Standard Issues

Almost from the day the first banner blinked across the computer screen, the ad industry and Web site publishers have discussed—without success—creating a standard procedure for buying space on the Internet. This year may be different.

The dot-com debacle, which saw the disappearance of thousands of Web sites and e-jobs, shook the smugness out of new media executives and created a climate in which real progress can finally be made in producing a viable online media business policy.

As one Web site executive put it, “In the early days, we had a reputation for being totally rigid, and that has changed.”

But while the boom was on, sellers said their new medium did not need to conform to traditional media business practices. That meant they didn’t allow clients to cancel a buy if a strategy changed. They wouldn’t inform advertisers of site redesigns, significant or otherwise.

Plus, sellers didn’t want to hear about sequential liability—the ad industry policy that most traditional media adhere to, formally or informally. Simply stated, in the event of unpaid media bills, the agency pays if it has been compensated by the client for the buy. If not, the client is liable for the money.

The buyers said it was inefficient to have different standards for the same process—whether it was purchasing online, TV or radio time. It made no sense to them to cut separate deals for every online buy.

And the stakes just kept getting higher: This year, Jupiter Research predicts $7.3 billion will be spent on online media, about 4 percent of total U.S. ad expenditures.

Five years from now, those figures will balloon to $16.5 billion and 8 percent, respectively.

Since neither side budged, there hasn’t been a standard operating procedure for online media buying. Although some agencies—mostly larger ones with the most clout—have managed to get Web sites to do business more or less conventionally.

“This is still a fairly inefficient medium to buy and sell,” admits Lynn Bolger, CEO of Fastbridge Initiative Media’s digital division. “For individual planners, buyers and sellers to have to haggle over contract terms for every $20,000 media buy is insane.”

“It took more time to negotiate terms than make the buys themselves,” agrees Sharon Katz, vice president, director of media for Modem Media, Norwalk, Conn., which still has been able to get more than 300 contracts signed with Web sites on business practices.

The good news is that both sides may be willing to come to an agreement. 2001 could be the year a standard for online media buying that satisfies everybody—more or less—finally comes to fruition. And that’s because the new media has learned some old lessons the hard way.

The American Association of Advertising Agencies is expected to release its first policy guidelines on Internet media buying practices next week. It does so with the endorsement of the New Media Coalition and the Aspen Group, both of which are interactive agency associations.

Since publishers haven’t seen the 4A’s document yet, they chose not to comment. Rich LeFurgy, chairman of the Internet Advertising Bureau and a partner at Walden VC in San Francisco, however, says, “Publishers have been working on what we call a standard insertion order since the end of 1988.

“We have been in direct conversations with the 4A’s and the Association of National Advertisers on these terms, and we’ve agreed to disagree. Everybody has the same goal: The industry is looking for a way to negotiate on important things, not on standard business practices,” LeFurgy says.

E-giants like America Online and Yahoo! have softened their policies in recent months and cut deals that include business provisions mirroring the standard contracts agencies forge with traditional media—with some tweaking. It’s telling that both of those mega-players have created agency relations departments in the past year.

One of the more notable examples is a recent deal struck by Lexus agency Team One in El Segundo, Calif., with Yahoo! In it, the publisher agreed to terms that are conventional in other media but difficult to get Web sites to sign. It is unknown if Yahoo! has negotiated a similar arrangement with any other company.

Team One secured the Web site’s agreement to provide a standard 30-day written notification cancellation clause; to bill the agency for media activity at the end of each month (rather than pre-bill at the beginning of a campaign, as has been the rule online); and the option to cancel any media buy in the event of a site redesign, which was not provided in the past.

“Those are the basic terms you have to agree on [with Web sites] before you talk about anything else,” says Bonnie Chan, Team One communications director. “We’ve gotten agreement from [the 20-plus other sites the agency buys.]”

Still, Chan admits getting any of the Web sites she buys to agree to sequential liability remains a thorny issue—and getting publishers to accept the ad industry’s policy on liability is job one, says Mike Donahue, executive vice president at the 4A’s.

“That’s the most significant agreement,” Donahue says. “Until probably the past four or five months, we had a seller’s market. Publishers were reluctant to accept sequential liability because from a market-cap standpoint, it’s important for them to be able to say that no matter what happens, we can get the money.”

“Sequential liability has been our pain,” agrees Katz. “Agencies have gone under because of that issue. We feel strongly about it and will not cave.” In fact, Modem has created a document that is signed by the client, agency and publisher in which the client acknowledges that Modem is the agent on their behalf, and they are liable if media bills are unpaid. “It’s why we have so many contracts signed,” she says.

Of course, this is more of a problem with shaky dot-com clients than large, traditional advertisers. But any proposed set of guidelines from the agency “has to have some flexibility because you have to protect yourself,” says one Web publisher. “I don’t think the 4A’s will be so rigid [as to refuse to provide that flexibility.]”

Another sticking point that will require more negotiation is the role of third-party interests, i.e., ad server data, in the buying process. This subject will be addressed by the 4A’s in a document that will follow the release of the guidelines later this quarter.

Sites feel that the third-party data from Media Metrix and others deliver lower numbers than their own, often audited, research. Agencies are more comfortable with a “neutral” supplier of results data.

To Susan Schiekofer, New York media director for Ogilvy One, which spends in excess of $250 million buying space for its clients on more than 500 Web sites, the question of which data is used to measure results from a Web site buy is the critical piece of the puzzle.

“It’s the hardest element because sites have their own counting methodologies, and we have ours,” says Schiekofer. “The most push-back we get on this issue is from the top sites and a lot of the very small tech sites. They want to use their own numbers, but [standardizing counting methodology through third-party sources] is a condition of doing business with us.”

So while the prospects for some sort of formal online media buying policy agreement is good, so is the potential for an acceptance to disagree. And more issues loom on the horizon for both buyers and sellers.

“The things that have been tough but don’t pose a risk from a legal perspective are impressions and those types of issues, which are relatively straightforward,” concludes Christopher Todd, an analyst with Jupiter Research.

“Where it’s going to get tricky is as the medium evolves and new ad units come on. And as the tools that measure online branding come to the forefront, publishers will want to derive revenue from the branding effects that online ads achieves—something advertisers haven’t had to pay for or consider up to this point,” Todd says.

Finally, as with everything Web, buying policy is a moving target. “Standards that hold true for Web-based advertising may not hold true for instant messaging, email or wireless applications,” says Todd. “By the time we really get something flushed out, it will need to be reworked to keep up with the evolving technology.” Duncan Smith/Photo Disc