10 The Internet Ads Up Having been burned, big advertisers learn that the web really does work.
By Fred Vogelstein

(FORTUNE Magazine) – Wenda Harris Millard, Yahoo's advertising chief, remembers all too clearly selling online ads after the Internet bubble burst. It is an experience she does not wish to repeat. Major advertisers that had spent billions with Yahoo and other Internet sites when times were good almost completely stopped writing checks. The medium didn't work, they said. Banner ads had about the same response rate as direct mail, but cost more. And all the promises about being able to use Internet ads to track what consumers buy and why turned out to be just that: promises.

Yet today, Millard says she can barely keep up with demand. Advertising space on Yahoo's auto and movie pages is sold out for 2004, and Yahoo's profits, which are still largely advertising driven, have sextupled in the past year. "If you looked at a list of Yahoo's top 200 advertisers right now, you would swear you were looking at an ad list for Vanity Fair or FORTUNE," she says. She's not alone. Virtually every site with a big audience--like MSN and ESPN.com--is seeing a surge in advertiser interest. Analysts predict roughly 20% growth in ad spending both this year and next, vs. single-digit growth for ads in other media.

How did online advertising regain its cool? Google helped by proving it could make millions by running simple, relevant ads alongside every search. Advertisers have also noticed that big chunks of their audience are trading their remotes for their keyboards--and that the technology is finally available to reach them. With broadband Internet soon to be in 50% of American homes, sites like ESPN, ABC, and Disney can offer advertisers the ability to simply take commercials produced for TV and rerun them with little loss in quality. When Ford launched its new F150 pickup last fall, it not only bought TV and print ads but also ran a so-called "roadblock"--a day of online ads that take over the home pages of Yahoo, AOL, and MSN for a few seconds on the screen of every new visitor.

Still, companies like Procter & Gamble, the world's largest TV and print advertiser, have yet to announce big online campaigns. And online ad spending still accounts for only about 3% of the $250 billion ad business. Yet the anecdotal evidence is mounting. McDonald's announced in 2003 that it planned to spend less money on TV ads and more online. Frito Lay announced that instead of spending money on Super Bowl ads for Doritos, it would develop an online ad campaign. "As with a lot of things related to the Internet," says Greg Stuart, president of the Internet Advertising Bureau, "we all got ahead of ourselves in the beginning." Now it's showtime. --F.V.