Commercial Success

The paradox is that even as broadcast TV's ratings have fallen dramatically, its ad rates keep going up, and that means TV's so-called CPMs, the cost to reach 1,000 viewers, have soared. Advertisers kept paying up because they lacked alternatives. Says Nick Donatiello, who consults for media companies for Odyssey, a market researcher: "These advertisers are like drug addicts: As ads are less effective, they have to buy more and more to get the same fix."

The Internet's coming of age may be the knockout punch to TV. In a recent study by the Annenberg School of the University of Southern California, 37.5% of Internet users said that they watch less TV now. The more experienced you are at using the Internet, the more hours per week you'll spend online -- the average jumps from 7 hours per week for the newly wired to 17 hours per week for experienced Webheads -- and the more likely you'll cut back on your TV viewing, the study found. At the same time, digital have-nots tend to be older, or say they can't afford computers or don't know how to use them. Network TV is becoming the refuge of people without options.

Meanwhile, the rise of high-speed connections is making the Net much more compelling to consumers and advertisers alike: 2004 marked the first time that broadband Internet penetrated more than half of all online U.S. homes. Broadband opens up the possibilities for "rich media" -- flashier ads enlivened by video, audio, animation, and greater interactivity. That penetration puts high-speed Internet pretty much where TV was back in the 1950s: at a crucial turning point that will make the Web a very powerful ad medium. And now that advertisers are terrified that TiVo-style devices will quickly spread to most homes so viewers can easily zap every 30-second commercial, they're finally starting to take the Internet seriously.

It's about time. Millard likes to point out that the Internet accounts for 14% of the minutes Americans aged 12 to 64 spend consuming all forms of media -- a share that's still rising -- compared with just 7% for newspapers and magazines combined. But the Internet receives only 3% of the overall ad dollars, she says. Inevitably, the dollars will follow the eyeballs. "You have these facts staring you in the face as a marketer," Millard says. "This is where your audience is, and you need to reach them."

Madison Avenue has always been slow to change: It took 25 years for the ad dollars to catch up to the eyeballs watching broadcast TV. For cable, it took 15 years. But thanks partly to Yahoo's energetic evangelism for the new medium, the Internet will probably reach that milestone much faster. Online ad spending has been rising at a 30% rate, while both network TV and overall ad spending are maxed out at single-digit growth.

Yahoo's front page draws about 25 million visitors a day, and it has become a powerful tool for launching new product lines, such as Coke's C2 and Ford's F-150. Buying a so-called takeover or roadblock -- all the ad space on the front page for 24 hours -- now costs an estimated $650,000 to $1 million, and the ad will be seen by more consumers than the typical daily audience of the Today show. And roadblocking Yahoo, MSN, and AOL all on the same day, as Coke and Pepsi have both done, can produce "an astonishing, astronomical amount of reach," says Mohan Renganathan of MediaVest Worldwide, one of the biggest services for buying ad space. The mass market didn't actually vanish; it simply moved.

The numbers may have been moving in its direction, but Yahoo had to change radically before it was in a position to persuade Madison Avenue to change radically.

The press and the public always loved Yahoo, but the ad business didn't. Like many Silicon Valley startups, Yahoo had an arrogant edge. Heady with the idea of creating a new order, Yahoo and the other Web kids were condescending to the grown-ups of the old establishment. They got away with it, says Gregory Coleman, Yahoo's executive VP for global ad sales, because "the fish were jumping into the boat."

When the bubble burst, many Madison Avenue types openly gloated, relieved that the media business might not have to change much after all. They could still create the same old 30-second TV commercials that won industry awards and brought them huge billings rather than have to learn how to promote brands through an unfamiliar new medium. Internet advertising fell from a peak of $8.1 billion in 2000 to $6 billion in 2002, and it looked doomed.