
Number of messages received per day

Users At Home 60% 42% 50% 40% 19% 30% 20% 10% 0% 5 Or Less 27% 28%

Users At Work

13%

10%

9%

10%

12%

6%

8%

2%

2%

6 To 10 11 To 15 16 To 20 21 To 30 31 To 40 41 To 50

1%

More Than 50

Source: Gallup Organization, 6/2001

The average Internet user receives 11 e-mails at home per day and 24 e-mails at work, according to a June 2001 survey by the Gallup Organization. The median number of daily e-mails received at home and at work are 8 and 12 respectively. By 2006, Jupiter Media Metrix predicts that the average Internet user will receive approximately 4,200 e-mails per year, more than 40% of which will be spam or UCE (unsolicited commercial e-mail).

3.06 How Frequently Do U.S. Internet Users Check Their E-mail
Percent of Internet users

30% 25% 20% 15% 10% 5% 0%
<1 Hour 1 to 2 Hours 3 to 4 Hours 5 to 6 Hours 7 to 8 Hours 9 to 10 11 to 15 16 to 20 Hours Hours Hours > 20 Hours

17% 13% 8% 2% 12% 11% 12% 12% 13%

Source: Gallup Organization, 6/2001

Cluttered e-mail boxes and spam have already become an issue for many Internet users. Although the largest share of users report that only 10% or less of the e-mail they receive is spam, almost 40% indicated in the Gallup survey that one-third or more of their e-mail is spam and almost one-in-five indicated that a majority of the messages they receive are spam.

The Internet Commerce Briefing | 31

2%

6%

Online Advertising & Digital Marketing Report

3.07 Proportion Of U.S. Internet Users’ E-mail That Is Spam/UCE
Percent of all e-mail received each week at home and at work

91% To 100% 1% 71% To 90% 7% 51% To 70% 10%

10% Or Less 30%

41% To 50% 10%

11% To 20% 16%

31% To 40% 11%

21% To 30% 15%
Source: Gallup Organization, 6/2001

Word of mouth is one of the most common means by which Internet users learn about new websites and it is the key to any viral marketing effort. Forrester Research estimates that 53% of Internet users learn about sites by word of mouth and Jupiter Media Metrix estimates that 45% of online consumers choose ecommerce sites based at least in part on word of mouth. Almost one-in-five (18%) Internet users use word of mouth as the primary means of learning about new sites, according to IMT Strategies. The most common reasons why Internet users forward e-mails on to others are they are either relevant to the recipient’s interests or they are considered amusing.

3.08 Reasons Internet Users Forward E-mail To Others
Percent of Internet users

Relevant Funny Work-Related Informative Cool New Technology Prize/Coupon/Reward 0% 1% 10% 20% 30% 7% 6% 4% 4% 35%

41%

40%

50%

Source: IMT Strategies, 9/2001

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Forrester Research estimates that combined expenditures for e-mail marketing and customer communications by U.S. companies exceeded $600 million during 2000. That amount is expected to grow to almost $1.3 billion during 2001 and $2.3 billion by the end of 2002. Estimates of e-mail marketing expenditures by Jupiter Media Metrix are almost identical, although the company’s forecast for 2004 is almost 10% higher, at $5.2 billion compared to Forrester’s forecast of $4.8 billion. A June 2001 research report by Aberdeen Group predicted that spending on e-mail marketing services would reach approximately $600 million in 2001, up 75% from 2000. Spending from 1999 to 2000 expanded by more than 270%, according to the company.

3.09 Total U.S. E-mail Marketing Expenditures (1999-2004)
Millions of dollars

Jupiter Media Metrix $8,000

Forrester Research

$5,200

$6,000 $3,500 $3,758

$1,300

$160

$0 1999 2000 2001 2002 2003 2004
Source: As Noted, 2000

3.10 U.S. E-mail Marketing Services Expenditures (1999-2003)
Millions of dollars

$1,500 $1,260 $1,200 $942 $900 $600 $600 $345 $300 $92 $0 1999 2000 2001 2002 2003

$156

$600

$643

$2,000

$1,291

$2,100

$2,325

$4,000

Source: Aberdeen Group, 6/2001

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$4,770

Online Advertising & Digital Marketing Report

3.11 E-mail Marketing By U.S. Small Business (2001/2003/2005)
In millions

Businesses using e-mail marketing E-mail marketing expenditures

2001 1.6mn $398mn

2003 3.7mn $1,319mn

2005 4.6mn $2,238mn

Source: Kelsey Group, 5/2001

The Kelsey Group predicts that small businesses in the U.S. will aggressively adopt e-mail marketing over the next four years. The company estimates that 11% of small businesses spent approximately $211 million on e-mail marketing during 2000. That share is expected to expand to 16% of small businesses in 2001 and 42% in 2005 when they are predicted to spend an estimated $2.2 billion on e-mail marketing.

