I published an article in the Harvard Business Review this month, summarizing some of the work comScore has been doing with clients to evaluate the effectiveness of online advertising. As with most things in business, the return on investment is what drives future plans, especially advertising plans. One of the benefits of our two million person online panel is the ability to match our panelists with clients’ sales databases to measure the purchases that people exposed to online advertising make in bricks and mortar stores. The results of these studies help quantify the ROI from the online advertising. The studies demonstrate consistently positive results showing that online display ads work to build traffic to an advertiser’s website, to increase sales on their website, and to increase sales through their in-store channels.

Use this link to read full article. A summary chart of the findings runs below.

Results from 18 studies in the finance, travel, telecommunications, and retail sectors collectively show that online ads have a powerful effect on off-line sales. Running search ads tends to be more effective than using display ads, and combining both types is more effective still. From the Harvard Business Review, April 2008.

The Advertising Research Foundation’s 54th Annual Meeting and Convention just concluded in New York City. This was a watershed event, with over 700 paid attendees sharing presentations over three days. The organization is made up of advertisers, their agencies and media planning partners, the media, and market research companies. At the meeting, companies demonstrated their latest, most innovative media offerings, creative product, use of media and sharing their research tools and studies advancing the measurement of ad creative, media, advertising effectiveness, and customer feedback.

I call it a watershed event because so much of the focus of the event was on digital advertising and social communication on the web. A year ago, digital media much less on everyone’s tongues. comScore, as a platinum sponsor of the event, presented a special session called “Online is the New Primetime,” documenting the immense size of the online audience and its development as an advertising medium. Despite the fact that consumers spend at least 17% of their media time online, online advertising only accounts for 7% of advertising spending. We shared work we have done with our clients to demonstrate the results they are getting from online display and search advertising—some uniformly impressive results.

We posed the question that given the huge audience and proven effectiveness of online marketing efforts, “Why are some advertisers so slow to adopt online ads?” We turned to a panel of advertising experts from Yahoo!, Google, MSN, P&G, CBS Interactive, and Mediaedge:cia to discuss the reasons. Those comments will be the subject of future blogposts. Here I would like to share some of the most interesting data on the audience size and invite you to a replay of the webcast that was broadcast on April 16. Click here for the replay.

Television is still the pervasive medium and the bedrock of most major brand advertising plans. Network television generates large reach numbers (not as large as a few years ago, but the most of any medium per exposure) and high engagement. However, the Internet has risen to be the second or third highest cumulative reach medium, depending on the source of the numbers.

One striking finding presented in our session was that during most waking hours, more people (age 15+) are using the Internet than are watching television. It is only for the last two hours of primetime and into late night, when most people seem to wind down their Internet usage, that TV consistently surpasses Internet usage. We presented the following chart which shows the hour-by-hour comparison of Internet and television usage.

Sources: National People Meter Sample, comScore

Another analysis that was part of the presentation was one prepared by our CEO, Magid Abraham that quantifies the impact of the Internet as an advertising medium compared to television. Based on our tracking of online ads compared to an estimate of the number of ads run on television and average TV ratings, it appears that the Internet delivers forty percent more gross rating points than TV in the course of a month and 120 percent more impressions. It was surprising, even to us, the heavier advertising delivery of the Internet versus TV.

Source: comScore estimates

If you would like to get a copy of the slide deck from the “Online is the New Primetime” presentation, please click here. For a replay of the webcast, please click here.

What's in a name? That which we call a rose by any other name would smell as sweet
  - William Shakespeare, 1594

When I first joined the media industry a few years ago, the big buzz was around “converging media.” What began as a vision of a brave new world in which magazines would be mobile (imagine that!) and toasters would read out the morning headlines, was quickly hijacked as a fashionable euphemism for the migration of content online. The Internet it was feared, would become something of a “threat” to traditional media…the big black hole in the corner swallowing up everything and anything that it could.

And so we come to the present day. And a world in which 57% of the U.K.’s total population is watching videos online…a world in which the BBC, the godfather of the “traditional television” industry as we have come to think of it today, is beginning to build upon an already formidable online presence, with the launch of the BBC iPlayer. Significantly, the broadcaster has just signed a deal that will allow this service to be accessed through the Nintendo Wii – that’s the BBC, being broadcast over the Internet, soon to be appearing on your TV screen.

According to comScore Video Metrix, which was launched outside the U.S. this month, over 5 million people watched over 2 million hours worth of video content on BBC Sites in December. This audience accounted for just over 10% of the total U.K. country population and (just for the record) 15% of the total U.K. online population – which of course, is an ever decreasing void. What I like about this statistic is that the iPlayer wasn’t even officially launched until Christmas, so expect to see these numbers rise even further over the course of 2008, especially given that the iPlayer brings with it full length BBC shows!

And when you consider that the iPlayer is still a U.K. specific product, in a company that derives around 60% of its online traffic from overseas –- the potential for the iPlayer is – to go a little bit “TV drama” on you for this one – monumental! Let’s also not forget, that unlike the traditional publically funded model that the BBC runs on in the U.K., overseas the company is allowed to sell online advertising, and it does so, very successfully.

