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Online Auctions as Advertising Revenue in the Media Mix

Ginger Rosenkrans

Pepperdine University

Abstract

Online auctions hosted by newspapers to enhance the media mix are relatively new compared to other models of online advertising. This study examined the Ventura County Star newspaper's open-cry, "going-going-gone" deadline, 12-day local online auctions for seven months. During these same months, the Ventura County Star deployed online banner ads. This research study investigated the effectiveness of the Ventura County Star newspaper's local online auction format by the advertising revenue generated from local auctions for seven months compared to concurrent revenue generated from online banner ads during the same time frame. In addition, it examined local online auctions' page impressions to investigate how much traffic was increased to the site. Based on the metrics provided by Netgravity software, findings demonstrated that local online auctions' revenue surpassed banner ad revenue and traffic was increased to the site.

Introduction

The Internet has evolved into an essential medium for businesses and advertisers since some of the first online ads began to appear on Web sites in 1994 (Adams 1995; Hyland 1998; Reed 1999). Online advertising revenue totaled $2.3 billion in the first quarter of 2004, which was the highest quarterly total on record since PricewaterhouseCoopers and the Internet Advertising Bureau began tracking revenues in 1996 (Internet Advertising Bureau 2004).

According to Jupiter Research, online advertising spending will climb to $19 billion per year by 2010; a 41% increase (Mucha 2005). Online advertising is increasingly becoming a part of the media mix for many companies. Advertisers across all media posted surges in their online advertising presence since 2002, and a slate of media companies reported large growth in advertising revenue during 2003 (Booker 2004; Martin and Ryan 2003). Internet advertising revenue reached $7.3 billion in 2003 (Booker 2004; Internet Advertising Bureau 2003). In a research study conducted by Millward Brown, 56% of 300 senior-level marketing executives said their marketing and media budgets increased in 2004, and 60% of them expected further increases in 2005 (Emarketer 2004).

The number of online users and technological innovations are fueling the growth of Internet advertising spending (Shen 2002). About 62% of Americans go online to access the Web or send and receive e-mail; up from 54% in 2000 (Pew Research 2002). Jupiter forecasts that the online population will swell to 194 million users by the end of 2005, which is an increase from 104 million users in 1999 (Jupiter Communications 2000). This represents a North American online presence of 68% in 2005, which is an increase from 38% in 1998. With 68% of the North American population online in 2005 (Internet World Stats 2005), the Internet is an attractive medium for advertisers who want to diversify their advertising spending. Technological innovations have also made the Internet an attractive medium for advertisers (Jupiter Communications 2000; Shen 2002).

As an advertising medium, the Internet offers the elements of other media and much more. Banner ads can include not only graphics and texts, but also streaming video and audio (Shen 2002). Rich media technologies, such as Flash, Shockwave, and Java, can be used to deliver dynamic and interactive banner ads. Such interactive and personalization technologies have made the Internet an effective and accountable medium with unlimited creativity.

Banner ads are still the dominant type of Internet advertising (Internet Retailer 2002; Li, Daugherty, and Biocca 2002). The most popular ad format deployed on Web sites during April 2003 was the full banner ad format (i.e., 468x60), capturing 33% of all ad formats (Nielsen Netratings 2003). Banner ad impressions increased 39% to 32.9 billion in January 2002 from 23.6 billion in April 2001 (Internet Retailer 2002). In addition to banner ads, deploying online auctions is an area of Internet advertising that has increased in interest. According to Forrester Research, online auctions will grow to $54.3 billion in 2007 (Johnson, Delhagen, and Dash 2002). In a Nielsen Netratings and Harris Interactive Report, 6.2 million online purchases were made at auction sites in 2001, up from 5.1 million purchases in May 2000 (Business Wire 2001). Nielsen Netratings reports that auctions are the third largest e-commerce category in the number of purchases trailing books and apparel (Business Wire 2001).

Online auctions are emerging as a recognized type of Internet advertising that has the potential to increase revenue for newspapers' online presence (Goodman 2003). The newspaper industry has gained momentum in its online sector. For example, advertising revenues for the second quarter of 2003 at the New York Time's online edition, New York Times Digital (NYTD), were $21.6 million (Morrissey 2003). This was a 22% increase compared to the same quarter in 2002. Knight Ridder, which publishes 31 newspapers, reported revenues of $19.3 million--a 36% increase in the second quarter. Similarly, Tribune Co., which owns the Los Angeles Times and the Chicago Tribune, stated its online revenues were up 15%. Moreover, local newspaper chains are showing growth in online revenues (Morrissey 2003; Zollman 2003).