3.12 Payment Options Supported By E-mail Marketing Networks
Percent of e-mail marketing networks

Cost Per Thousand

100%

Cost Per Click

53%

Cost Per Acquisition

38%

0%

20%

40%

60%

80%

100%

Source: Opt-in New s, 3/2001

3.13 U.S. E-mail Marketing Allocation Of Expenditures, Customer Acquisition vs. Retention
Percent of total e-mail marketing expenditures

Customer Acquisition 34%

Customer Retention 66%
Source: Forrester Research, 2000

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Online Advertising & Digital Marketing Report

Unlike banner ads and sponsorships, which are more often than not intended for brandbuilding, Opt-In News reports that the principal objective of most e-mail marketing campaigns is to acquire new customers or generate sales from existing customers. The company estimates that 71% of e-mail campaigns were designed primarily for direct response purposes versus only 16% which were designed for branding purposes. Forrester Research estimates that 34% of total e-mail marketing expenditures are allocated to new customer acquisition while 66% is allocated to customer retention and generating additional sales from existing customers.

3.14 Objectives For Opt-in E-mail Marketing Campaigns
Percent of opt-in e-mail advertisers

Customer Acquisition Service Sales Product Sales Branding Other 0% 5% 10% 20% 30% 18% 16% 23%

35%

40%

50%

Source: Opt-In New s, 8/2001

3.15 Internet User Open Rates For HTML Messages
Percent of messages received

Acquisition

39.4%

Retention

58.0%

Overall

51.0%

0%

20%

40%

60%

80%

Source: IMT Strategies, 1999

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Online Advertising & Digital Marketing Report

Substantially more than one-half (60%) of Internet users today use e-mail client software that is capable of supporting HTML e-mail, according to Jupiter Media Metrix. Opt-In News, however, reports that two-thirds of the e-mail campaigns among marketing executives it surveyed in March 2001 employed text messages. Although the open rates and click-through rates are generally higher for HTML e-mail than text messages, many Internet users at work have text-only messaging software such as Lotus Notes. In addition, IT administrators are increasingly blocking HTML e-mail and e-mail attachments to protect their systems from mail-borne viruses and other types of malicious code.

3.16 Formats Supported By Internet Users’ E-mail Clients
Percent of Internet users

Text Only 40%

HTML And Text 60%
Source: Jupiter Media Metrix, 7/2001

3.17 E-mail Format For Advertising Campaigns
Percent of e-mail advertising

HTML E-mail 34%

Text E-mail 66%

Source: Opt-in New s, 3/2001

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Online Advertising & Digital Marketing Report

Section IV.
Leading Advertisers and Brands

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Online Advertising & Digital Marketing Report

The ranks of leading online advertisers are dominated by companies from the retail, financial and entertainment sectors, according to both CMRi and AdRelevance. Online retailer Amazon.com and the eBay trading community are ranked, not surprisingly, among the top five online advertisers in terms of both impressions and expenditures during the first nine months of 2001.

4.01 Leading U.S. Online Advertisers By Expenditures
Total expenditures in dollars for online advertising

Rank 1 2 3 4 5 6 7 8 9 10

Advertiser eBay Inc. General Motors Corp. Providian Financial Corp. Amazon.com Inc. Classmates Online Inc. Barnes & Noble Inc. AOL Time Warner Inc. JP Morgan Chase & Co. BankOne Corp. Vivendi Universal

Expenditures Jan.-Sep. 2001 $35,731,219 $35,520,684 $23,581,190 $22,884,132 $21,831,884 $21,595,465 $19,242,581 $18,011,060 $17,295,526 $15,963,171

Sector Retail Automotive Financial Retail Entertainment Retail Entertainment Financial Financial Entertainment

Source: CMRi AdNetTrackUS, 9/2001

4.02 Leading U.S. Online Advertisers By Impressions
Thousands of impressions during quarter, excluding house ads

Rank 1 2 3 4 5 6 7 8 9 10

Advertiser Amazon.com Inc. Columbia House eBay Inc. BarnesandNoble.com Orbitz Classmates Online Inc. Cassava Enterprises Bertelsmann AG AOL Time Warner Inc. Providian Financial Corp.