But what this all really symbolizes is the change in attitude that the industry has privately been undergoing for some time now. While the spotlight was focused on social networking in 2007, online TV was quietly making its mark. And while all that was going on, data from my U.S. comScore colleagues recently showed that the Internet now delivers 40% more Gross Ratings Points of advertising than television. The fact that the CPM’s are so much lower on the Internet is what holds down the total advertising dollars spent online.

Being able to increase CPMs for online advertising might just be the catalyst that turns these two households’ rancor to pure love, because if television broadcasters can demonstrate that they can create even more ROI for advertisers by delivering their programming content online, then a marriage between these two mediums makes for an irresistible development. If that happens, we could soon find ourselves living in a world that asks: Is this Internet television? Or television online? But in the end, what’s in a name?

Many investors are breathing a sigh of relief after Google announced earnings on Thursday beating the consensus street estimates. In recent months, investors have become understandably concerned that the decline in U.S. consumers’ spending could translate into a cutback in online advertising, an industry many thought would be immune from an economic downturn. And with the dearth of public information available on Google’s key revenue drivers, the market turned much of its attention to comScore’s paid click report to help understand what might be going on with one of the key determinants of Google’s revenue.

comScore reported that Google’s U.S. paid clicks in Q1 were up 2% vs. year ago, and down 9% vs. Q4 ’07. During the earnings call, Google noted a 20% increase in aggregate paid clicks vs. year ago and a 4% sequential gain.

Why the discrepancy, you may ask?

As is always the case, we need an apples-to-apple comparison. comScore’s paid click report refers to domestic paid search clicks only, while Google’s “aggregate paid clicks” refers to global search and also includes affiliate site ads (i.e. AdSense). Two fundamental components of Google’s reported number – international clicks and AdSense clicks – are not currently included in the comScore report.

Google reported Q1 ‘08 revenue growth of 7% vs. Q4 ’07, with international revenue up approximately 14% and domestic growth (excluding the DoubleClick acquisition) essentially flat. If we take Google’s overall revenue growth of 7% and their reported 4% increase in aggregate paid clicks, we can estimate that the average cost-per-click (CPC) increase during the quarter was approximately 3%.

Now, if domestic paid click revenue was flat while CPC was up 3%, we can conclude that aggregate domestic paid clicks declined about 3% during the quarter. This brings us a lot closer to our estimated 9% decline in paid clicks. The remaining delta can likely be partially explained by strong revenue growth from Google’s YouTube and the Adsense network. In fact, comScore’s U.S. Video Metrix numbers show YouTube is up ~20% vs. Q4 in terms of video views.

comScore has always cautioned that there are multiple factors that needed to be considered when projecting Google’s earnings this quarter. In a February blog post on the subject, comScore CEO Dr. Magid Abraham and SVP James Lamberti concluded “There is no obvious reason why the economy would negatively impact" Google’s paid clicks, based on our analysis of the paid click activity at other search engines.

Moreover, when asked by the Wall Street Journal’s Kevin Delaney on Wednesday – one day before Google reported -- what our paid click data might indicate for Google, Dr. Abraham said he believed that comScore’s paid click data were consistent with 5-10% revenue growth. In retrospect, the prediction proved to be quite accurate.

In summary, a closer analysis of the Google results confirms that: 1) U.S. paid clicks have indeed softened, 2) that the softening is not due to the economy, and 3) Google’s overall revenue performance was driven by strong international growth and CPC increases. comScore has been consistent in its assessment that U.S. paid clicks alone would not tell the full story without considering CPC increases, that macroeconomic factors did not appear to be weighing on Google, and that Google might well have solid revenue growth in Q1.

Background

We have received numerous inquiries about the paid click data released by Google on 4/17/08. Some inquiries focused on reconciliation: How could comScore and Google figures be seemingly so different? Others, recognizing that comScore’s data reflected domestic paid clicks only, questioned why we release data that only partially represent Google’s global business. Others asked about our plans for offering our own analysis and training on the proper usage of our data. Our answers to these questions are provided below.

Summary

The main difference between the paid clicks trends reported by Google and comScore can be traced to the fact that the comScore paid click data cited in financial analysts’ reports (and subsequently reported by the media) are U.S. data only. Analysts’ efforts to use comScore’s domestic data to estimate Google’s global trends were misguided. In fact, a detailed analysis by comScore of the global paid click data publicly reported by Google indicates that Google’s U.S. trends are:

1) Weaker than their global trends, but
2) Are consistent with comScore’s U.S. paid click data

It also needs to be noted that comScore does not currently provide a measurement of global paid click data and has never claimed that its U.S. data can be used to “predict” global trends. In fact, in late February, comScore posted on its blog a warning of the potential misuse of its U.S. paid click if used to predict Google’s first quarter global financial results. Unfortunately, despite this, many in the financial community and in the media have chosen to do otherwise.