According to Hays Goodman (2003), associate editor of The International Journal of Newspaper and Technology, newspapers that host local online auctions provide another sales channel and an opportunity to increase advertising revenue. Newspapers that host local online auctions as a method to generate revenue, however, are at their infancy. That is, until February 6, 2002, when CityXpress, a developer of revenue-generating solutions for media companies, introduced an auction program designed to support print and online auctions by newspapers for local retailers (Canada News Wire 2003). Its program was one of the first online auction models employed to generate new advertising revenue for newspapers.

Online auctions have not been studied to the extent that other areas of the Internet have been investigated (Becherer and Halstead 2004; Gilkeson and Reynolds 2003). Popular media provide most online auction information, and little empirical research appears in academic literature (Becherer and Halstead 2004). Although online auctions represent one of many online advertising models, it is a growing sector that warrants further research (Becherer and Halstead 2004; Wang 2002). Strategies used by online sellers of different sizes (e.g., large and small retail companies) and in various industries should be examined. The newspaper industry has only begun using online auctions as part of the media mix (Canada News Wire 2003). In an effort to examine online auctions used by newspapers, this research investigated the effectiveness of the Ventura County Star newspaper's online arm deploying local online auctions as part of its media mix to enhance advertising revenue. This research investigated the effectiveness of the Ventura County Star newspaper's local online auction format by the advertising revenue generated from local auctions for seven months compared to concurrent revenue generated from online banner ads during the same time frame. This research investigated the effectiveness of online auctions as part of the media mix for newspapers.

Research questions regarding one newspaper's strategy for using online auctions are proposed. This study was designed to address the following research questions:

RQ1: Does Ventura County Star's local online auction format increase advertising revenue?
RQ2: Does Ventura County Star's local online auction format bring in more advertising revenue than banner advertising revenue during the same time period?
RQ3: Do the Ventura County Star's online auctions generate traffic to its Web site?

Review of Literature

Overview of Auctions and Online Auction Activity

Most business transactions are conducted through a posted price, a negotiation process, or an auction (Pinker, Seidmann, and Vakrat 2001). Traditionally, auctions have been commonly applied to sell unique and unusual items, such as art or celebrities' property (Wang 2002). With the Internet, auctions have entered the online medium to sell commodities ranging from low-price CDs to expensive real estate. Some of the earliest online auctions began in 1995 with Onsale and eBay launching their online auction sites (Pinker, Seidmann, and Vakrat 2001). Presently, there are hundreds of Web sites dedicated to online auctions. In addition, the Pew Internet and American Life Project reported that 22% of Internet users have participated in online auctions as of December 2002 (Madden 2003). This reflected an 85% growth from 13 million users who participated in online auctions as of March 2000, to 24 million users who participated in online auctions as of December 2002.

Compared to face-to-face selling and negotiating methods, online auctions are efficient (Wang 2002). The philosophy behind auctions is to allow the consumers to determine the true value for the product. Bidders believe that they can accurately evaluate the items they bid on and auctioneers believe they can receive the highest winning bids for the items they sell. Additionally, online auctions are valuable for selling merchandise based on effective pricing methods (Klein and O'Keefe 1999). According to a report from Forrester Research, it is expected that more than 80% of global trade will be conducted online and auctions will account for 25% of all online sales (Tung, Gopal, and Whinston 2003). The online auction is a relatively new business model and phenomenon for the Internet and researchers are still searching for new strategies that can facilitate online auctions (Pinker, Seidmann, and Vakrat 2001; Shneiderman 2000; Wang 2002).

Auction Types

Online auctions are characterized in two ways: third party auction sellers (e.g., Amazon.com, eBay) that auction products and services for others, and direct auction sellers that deploy their own online auctions through their corporate Web site (Becherer and Halstead 2004). Most online auctions are a blend of many categories or types. Beam and Segev (1998) analyzed 100 Business-to-Consumer (B2C) and Consumer-to-Consumer (C2C) online auctions using different search engines, while Lucking-Reiley (2000) analyzed 142 B2C and C2C auctions selected in a similar way. Both studies discovered that the formats or classifications of online auctions are limited and traditional.

There are four basic online auctions: Open-Cry (English), Dutch, Sealed-Bid First Price, and Vickrey (second price) (Beam and Segev 1998; Becherer and Halstead 2004; Lucking-Reiley 2000; Wang 2002). In open-cry auctions, bidding starts with an open price and proceeds to higher bids until no bidder is willing to increase the bid. This format is advantageous to sellers because products and services can be unloaded for the highest possible price point. Dutch auctions are descending-price auctions. Bidding begins at a high price and is progressively lowered until a buyer takes the offer. This auction format is useful for determining the prices bidders would be willing to pay for a product or service. The Sealed-Bid First Price is an auction where a bid is sealed and hidden from other bidders. The highest bidder wins the bid and pays the exact amount of the final bid. In Vickrey auctions, the winner pays the price equal to the second highest bid, or the highest unsuccessful bid. Generally, the Open-Cry (English) auction is the dominant type of online auction.