Impressions Q3-2001 12,316,972 5,438,788 5,746,873 4,902,329 5,040,898 4,909,343 4,042,223 3,814,016 3,433,876 5,559,735

Sector Retail Entertainment Retail Retail Services Entertainment Entertainment Entertainment Entertainment Financial

Source: Jupiter Media Metrix, 10/2001

During 2000, four-in-five (79%) major U.S. companies used online advertising, up from 66% in 1999, according to the Association of National Advertisers. The average amount spent by these companies during 2000 was $2.4 million, accounting for an average 2.9% of their total advertising budgets. The association also reports that the average company increased its spending for online advertising by 24% between 1999 and 2000.

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Online Advertising & Digital Marketing Report

AdRelevance reports that Fortune 100 companies established an increasingly significant presence in online advertising between mid-2000 and mid-2001. The company estimates that 92 of the 100 have collectively advertised 199 divisions, 204 brands, and 1,223 products online since the third-quarter of 2000. The top five Fortune 100 online advertisers during the first-half of 2001 include: Impressions (Jan.-Jun. 2001) 2.2 billion 1.8 billion 1.7 billion 1.3 billion 1.2 billion

Advertiser CitiGroup, Inc. J.P. Morgan Chase & Co. Dell Computer Corp. AT&T Corp. Wal-Mart Stores, Inc.

4.03 Leading Websites By Online Advertising Revenue
Total expenditures in dollars

Rank 1 2 3 4 5 6 7 8 9 10

Advertiser Yahoo! AOL.com Excite Lycos Netscape AltaVista Webcrawler ESPN.com MSN Weather.com

Ad Revenue Jan.-Sep. 2001 $284,363,625 $252,630,839 $118,195,570 $86,341,416 $79,103,793 $66,606,230 $51,006,160 $34,755,251 $27,284,477 $26,245,144

Sector Portal Portal Portal Portal Portal Search Search Entertainment Portal News

Source: CMRi AdNetTrackUS, 12/2001

4.04 Leading Advertisers By Expenditures (All Media)
Total expenditures in dollars

Rank 1 2 3 4 5 6 7 8 9 10

Advertiser General Motors Philip Morris Procter & Gamble AOL Time Warner DaimlerChrysler Ford Motor Walt Disney Johnson & Johnson Pfizer PepsiCo

Expenditures Jan..-.Sep. 2001 Jan.-Sep. 2000 $1,570mn $2,191mn $1,161mn $1,122mn $1,097mn $976mn $927mn $718mn $681mn $600mn $592mn $1,462mn $1,172mn $980mn $1,134mn $880mn $745mn $707mn $615mn $609mn

% Change -28.4% -20.6% -4.3% 11.9% -14.0% 5.4% -3.6% -3.7% -2.3% -2.7%

Source: CMR, 12/2001

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4.05 Leading Dot.com Brands Among U.S. Decision-Makers
CoreBrand Power score for each company/brand

Company/Brand Name America Online Lycos Priceline.com Ameritrade Excite Alta Vista Earthlink Network Juno.com Mindspring Enterprises Go Network Egghead.com iVillage CDnow.com ZDnet HotBot About.com Wingspan.com

Q2-2000 CoreBrand Power Score (1) 34.8 32.1 31.7 31.2 26.7 26.5 24.0 23.0 22.2 20.4 20.0 16.6 14.9 14.8 13.5 11.7 9.5

Type of Company ISP/Content Portal E-commerce Financial Portal Search ISP ISP ISP Portal E-commerce Content E-commerce Content Search Portal Financial

(1) The CoreBrand Power score gauges how familiar and favorable a company is to key business decision-makers comprised of vice presidents or higher at the top 20% of U.S. corporations. Source: Corporate Branding, 12/2000

Among American consumers, more than 90% are familiar with the IBM and Microsoft brands, according to Forrester Research, which is significantly higher than their individual market penetration rates at 17% and 40% respectively. Similarly, Yahoo! is recognized by 86% of consumers but less than one-in-three (29%) have actually used the online portal.

4.06 Leading Technology Brands Among U.S. Consumers
Trust measured on a scale of 1 (distrust a lot) to 5 (trust a lot) and market penetration measured among all U.S. consumers

Company/Brand Name Amazon.com Apple Handspring Gateway Dell Computer IBM Palm AOL eBay Yahoo! Napster E*Trade Earthlink Microsoft MSN

Consumer Trust 4.52 4.41 4.41 4.38 4.35 4.33 4.29 4.28 4.22 4.16 4.14 4.13 4.09 4.05 4.01

Market Penetration 9% 7% 1% 10% 10% 17% 3% 18% 10% 29% 8% 2% 4% 40% 15%

Type of Company E-commerce Technology Technology Technology Technology Technology Technology ISP E-commerce Portal Entertainment Financial ISP Technology ISP

Source: Forrester Research, 2001

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Forrester also found that Internet users generally recognized more brands than offline consumers. This was especially true for online brands such as Amazon.com and Yahoo!, but also applied to brands unrelated to the Internet. For example, the brand recognition for Yahoo! was 25% higher among online consumers than among offline consumers while 12% more online consumers recognized the Sony brand, 15% more for the Motorola brand, 16% more for Mitsubishi, and 19% more for Circuit City.

