Even before the dot-com implosion left online publishers desperate for ad dollars, advertising on the Web was becoming a difficult sell. The early promise of the medium seemed to wither on the vine as click-through rates plummeted to a dismal average of between 0.3 percent and 0.5 percent. Now, with the recent economic downturn stretching ad budgets thin, online ad space has become a buyer's market, and many publishers find themselves having to accept unfavorable cost-per-action (CPA) deals, as opposed to the more traditional cost-per-thousand-impressions (CPM) arrangements, in order to survive.

[an error occurred while processing this directive]

In response to that pressure, the ad industry began trotting out figures showing that Internet advertising works as well--and in much the same way--as advertisements in traditional media such as print, radio, and television. New studies suggest that online ads not only promote direct response (namely, click-throughs) but also brand awareness. A report commissioned by the Interactive Advertising Bureau (IAB), for example, showed that consumers' immediate brand recognition was increased by exposure to banner ads by a factor of 2 to 7 percent. A Morgan Stanley report released in February put the figures even higher. DoubleClick and MSN released studies with similar results.

Taken together, the upshot of the data was clear: banners work even when consumers don't click them. Furthermore, the effectiveness of ads was greatly impacted by such elements as size and format. Not surprisingly, large banners proved more effective than smaller ones, and dynamic ads, such as those using Flash animations, outperformed their static counterparts.

Following those findings, more effective online ad models have gained acceptance over the past year even as innovative firms design ever more radical forms of placement. While browser add-ons such as Gator and eZula further complicate the market, ad sellers must both prove the worth of their ad products and gauge what level of invasiveness and distraction users are willing to tolerate. We will review the principal new approaches and their relative effectiveness.