As with many of us who have spent our entire careers on the Internet, I have a bit of media establishment envy. Don’t get me wrong, I love the Internet; I’ve spent the past 10 years analyzing the Web and continue to believe the future is in truly interactive media. Sentiment aside, for the most part Internet professionals have spent much of our careers at the proverbial kids’ table. For far too long the Internet has been relegated to the “experimental” or “emerging media” categories.

Recent developments indicate the Internet is being taken more seriously. Case in point: NBC and Fox joining forces to create Hulu, if for no other reason than to solidify their participation in the increasingly important and transformative online video market. Google reaping ad-driven revenues that were once reserved only for the wilder fantasies of those working in print classifieds. Apple reshaping the entire music industry through innovation of the playback device, distribution and consumer experience. And the latest example of Facebook, transforming the way people congregate, communicate and navigate the Web today.

If the Internet has truly “arrived” and is being taken seriously, why have we not yet seen significant brand advertising dollars follow? Maybe it’s because we’re in the midst of one of the worst global recessions in history. Perhaps it’s because online creative units tend to replicate the print experience instead of redefining the consumer experience. Most likely is that the online ad industry has decided to remain independent—we speak our own, at times arcane, language; we use our own effectiveness measures reinforcing the belief that the Internet is a direct response media; and, we have yet to provide easy methods to help advertisers understand the role of the Internet in the entire marketing mix. In effect, we have made our lives, and potential livelihoods, very difficult.

The good news is there is hope. As a medium the Internet is quite the contender (and brand dollars are beginning to shift its way). To continue growing, the online ad world must take a hard look at itself as part of a broader, media industry-wide context and, as one prominent TV client put to me, “grow up.” The Internet does not exist in a vacuum and we’ve moved past the days when it is practical to operate like it does. Leading marketers look at media from a holistic perspective to reach today’s increasingly connected consumers. So too must anyone participating in the ad industry.

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Recently, a client and I were discussing online advertising metrics, with topics ranging from engagement to awareness to intent, and of course, Return on Investment. It wasn’t until after the meeting when it struck me that not once did click through rates enter into the conversation. My hope is that this, and other similar conversations, is a signal that the online ad world is moving beyond its longtime fascination with the click through — the low-hanging (and sometimes over-ripe) fruit of online ad metrics.

Toward the goal of helping the industry move beyond the click through myopia that had historically characterized online ad measurement, I pulled together some analysis that is pretty interesting.

At Nielsen, we’ve done extensive work, particularly in the consumer packaged goods and retail industries, to help advertisers quantify the effect that online display advertising has on offline purchases. The results are quite positive. Looking at more than 300 campaigns over a span of about 5 years, using the basic formula below, we find the average ROI is a positive 157 percent.

What’s the bottom line for those watching their bottom line? Display advertising — particularly targeted advertising — works.

OK, But What About Those Clicks?
In an effort to measure the relationship between click through rates and ROI, we ran an analysis across 200 of those campaigns. The table below summarizes our findings. On the X-axis we’ve plotted ROI percent percent and on the Y- axis we’ve plotted click through rate.

If there were a relationship between the two metrics, we’d expect to see a grouping of red dots with an up/rightward inclination (the more clicks, the better the ROI). Instead, what we see is something more like a blob or a swarm. For you quantitative thinkers, the correlation between the two metrics is a negative .07, meaning that there is no relationship whatsoever between the two metrics. More to the point: across the campaigns measured, click through rate was in no way predictive of a campaigns’ overall effectiveness.

Beyond the obvious finding that advertisers should not be overly focused on click through rates, the big idea here is that advertisers should be including online display advertising in their overall marketing mix, increasingly taking advantage of flash/video ad units to reach the consumer, without the hope that the person exposed to the ad will be one of the few that actually click on ads.

Does this mean that display advertising works as well as it could? No, it does not. The online advertising medium is still immature. Great Don Draper-like story- tellers have not yet had their Kodak Carousel moments. While metrics don’t make great creative, in the long run, a focus on the right metrics will ensure that the creative that we consider great creative actually makes money for advertisers.

“Click through” to the comments to add your thoughts.

Jon Gibs, Vice President, Media Analytics, The Nielsen Company

SUMMARY: Why do advertisers still debate the value of online advertising? Because no precise measure of online audience delivery exists. The missing factor? Who—as in who is viewing your ads, not just how many ads were served. Does online advertising deliver the target audience? With current evaluation methods, it’s difficult to tell. What’s needed is a shift in metrics for audience targeting from impressions to dwell time, increasing the cost per thousand in the process.

Because of their simplicity, we in media research tend to overlook the core principles of successful advertising. These principles can be reduced to three basic questions:

• How many?
• Who?
• Did it work?