4.07 Leading E-commerce Brands Among U.S. Internet Users
Percent of Internet users who recognize brand

Amazon.com BarnesandNoble.com eBay.com Gateway.com Toysrus.com Ticketmaster.com Priceline.com Bestbuy.com eToys.com CompUSA.com Dell.com JCPenney.com Landsend.com Walmart.com GAP.com CDnow.com Egghead.com KBkids.com Bluelight.com Travelocity.com Buy.com Drugstore.com Autobytel.com 30% 30% 26% 24% 73% 69% 65% 62% 61% 61% 54% 54% 52% 52% 51% 44% 44% 43% 42%

92% 86% 83% 82%

0%

20%

40%

60%

80%

100%

Source: Odyssey, 2000

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Section V.
Internet Users and Online Advertising

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Almost four-in-five (78%) online buyers prefer permission-based e-mail over all other options as the means companies should employ to communicate with them, according to an August 2001 survey by NFO WorldGroup. The NFO survey also found that: • • • • None of the respondents preferred telemarketing or in-person sales calls Eighty-eight percent had made at least one purchase in response to a permission e-mail; 80% had purchased online and 68% purchased offline Thirty-seven percent had clicked-through from an e-mail and purchased immediately at least once during 2001, up from 20% last year Respondents had made an average of 15 online purchases in the past year, spending $1,023.00; 91% had made at least one online purchase during 2001 compared to 71% the previous year

5.01 Communication Preferences Of U.S. Online Buyers
Percent of online buyers

No Preference 3% Unsolicited Email 2% Postal Mail 17%

PermissionBased E-mail 78%

Source: NFO WorldGroup, 8/2001

5.02 How U.S. Internet Users Learn About Websites
Percent of Internet users

Search Engine E-mail Message Word Of Mouth Banner Ad Print Article TV Commercial Magazine Ad Radio Ad 0% 19.8% 20% 40% 60% 53.0% 48.3% 43.2% 41.4% 37.5%

73.4% 72.8%

80%

100%

Source: Forrester Research, 3/2001

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Gartner Group reports that brand value and past experience play a significant role in Internet users’ choices about which sites they decide to patronize. The company’s research has found that 59% of online buyers typically limit their purchases to only a handful of sites that they find familiar and comfortable. If Internet users are unsure about which website to visit when shopping online, typing the desired product name into a search engine is the most frequently mentioned method for determining where to go. Search engines and e-mail are also common means of learning about new websites.

5.03 Primary Method For U.S. Internet Users To Learn About Websites
Percent of Internet users

Search Engine E-mail From A Friend Link From Another Site Newspaper Or Magazine Ad Banner Or Other Web Ad Personal Conversation Television Radio Hardcopy Catalog E-mail From A Company Direct Mail E-mail Newsletter Outdoor Ads Online Discussion Groups 4% 3% 2% 2% 2% 1% 1% 1% < 1% < 1% 0% 10% 20% 13% 12% 18%

29%

30%

40%

Source: IMT Strategies, 2000/2001

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5.04 How U.S. Internet Users Search For Products Online
Percent of Internet users

Type Product Name Into Search Engine

28%

Go Straight To Store URL

23%

Type Brand Name Into Search Engine

9%

Type Store Name Into Search Engine Go To Shopping Channel Of Search Engine

5%

5% 0% 10% 20% 30% 40% 50%

Source: Jupiter Media Metrix, 7/2001

Most online buyers do very little cross-shopping between multiple sites, according to Jupiter Media Metrix, which reports that many simply prefer to return to the same sites they have done business with in the past. More than 80% of online buyers complete their purchases at the first site they visit when shopping for books, toys or music. Shoppers interested in computer- and travel-related purchases are the most likely to visit competing sites before making a final decision. A May 2001 survey of Internet users by Knowledge Systems & Research found that more than half (56%) of Internet users go directly to a specific website when they are shopping online while only one-third (32%) typically start out at a portal or search engine.

5.05 How Online Shoppers Get To Websites
Percent of Internet users

Don't Shop Online 12%

Go Directly To Online Store 56%

Begin At Online Mall, Portal, Or Search Engine 32%
Source: Know ledge Systems & Research, 5/2001

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Internet users are more likely to notice online ads and respond to them when they are at home rather than at work, according to the Online Publishers Association. More than one-half (53%) of Internet users surveyed for the organization by Millward Brown also indicated that they were more likely to buy online from home compared to only 18% who were more likely to buy at work. Survey respondents were, however, almost three times more likely to notice business-related ads while at work than when they were online at home.