A) Making the Right Comparisons
To do a fair and accurate comparison, it is first important to understand the differences between the comScore and Google paid click metrics. Google’s publicly reported “aggregate paid clicks” refers to global paid clicks that come from search on owned and operated sites and partner sites, as well as paid clicks that come from the Google Content Network (O&O + AdSense). On the other hand, comScore’s paid click report currently refers to domestic paid search clicks only. The following table summarizes the differences:

To reconcile the two data sets, it’s clear that we need to do a comparison based on U.S. trends only and try to make the comparison as “apples to apples” as possible. While comScore is working hard to develop a measurement of AdSense paid clicks, at present we only report on paid search clicks and try to get as close as we can to the definition of what Google reports. When we include U.S. paid clicks for AOL and Ask in the comScore data, the trends in Google’s paid clicks change as follows:

To get to a comparable U.S.-only figure based on Google’s publicly reported data we started with Google’s reported U.S. revenues and adjusted for CPC price increases. While Google reported Q1 ‘08 total revenue growth of 7% vs. Q4 ’07, international revenue was up approximately 14% and domestic growth (excluding the DoubleClick acquisition) was flat. Based on Google’s publicly reported data, one can conclude that Google’s CPC prices increased by 18% Y/Y and 3% Q/Q. The following table provides a trend summary:

Unfortunately, this is as close as we can get to an apple to apple comparison based on Google’s publicly reported data. We cannot, at present, make adjustments for paid clicks on the Google Content Network (AdSense, Gmail, etc.) and search partner sites other than Ask and AOL. Nevertheless, the differences between the comScore and Google data have narrowed considerably and are directionally the same:

This contrasts with what an inexperienced comparison would, at first glance, believe to be a large difference:

B) Key Takeaways

Quantitatively, we have shown that when we compare the comScore and Google data on a consistent basis the differences in the trends of Google’s U.S. paid clicks are small. But, one might ask: what about qualitative analysis? Did comScore’s interpretation of its own data accurately anticipate the key conclusions from Google’s actual first quarter results? We believe the answer is a resounding “Yes”. While many in the media and the financial community had originally interpreted the comScore U.S. paid click data to foretell a negative impact from the U.S. economy and a disappointing Google first quarter, comScore’s own diagnosis can now be seen to have been remarkably accurate. comScore’s analysis, originally posted on the comScore Voices blog and dated February 29, 2008, asserted:

• Google’s growth in U.S. paid clicks has decelerated.
• The softening in Google’s U.S. paid clicks was not driven by the economy:
  “While we do not claim that these concerns are unwarranted, we believe a careful analysis of our search data does not lend them direct support.“
• The key driver was Google’s own quality improvement efforts:
  “The evidence suggests that the softness in Google’s paid click metrics is primarily a result of Google’s own quality initiatives that result in a reduction in the number of paid listings and, therefore, the opportunity for paid clicks to occur.”
• CPC’s are likely to increase due to the reduction of sponsored ad supply:
  “The reduced supply, as well as the higher minimum bids, contributes to an increase in the price per paid click, which is what helps counteract the slowdown in the absolute number of paid clicks. Therefore, Google’s revenue will not necessarily suffer from this.”
• Google’s first quarter revenues will likely be strong despite the sequential decline in paid clicks:
  “It is entirely possible, if not likely, that the improved revenue yield will continue to deliver strong revenue growth in the first quarter.”

It is ironic that this blog posting was criticized by some readers when it was first published. It seems that too much attention was myopically focused on just one data point, the trend in Google’s U.S. paid search clicks, an admittedly important metric, but one which quantifies just a single element of a multifaceted revenue equation. This was accentuated by the coincidence of two major changes that were happening in parallel and which can also have had a negative impact: 1) The deteriorating U.S. economy stoked fears of a slowdown in online advertising that was previously assumed by some to be immune to an economic downturn, and 2) Google’s own advertising quality efforts negatively impacted paid clicks – just as a poor economy might have. In statistics, they call it collinearity. It always wreaks havoc with data analysis!

Regardless of who took what position, there are important lessons for us. While comScore’s first priorities are to provide our clients with the highest quality data and unparalleled innovation in measurement, it’s clear that we can also do a better job of explaining the meaning and the limitations of the statistics we publish, not only to the financial community but also to the media. comScore’s data has become so widely used by so many different constituencies that it is incumbent on us to do this.

In addition, we will continue to strive to become the first company to provide the desired and more complete picture of the global search market, beyond that obtained from U.S. paid search clicks, by providing international estimates and reporting of contextual ad clicks. We have been working on this challenge ever since we released qSearch 2.0 last August, when we became the first and only company to measure worldwide search queries. Though we are getting close to measuring paid versus algorithmic clicks globally, the effort has been no easy task. Nevertheless, we should all remember that paid click data provide only part of the picture when trying to understand and forecast search revenues. For example, in the comScore database we currently have no way to directly measure CPC prices, which are necessary to accurately translate paid clicks into revenues. While we believe that many of the financial analysts using our data understand this, we should all be mindful that the primary uses of comScore’s data are for marketing and media analysis purposes, where being able to accurately measure Internet users’ online behavior is the key objective. We know we do that with excellence. That said, the commentators who pointed out that other data points need to be added to comScore’s data so as to paint Wall Street’s optimal financial picture, got it right. We agree, and have never pretended otherwise.