Web Advertising Was Highly Overrated

Since everyone assumed that consumers would flock to the Web and spend hours every day looking at Web sites, it made sense to clutter their computer screens with advertisements. A large percentage of the dot com business plans included advertising as an important revenue source. This was significant not only for the “portal” sites, such as Yahoo! and America Online, but also for thousands of other sites, such as those of the New York Times and the Washington Post and Women.com. Most of these sites had no other source of revenue. At first, advertising agencies placed substantial amounts of their clients’ ads on the Web, hoping for success. When few people seemed to be responding to the ads, the idea was, “It is early yet. As people get used to the Web, the sales will follow.” The sales did follow in a few areas (books, travel, and financial services), but even there, the profits were meager. The response rates to banner ads dropped from 2 percent to tiny fractions of 1 percent.

After the crash, most major corporations drastically reduced their advertising on the Web. The banners tended to be quick-decision, low-budget operations. Gone were the shopping arcades and many consumer product ads. Why? Because they didn’t work as well as mass media ads.