5.06 Visibility Of Online Ads Among U.S. Internet Users At Home And At Work
Percent of Internet users

More Likely At Work More Likely At Home

About The Same

Notice Online Ads Notice Ads For Consumer Products & Services Notice Ads For Business Products & Services Click On Ads

12%

65%

22%

11%

57%

32%

34%

53%

13%

12%

48%

41%

0%

20%

40%

60%

80%

100%

Source: Online Publishers Association/MBIQ Media Consumption Study, 11/2001

5.07 Elapsed Time To Conversion For Online Ads
Percent of Internet users who respond to online ads

Clickthrough-to-Conversion 11%

View-to-Conversion

0 To 29 Minutes 4%

61%

30 To 59 Minutes

9% 13% 11% 34% 11% 38% 8% 0% 10% 20% 30% 40% 50% 60% 70%

1 To 24 Hours

1 To 7 Days

8 To 30 Days

Source: AdKnow ledge, Q3-2000

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Among Internet users who click on online ads and who ultimately convert -either by registering, requesting information, or completing a purchase -- the majority (61%) take less than 30 minutes to do so, according to a Q3-2000 analysis by AdKnowledge. Almost one-in-five (19%) take one day or longer to convert after their initial click-through. AdKnowledge also found that one-third (32%) of total conversions actually entailed no click-through by users. Those individuals simply visited advertiser websites by typing in a URL or through some other method after viewing an online ad. The elapsed “view-to-conversion” time among this group of Internet users was significantly longer than among users who actually clicked on ads. Among the various online activities that Internet users engage in, Forrester Research found that individuals were most likely to click on a banner ad while they were researching a product or using a search engine. Conversely, individuals were least likely to click on a banner ad while they were reading news.

5.08 U.S. Internet Users’ Likelihood of Clicking On Banner Ads
Percent of Internet users

Activity Reading News Researching Products Shopping for Products Using a Search Engine

Extremely Likely 6% 9% 6% 6%

Likely 39% 59% 65% 81%

Unlikely 55% 35% 29% 13%

Source: Forrester Research, 2000

5.09 U.S. Consumer Attitudes About Clicking On Banner Ads
Percent of Internet users responding to question: “How likely are you to click on a banner ad…”

Likely When Researching Consumer Products

Neutral 42.4% 25.5% 31.5%

Unlikely

When Offered A Free Product

21.1% 19.7% 58.7% 26.6% 25.1% 47.7% 21.3% 17.7% 60.3% 0% 20% 40% 60% 80%

When Shown A Discount When Shopping For A Particular Product

Source: Forrester Research, 2001

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Click-through rates for online banner ads have declined steadily, from an average 0.71% in January 1999 to 0.31% in December 1999 and 0.29% during the first-half of 2000, according to Nielsen/NetRatings. Most analysts during 2000 and 2001 estimated that click-through rates changed little during that period, but their estimates of average click-through rates were significantly higher than Nielsen/NetRatings at 0.5% to 1%. AdKnowledge reports that click-through rates in the second quarter of 2000 for ads tied to specific search keywords were measurably higher than ads with Run-of-Site (ROS) placement. The results for ads with keyword placement on portal sites were more than twice that with ROS placement; on news/content sites and other non-portal sites, click-through rates with keyword placement were approximately 50% higher than with ROS placement, according to AdKnowledge.

5.10 U.S. Click-Through Rates For Banner Ads vs. Opt-in E-mail
Percent of Internet users who click on each type of ad

Banner Ads 7% 1%-2% 2.5%-10% 0.5%

Opt-in E-mail

24/7 Media

Forrester Research

Tower Group

12.5% 1% 5%-15% 1% 5%-15% 0.6% 10%-15% 1%-2% 2%-20% 2% 0% 5% 10% 15% 20% 25%

Winterberry Group Jupiter Media Metrix Aberdeen Group

FloNetwork

Source: As Noted, 2000

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The click-through rates for opt-in e-mail messages is approximately ten-times that for banner ads, according to most analysts. MindArrow reports that the average click rate for opt-in e-mail, based on an analysis from 2000, was 5.4% compared to 0.4% for banner ads and 1.5% for postal direct mail. The response rate for rich media banners was almost ten-times higher than regular banners, according to MindArrow, at an average 3.8%. Several studies, however, indicate that a high click-through rate does not automatically correlate with a high conversion or buy rate. AdKnowledge found that campaigns generating the highest click-through rates also generated the most conversions only 14% of the time; put another way, this means that more than four-outof-five times the campaign with the highest click-through rate generated a lower ultimate conversion rate than campaigns with lower click-through rates.