“How many?” is the volume of ads, using measures like impressions, gross rating points and the like. “Who?” is the targeted audience, whatever parameters are selected to define the desired population like age, income, education and household size. “Did it work?” is the effectiveness of the campaign. Did it change the thinking or behavior of viewers? Did it increase brand awareness? Did it drive purchase? The online advertising industry is very good at measuring “how many?” in the form of ad serving reports. We have also developed multiple models around “did it work?”, from branding studies to offline sales impact. We, however, have spent little time on the second question, “who?” The irony is that this question—the demographics of those people exposed to the ad campaign—is at the core of ad delivery reporting in almost all other media.

The missing link
Measures of demographic delivery are critical for every other form of media buying. The Internet, however, skipped over this link in the media value chain. Online publishers have spent a decade trying to answer the question “Does online advertising work?” The problem is, that’s the wrong question. This question has driven advertisers to focus on direct response metrics, such as click through, or short term brand lift, without any consideration of the long-term branding impacts on the advertisers’ targets.

The right question is “who does the advertising reach?” This is the question asked of almost all other media, where there is an understanding that a great deal of the impact of the advertising is related to the creative, rather than the media placement. To get to the answer of “who”, the industry needs to develop a standardized, robust, post-buy reporting structure to help keep the targeters on target, and prove from end-to-end, the value of Internet advertising.

Targeting for today
Targeting in the Internet world refers to any form of online advertising that is not run-of-site, run- of-network or content section-specific. I would argue that even contextual, content section specific ads are targeted. One of the great advantages of online advertising is that, unlike traditional media, targeting happens on the execution side, not just in planning. For online or mobile media, the first step in a campaign mirrors traditional media. Marketers determine a schedule of web sites, portals or ad networks that will deliver the desired audience.

The big difference: online media buyers can also buy actual audience segments based on elements like geo-coded inventory through a reverse IP look-up, modeled segmentation based on cookie or panel data, offline sales data, registered user data and a host of other possibilities. As this form of targeting grows in popularity, conventional census-based delivery reports become less useful as many only show raw server counts of impressions—rather than highlighting the ability of publishers to deliver on their promised targets.

Says who?
Another issue with actual online results is that they tend toward unreliable self-reporting. While reports cover impressions, they tend to skirt the issue of targeting accuracy. Some chalk it up to the fact that audience delivery metrics aren’t sexy, while a more cynical group asserts that it has more to do with not wanting agencies or publishers to look bad if results fall short.

Yet another opinion points to the fact that measurement firms have only recently started to produce post-buy reports. Since each research company uses a slightly different methodology, it is impossible to compare results across campaigns and vendors. Also, in many cases, these reports can’t be generated for some forms of behavioral targeting without the client revealing proprietary information.

Prime examples
Examples of online measurement at work for a mobile phone manufacturer include one case using household income as a segmentation criterion, the other using age as a criterion. In the first scenario, the company wanted to market a low-cost smart phone to middle income households in the $50,000–$75,000 per-year range.

According to a Nielsen analysis, the campaign failed badly. Only about 25% of advertising reached the targeted households. Even more disheartening, the supposedly targeted campaign impacted 9% fewer target audience members than a more general run-of-network buy. Three out of four ad dollars were wasted on other segments.

Killer app
In a second example, the mobile phone manufacturer was rolling out its new killer app—an iPhone substitute designed for young adults ages 18–24 primarily, and 25–34 secondarily. Results were better in this case, albeit mixed.

The good news: the campaign over-indexed significantly among the two targeted age groups, 56% more for the primary audience and 25% more for the secondary audience than a random campaign would deliver. The bad news: 62% of impressions accrued to consumers age 35+, outside of the preferred demographic. Although disappointing, it makes sense given the age distribution of the U.S. and online populations which skew older.

Timing is everything
Although ad impression counts traditionally have been the currency of the Internet, there is reason to believe that this accounting method itself had led to the decline of online advertising CPMs. Since publishers are paid on the number of ads served, many have created cluttered environments that increase inventory levels beyond demand—therefore driving down CPMs.

This decline in CPMs is made up by serving more ads and therefore, continuing to decrease the value of any individual ad unit. This cycle creates a financial situation where publishers are disincentivized in the short-term to provide a good advertising environment because they need to create more clutter. This clutter does not simply decreases CPMs, but also advertising effectiveness and therefore, the value of the media overall to advertisers.

In essence, because the Internet is the first medium with truly unlimited inventory potential (i.e., one can cut pages into tiny bits and there is no significant cost of delivery), an impression-based ad model has driven publishers to look for short-term gains at the expense of the long-term health of the industry.

So, what is the answer? When it comes to online advertising, time is the x-factor. Most research suggests that the longer a person is exposed to an ad, the more effective it will be—up to the point of diminishing returns. Perhaps the future of post-buy reporting—and online advertising—has more to do with time than impressions or page views.

The reason for this is that time is the only equalizing measure between the three core groups of online content—video, social media and standard content. Rather than simply counting the number of impressions served, the appropriate measure becomes the “dwell time” (time spent) on a page or with an impression. Using this method, we are also able to reduce inventory (and perhaps drive up CPMs) by saying that impressions that only have a “dwell time” above certain levels are actually counted as true impressions.

