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Bassackwards!

These figures did not startle me. But unlike the overly bubbly ad executive, I was still dismayed. Why? Because money may be flowing bassackwards, away from top performing online ad tactics to those which are simply better understood by the traditional advertising field.

At the core of what makes Internet advertising and marketing great is total and complete budget control. Each and every day, professional Internet marketing people are driving at two simple numbers: how to drive up online conversions, and drive down marketing and advertising costs, a.k.a. performance advertising or performance marketing.

The fact that paid search and rich media are accelerating proves that those in charge of budget aren't necessarily adopting a performance model. Here are the problems with both:

Paid Search
Paid search - where you bid against others for higher placement within the so-called "sponsored links" at the major search engines - should be used only for two specific reasons. First and foremost, companies should invest in paid listings only until their natural listings have matured and can replace paid listings. With all of these new dollars flowing to paid search, prices for keywords are inflating at a rapid pace. Listings which once cost $0.10 per click can now run over a dollar and much higher.

Secondly, and in only very select cases, keyword buys can have a positive branding effect, meaning that if your business' name appears in both the natural and paid listings, research is beginning to emerge that that level of visibility can have a positive impact on your brand. Be wary, however, that this approach is only cost-effective for a select few of your major keyword phrases -- not your entire keyword portfolio.

Price inflation at the major search engines is being driven higher not necessarily by your competitors, rather by their agencies, for which paid search looks and feels like traditional advertising. But increasingly the metrics for paid search won't add up. Cost-per-click and overall cost-per-lead figures will continue to rise exponentially for paid search, while natural search costs will remain relatively flat -- and competitive -- when compared to paid search. The problem is that natural search doesn't look or feel anything like advertising. In fact, it kind of looks like technology. And technology is an area where the traditional advertising field continues to struggle integrating into its service mix.

Rich Media
There is certainly a growing place at the advertising table for rich media. Loosely defined, rich media is online advertising which incorporates multi-media in its presentation, such as streaming video, interactive forms, and Flash. Used properly - where the visitor receives a highly interactive and entertaining experience - rich media will prove to be highly successful. However, the interpretation of rich media as "your TV spots on the web" profoundly misses the mark. The Internet is not the new television. The Internet may become the new and improved television; however, how it's supported by advertising will change fundamentally. Good "display" advertising on the web will require a significantly more creative use of three-dimensional, user-driven, behaviorally sensitive media tied directly to measurable user behaviors and actions. This layer of immediate customer response will become increasingly necessary as advertising clients become more savvy to their return on advertising spend (ROAS, in accounting terms) requirements.

The very truth of the matter is that money is flowing to paid search and rich media simply because it looks like the traditional ad business. Paid search and "TV on the web" rich media also complement the ad business' financial models, where surcharges on top of media and search clicks are de rigeur rather than performance standards or straight management and creative retainers. The price inflation we're beginning to experience in online advertising will not support the standard agency fee surcharges.

Folks, the old financial models of advertising fly in the face of near-future realities. Just as end-consumers are ahead of most businesses in terms of their demand for web content and functionality, the traditional ad field is even farther behind. Ad budgets are heading into a new era -- permanently --where they're going to be held accountable to a level higher of direct performance than ever before. It's going to be terribly disruptive to the traditional advertising model. As it should be.