5.11 U.S. Click-Through Rate Comparison By Type Of Media
Percent of recipients who respond to message

10% 8% 6% 4% 2% 0.4% 0% Banner Ads Direct Mail Rich Media Banners Opt-in E-mail 1.5% 3.8% 5.4%

Source: MindArrow , 2000

Among mobile wireless Internet users, 91% indicated that they would be either somewhat or highly influenced by wireless advertisements, according to a survey conducted by WindWire in late 2000. The same survey estimated average wireless advertising response rates at 19% for click-through and 12% for callthrough. The rich graphic ad format generated the highest response rate, according to WindWire.

5.12 U.S. Wireless Advertising Response Rates By Format
Average call-/click-through rate

Rich Text

21%

Rich Graphic

24%

Interstitial

10%

0%

5%

10%

15%

20%

25%

30%

Source: WindWire, 2000

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A trial among 1,000 mobile wireless users in Boulder, Colorado by SkyGo during early 2001 experienced overall click-through rates of between 15% and 25% for wireless push ads. Three percent of the participants made a purchase as a result of viewing an ad and 7% said they would use wireless coupons at the point of purchase. Advertisers participating in the trial paid between $25-75/CPM for basic “run of service” ads and between $75-150/CPM for permission-based ads to a highly targeted opt-in audience. This does not mean, however, that companies have free reign to send unsolicited advertising to mobile wireless users. A majority of mobile wireless users surveyed by Boston Consulting Group (BCG) were not willing to accept untargeted push advertising. The same individuals, however, would be interested in personalized, user-specific offers. Almost one-half (46%) of users surveyed by Jupiter Media Metrix expressed no interest in receiving ads on their wireless phones or PDAs; 36% were interested in receiving ads in the form of subsidized content or access and 35% via subsidized devices.

5.13 Wireless Advertising Response Rates In SkyGo Service Trial
Percent of wireless ads delivered

Opened Ads

64.0%

Ads Resulted In Action/Planned Action Ads Resulted In On- Or Off-line Purchase 0%

15.0%

2.9%

20%

40%

60%

80%

Source: SkyGo, 2/2001

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The majority of Internet users both at home and at work generally believe that there is too much advertising online today. Among users at home, three-in-four find online ads annoying and 70% believe that they provide little or no useful information. Sixty percent of users at work report that few if any online ads offer anything relevant to them.

5.14 Attitudes Towards Banner Ads Among U.S. Internet Users At Home
Percent of online consumer households

Disagree

Agree 75%

Are annoying 25%

Provide essential information

30% 70%

Make it easy to find important information

45% 55%

0%

20%

40%

60%

80%

100%

Source: Valentine Radford, 3/2001

5.15 Attitudes Towards Banner Ads Among U.S. Internet Users At Work
Percent of Internet users at work

Agree
Has Too Much Advertising

Disagree 38% 62% 60% 40% 87%

Has Advertising That Is Relevant To Me Has Adertising I Remember For A Long Time

13% 20% 40% 60% 80% 100%

0%

Source: Online Publishers Association/MBIQ Media Consumption Study, 11/2001

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Although a substantial majority (87%) of Internet users dislike receiving spam or other varieties of unsolicited commercial e-mail (UCE), Gallup reports that more than one-in-ten (13%) either do not mind or actually find it interesting and useful on occasion. In the competition for most annoying practice, online “popup” ads beat out spam by almost two-to-one (65% vs. 34%), according to Gallup. Greenfield Online reports that new Internet users are generally more receptive to e-mail marketing efforts than veteran users. A majority (54%) of users who have been online for less than one year find e-mail useful for learning about new products compared to 44% of veteran users, according to Greenfield. On the flipside, a majority of veteran users (53%) think that they receive too many e-mail offers and promotions versus one-third on new users.

