Past Wanamaker's Law: rising spend in online advertising

'Half the money I spend on advertising is wasted; the trouble is I don't know which half'

Everyone in the advertising industry is familiar with department store mogul John Wanamaker's famously pithy saying. For years it held true as a rule of thumb. Let's call it Wanamaker's Law of Advertising: half of every advertising dollar you spend is wasted.

It's easy to imagine Wanamaker worrying to himself. 'If I spend a thousand dollars on advertising, five hundred is as good as thrown away. But if I spend nothing my business will suffer from a lack of exposure. What on earth should I do?' If only he had lived 100 years later, he would have had no such dilemma.

Not all laws last forever. In Wanamaker's day, a former patent clerk proposed a theory that would sweep away Newton's laws of mechanics, which for over 200 years, had seemed unassailable. And now, at the start of the 21st century, digital marketing techniques such as pay-per-click contextual advertising are doing to Wanamaker's Law what Einstein's quantum theory did to Newton's. In the online world, you can tell exactly which half of your advertising spend is wasted. And you can drop it.

The success of online advertising is immediately quantifiable. Unlike with traditional advertising you don't need months of costly surveys and focus groups to tell you if your advertising dollar was well spent. You can check the results for yourself online, in real-time. This presents a challenge to media owners and advertising developers working in the online world. For the first time in history, they are offering an advertising channel that is fully accountable.

It accountability means online advertising is market-driven, more so than any other channel. And the market is growing. According to IDC, in 2001, online advertising accounted for 10 percent of advertising expenditure in Asia-Pacific. In 2004, that rose to 17 percent. By 2006, it is expected to reach 27 percent. Driven in part by this increase in online advertising. Google's profits for the last quarter of 2004 rose by an incredible 650 percent compared to the same period in 2003 (from US$27 million to $210 million).

There are several reasons for this growth. One is the realisation that online advertising is a very cost-effective way to pinpoint and reach consumers. The fact that you can choose to pay only when your ad is clicked on, and have your ad associated with relevant content or keywords, means advertisers can eliminate a huge amount of wastage.

When we first started out in 1997, it was a real job to persuade one of our clients, Carlsberg Malaysia, to spend just 0.04 percent of its annual marketing budget online. Now online advertising is a key part of most major advertisers' strategies. That's good news for us, and it's good news for advertisers, who can now more accurately judge the effectiveness of their campaigns. And somewhere, John Wanamaker is celebrating the death of the law that caused him so much worry.

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