Time vs. frequency
A time-based post-buy measure rewards sites that surround advertising with a robust contextual environment, encouraging audience “dwelling.” As the graph illustrates, Site 3 provides a big bang for the buck on a per-target basis, generating fewer but much longer impressions, effectively increasing the value of each impression to the advertiser.

Conversely, Site 4 pursues an outdated approach of ramping up the number of impressions with much shorter exposure times, decreasing the value of each impression. As the value of each impression goes up, so should the CPM.

The way forward
If the Internet is to improve CPMs—and perhaps save the overall advertising market from its fate—we must focus on time-based post reporting. The post reporting itself provides brand advertisers with what they really need and understanding if their ads reach the audience they seek. The time element rewards those sites that limit their inventory by adding a financial incentive to create a good environment for advertising and also links inventory measures to a counting method that should produce more effective advertising overall.

Now that’s something to dwell on.

According to the Nielsen Annual Real Estate Market Report, home shoppers are spending 4.5 hours a week on real estate web sites, with specialist web sites such as realesate.co.nz and trademeproperty.co.nz accounting for almost three of those hours each week.  Another 110 minutes was spent on search engines while 106 hours was spent on the sites of individual real estate agents.  The trend to turn to the Internet shows no signs of abating: real estate web site traffic in May 2009 was up 19 percent over the same month on 2008.

“The increased research taking place online is perhaps showing us that property buyers are getting a large amount of their information needs ticked off via the web before using other media options or physically going to see the property itself,” said Tony Boyte, Research Director of Nielsen New Zealand’s online division.

The Nielsen Annual Real Estate Market Report is based on a site-intercept survey on New Zealand real estate web sites conducted in May and June with a sample size of 1,206 respondents.

“Display advertising is expected to substantially expand in India as Internet penetration accelerates as well as the lower costs involved in advertising online.  It is an industry that has seen rapid growth in the past couple of years and has the potential to give traditional forms of advertising a run for their money,” said Karthik Nagarajan, Associate Director, Online Division at Nielsen.

Top Five Sectors in Online Advertising, June-August 2009

“Facebook is an increasingly vital link between consumers and brands.  We will now be able to add deep knowledge of this important social network to our unmatched media measurement and consumer insight across all three screens.  Together, we will be able to provide the missing elements to clients seeking better understanding of how Web content and online advertising affect consumer behavior,” said John Burbank, CEO of Nielsen’s online division. [Watch the Advertising Week keynote from Facebook COO Sheryl Sandberg featuring comments from John Burbank.]

The alliance comes at an important crossroads.  As with most advertising, online spend was down, but only 2 percent on a year-over-year basis.  At the same time, however, advertising on the top social network and blogging sites increased by 119 percent.

Read the full press release.

Our global trust in advertising survey illustrated that the online ad industry has a lot of work to do when it comes to reaching the levels of trust consumers already have in traditional media ads.Aside from brand Web sites (trusted by 70 percent of online consumers globally) e-mails, sponsored search links, video ads, banner ads and mobile text ads are at the bottom of the trust league. Of course, traditional media advertising forms have been around much longer and, consequently, consumers have had more time to become familiar with these formats, while advertisers and publishers have had more time to come up with the right ad models.

Online is still an embryo compared to these other advertising life forms. It has grown so rapidly that the industry has struggled to come up with a suitable model in these early days. The spam industry has practically killed any chance of e-mail marketing becoming the effective method it really should be. Pop-up ads, and the insane experiments to make it as tricky as possible for consumers to close them, have in fact helped to create negative perceptions surrounding display advertising. Add to this, the irrelevance and inaccuracies of many sponsored link ads when it comes to locating exactly what you’re looking for, and it’s easy to see why online, to a degree, has shot itself in its embryonic foot.

However, can the Web actually become the saviour of the global advertising industry? Trust in almost all forms of advertising is up. Is it possible that the explosion of social media and the ensuing trust in consumer opinions online is forcing advertisers to use a more realistic form of messaging grounded in the experience of consumers rather than lofty ideals of advertisers?

We’ll see, but at the moment I’ll be more interested in what you think of these points…

To address this, we’re working closely with our clients to develop ways in which display advertising is served so that it becomes a more effective medium for brand advertisers and a more trusted form of advertising in the mind of consumers. Here’s hoping that when we next run the survey, online ad formats are closer to the top of the trust league.

The report, released this month, found many consumers were still looking, but just not buying during the first four months of the year. However, 12 percent of the U.S. population said they will probably or definitely buy a new car or truck during the next six months, per the 250,000 U.S. adults that make up the Nielsen MegaPanel. That was up slightly from 10 percent in the spring.

Continue reading at Brandweek.

Last week I was on a great panel at DPACIII on the changing nature of online adverting. There were a lot of good case studies on what has worked up to this point. There were some interesting points both from friends and competitors (and those who are both) about the role of creative executions in the effectiveness process. I chose to spend my time a bit differently; I think this post on the digiday blog sums it up: Online Advertising is Broken.