5.16 U.S. Internet Users’ Attitudes Towards Spam/UCE
Percent of Internet users

Hate Spam

42% 45%

Find It Annoying But Don't Hate It

Have No Strong Feelings Either Way

9%

Sometimes Find It Interesting

4%

Really Like To Receive Spam

0% 0% 10% 20% 30% 40% 50% 60%

Source: Gallup Organization, 6/2001

5.17 U.S. Internet Users’ Attitudes Towards E-mail Marketing
Percent of online consumer households
Users Online More Than Four Years Users Online Less Than One Year E-mail is a great way to find out about new products or promotions I receive too many e-mail offers and promotions I wish it were easier to unregister from email offers I delete most e-mail ads without reading them I often buy things advertised to me through email

44% 54% 53% 33% 45% 31% 39% 21% 15% 18% 0% 20% 40% 60% 80%

Source: Greenfield Online, 8/2000

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Among online consumers, 60% prefer HTML e-mail over text e-mail and 80% like to receive rich media e-mail, according to Valentine Radford. Many of the individuals who enjoy rich media, however, prefer that e-mails provide links to the content rather than embed it into the message itself. The delivery frequency preferences of opt-in e-mail recipients are divided fairly evenly with 30% interested in receiving messages several times per week, 31% interested in once per week and 34% desiring delivery only twice per month or less frequently. Among the different delivery options, once per week was the most popular, with 31% of recipients specifying that option.

5.18 U.S. Internet Users’ Attitudes Towards Rich E-mail
Percent of online consumers

Disagree

Agree 80%

Enjoy rich media email

20%

Prefer HTML e-mail over text

60% 40%

Prefer receiving a link to rich media

72% 28%

0%

20%

40%

60%

80%

100%

Source: Valentine Radford, 3/2001

5.19 Internet User Preferences For Permission E-mail Volume
Percent of opt-in e-mail subscribers

Daily Couple Times A Week Once A Week Every Other Week Once A Month Less Than Once A Month Don't Know 0% 6% 5% 10%

12% 18% 31% 10% 18%

20%

30%

40%

50%

Source: NFO Interactive/FloNetw ork, 2000

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5.20 Online Activities Of U.S. Internet Users vs. eCoupon Users
Percent of Internet users in each group

All Internet Users

E-coupon Users 94% 78% 59%

Have Shopped Online

Have Purchased Online Have Purchased Offline After Shopping Online Have Clicked On Web Ads Have Purchased An Item After Seeing Online Ad Find Banner Ads Helpful

42% 67% 48% 68% 49% 16% 11% 46% 39% 0% 20% 40% 60% 80% 100%

Source: CyberDialogue, 5/2001

Coupon offers are among the most effective types of website promotions for generating sales, according to an August 2001 survey by Performics. The survey of web publishers who sell online advertising found that only “dollar off” promotions were more effective, while coupons edged out even free shipping, and percent-off and free gift with purchase promotions. CyberDialogue estimates that almost one-in-five (18%) adult Internet users downloaded an eCoupon during the first quarter of 2001. A Fall 2000 estimate by NPD Group was that 27% of Internet users had downloaded an eCoupon at least once. Among current eCoupon users, CyberDialogue reports that they are more likely than the average Internet user to have shopped online and are significantly more likely to click-through on online ads and purchase products or services online.

5.21 Household Income Of U.S. Coupon Users
As a percent of each group
Adult Internet Users 33% 38% 29% E-coupon Users 32% 41% 27% Offline Coupon Users 49% 32% 19%

Household Income Less than $40,000 $40,000 to $74,999 More than $75,000

Source: CyberDialogue, FSI Council of N. America, 2001 from eMarketer

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The use of eCoupons is most common in shopping for groceries, followed in a distant second and third place by books and health-related products, according to NPD. The company estimates that the highest redemption rates for eCoupons, however, are for toys, music, and books, where 80% or more of coupons are ultimately redeemed. NPD reports that overall redemption rates for eCoupons are much higher than for coupons related to mailorder catalogs. In many product categories, eCoupons are redeemed at rates comparable to those for retail stores, although the specific rates within each category can vary significantly between the two channels.

5.22 eCoupon Use Among U.S. Internet Users By Category
Percent of eCoupon users

Groceries Books Health Music Beauty Fast Food Toys Apparel Electronics Restaurant 0% 10% 17% 16% 14% 14% 13% 13% 20% 30% 40% 50% 32% 30% 26%

59%

60%

70%

Source: NPD Group, 2000

5.23 Redemption Of eCoupons By Category And Retail Channel
Percent of coupons redeemed within each category

Item Apparel Beauty Books Electronics Fast Food Groceries Health Music Restaurant Toys

Online 39% 58% 83% 60% -4% 55% 80% 2% 87%

Catalog 2% 1% 1% 1% ---1% 14% --

Retail Store 45% 29% 4% 23% 96% 94% 42% 4% 81% 12%

Phone 1% 11% ---------

Other 13% 1% 12% 16% 4% 2% 2% 15% 2% 1%

Source: NPD Group, 2000

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5.24 U.S. Online Consumer Preferences For Coupon Delivery
Percent of online consumers

E-mail 55%

. Snail Mail 16%

Newspapers 29%

Source: Valentine Radford, 3/2001

The majority (55%) of coupon users who are also online now prefer to receive coupons via e-mail, according to Valentine Radford. Only 29% prefer to clip their coupons from newspapers and only 16% prefer to receive them through the mail. Companies should nevertheless exercise restraint, however, inasmuch as a substantial majority of online consumers prefer to receive eCoupons via e-mail only occasionally. Less than one-in-four (22%) indicated an interest in receiving them often or very often.

5.25 How Frequently U.S. Consumers Wish To Receive Coupons Via E-mail
Percent of online consumers

60% 50% 40% 30% 20% 10% 0% Very Often Often Sometimes Seldom Never 9% 13% 35% 28% 16%

Source: Valentine Radford, 3/2001

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Online ads which contain rich media -- such as audio or video -- are, not surprisingly, more visible than conventional banner ads, according to Arbitron. This may be due at least in part to the novelty of such ads which are still fairly rare. Data from Arbitron also indicates that Internet users with broadband access are somewhat more likely than dial-up users to have seen an online ad with streaming audio and were almost twice as likely to have seen a streaming video commercial.

5.26 Visibility Of Online Ads By Format
Percent of Internet users who frequently/sometimes pay attention

60% 52% 50% 40% 40% 30% 20% 10% 0% Banner Ads Audio Ads Video Ads
Source: Arbitron, 2/2001

46%

5.27 User Recognition Of Streaming Commercials
Percent of Internet users

Broadband Users

Dial-up Users

Heard A Commercial Online

30% 38%

Seen A Commercial Online

14% 27%

0%

10%

20%

30%

40%

50%

60%

Source: Arbitron, 7/2001

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Appendix
Data Sources

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The charts, tables, and other data provided in this report are all sourced from published, publicly-available information produced by the following organizations:
ActivMedia Research www. activmediaresearch.com Accenture www.ac.com ACNielsen www.acnielsen.com Advertising.com www.advertising.com The Arbitron Company www.arbitron.com Arthur Andersen www.arthurandersen.com Bank of Tokyo-Mitsubishi www.btmny.com BIGresearch www.bigresearch.com Bizmetric Inc. www.bizmetric.com BizRate.com www.bizrate.com The Boston Consulting Group www.bcg.com Cahners InStat Group www.instat.com CMRi www.cmr.com Cognitiative Inc. www.cognitiative.com comScore Networks www.comscore.com Consumer Electronics Association (CEA) www.techhome.org Content Intelligence www.contentintelligence.com Cultural Access Group www.accesscag.com CyberDialogue, Inc. www.cyberdialogue.com eMarketer, Inc. www.emarketer.com Employment Policy Foundation www.epf.org Ernst & Young LLP www.ey.com eTForecasts www.etforecasts.com Forrester Research www.forrester.com The Gallup Organization www.gallup.com Gartner Group, Inc./GartnerG2 www.gartner.com Global Reach www.glreach.com Goldman Sachs Group, Inc. www.gs.com Gomez Advisors Inc. www.gomez.com Greenfield Online, Inc. www.greenfieldonline.com Harris Interactive Inc. www.harrisinteractive.com Insight Express www.insightexpress.com International Data Corp. (IDC) www.idcresearch.com Internet Advertising Bureau (IAB) www.iab.net Jupiter Media Metrix www.jup.com Paul Kagan Associates, Inc. www.kagan.com Kinetic Strategies www.kineticstrategies.com Knowledge Systems & Research www.ksrinc.com KPMG International www.kpmg.com Mediamark Research www.mediamark.com Morgan Stanley Dean Witter www.msdw.com Myers Reports www.myers.com National Retail Federation (NRF) www.nrf.com NetValue www.netvalue.com NextCard Inc. www.nextcard.com Nielsen/NetRatings Inc. www.netratings.com The NPD Group Inc. www.npd.com Odyssey L.P. www.odysseylp.com Online Publishers Association www.online-publishers.org Ovum www.ovum.com Performics Inc. www.performics.com

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Pew Research Center www.pewinternet.org J.D. Power & Associates www.jdpa.com PriceWaterhouseCoopers www.pwcglobal.com Rasmussen Research Inc. www.portraitofamerica.com Roper Starch Worldwide Inc. www.roper.com Scarborough Research www.scarborough.com Taylor Nelson Sofres and TNS Intersearch www.tnsofres.com UCLA Internet Project www.ccp.ucla.edu

Universal McCann www.mccan.com U.S. Census Bureau www.census.gov Valentine Radford, Inc. www.valrad.com Veronis Suhler www.veronissuhler.com Visa USA www.visa.com Vividence Corp. www.vividence.com The Yankee Group www.yankeegroup.com Zona Research www.zonaresearch.com

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