An emerging B2C distribution channel is known as a Yankee auction, which has its roots in the English auction (Bapna et al. 2002). This type of auction sells multiple identical units of a good to multiple bidders using an ascending and open auction mechanism. The auction is progressive; however, each new bid does not have to be greater than the previous bid because there are multiple units available. The set of winning bids consists of the top N bids, where N is the number of units up for auction. Either the new bid has to be equal to the minimum bid among the winning bids or it has to be equal to the minimum winning bid plus a pre-specified minimum bid increment. When consumers have bid for the entire lot size, a new bid will have to be greater than the smallest winning bid. Then, the winner with the smallest winning bid is replaced by the new bid. If many offers are equal and at the minimum winning bid level, a time priority is applied to determine the bid to be displaced when a new and higher offer is received. The last bid at the minimum winning bid level is the first to leave the auction winner's list. This process continues until the auction closes. The auction terminates after or on the pre-announced closing time. The winning bidders pay the amount they last bid to win the auction. Some of the central factors that auctioneers can control in Yankee auctions are the bid increment, the auction duration, and the lot size.

The bid increment is a significant factor in explaining variations of auction revenue. For example, at the final stage of the auction, usually two bidding levels are apparent (Bapna et al. 2002). Either all bids, at a minimum, would be at the lower level or all bidders are at the higher level. The difference between the two bid levels is equal to the bid increment. From an auctioneer's perspective the greater number of bidders at the higher bid level, the greater the revenue.

Auction Intermediaries

An auction intermediary or host performs many functions. They communicate supply and demand orders, transform orders into transactions, and provide liquidity for the market (Pinker, Seidmann, and Vakrat 2001). Additionally, intermediaries provide the infrastructure to conduct the auction online and they serve as a trusted third party that will not manipulate the auctions to anyone's advantage. For example, CityXpress sets up local newspapers to serve as a host/intermediary auction site for local suppliers and bidders (Zollman 2003). By choosing a local newspaper's online arm with an online auction component, suppliers are using a trusted, credible source and are directly marketing to its local consumers. A local newspaper's online site that serves as an auction intermediary opens its site to others, which increases revenue by collecting fees from sellers and increasing the liquidity of the market for its own auction.

eBay is one example of an auction intermediary that has substantial revenue. During the fourth quarter of 2002, eBay generated $47.6 million (Goldsborough 2002). It has two fees that it charges sellers: (1) an insertion fee and (2) a final value fee (Elab 2000). The basic insertion fee runs $0.25 to $2.00 and depends on the value of the product. Additionally, an insertion can be bold faced for $2.00, run in a category-featured auction for $9.95, or run in a featured auction for $49.95. The final value fee is a commission on the final price of the item auctioned. It includes 5% of the amount at the close of the auction up to $25, 2.5% of the bid at auction close from $25.01 to $1,000, and 1.25% of the balance of current high bids greater than $1,000.01. If there are no bids, then the seller is not charged a final value fee. ebay's advertising strategy includes banner ads at portals and alliances with other Web sites to increase its brand equity.

Auctions as a Marketing Tool

There are many benefits of using online auctions to sell products or services. For example, a company can use an online auction as a marketing tool (Pinker, Seidmann, and Vakrat 2001). An auction can generate traffic to the company's main Web site as well as build brand recognition. A site's traffic is measured using impressions, which are an estimate of how many pages are served in a specific time period (Bhat, Bevans, and Sengupta 2002). They are a good indicator of a Web page's exposure. Online auctions that sell hard-to-get items like the latest technology gadget or an exotic vacation travel package can be used to attract traffic to a site (Pinker, Seidmann, and Vakrat 2001).

As online auctions become more prevalent, a differentiation strategy is important. Brand equity, which is how people feel and think about a brand relative to its competition over time, can be created through online auctions by executing a clear brand positioning strategy while building strong brand customer relationships. For bidders, online auctions represent interactivity that often allows them more control over price and an increased level of learning about a product category, a company's products, or services (Becherer and Halstead 2004).

Revenue Generated from Online Auction Duration

Online auctions tend to last longer than face-to-face auctions (Pinker, Seidmann, and Vakrat 2001). Internet auctions can last days or weeks. Bidders are not required to be present and can bid from almost anywhere; therefore, it is practical to conduct online auctions over longer periods of time. The duration of an online auction, however, determines the number of bidders, which ultimately affect the financial outcome.

One of the reasons companies launch their own online auctions is to increase sales and revenue (Becherer and Halstead 2004). The potential for the online auction host site's revenue is substantial. Traditional auctions begin with a fixed number of bidders and once the auction starts, new bidders cannot join (Pinker, Seidmann, and Vakrat 2001). Internet auctions, however, begin with an announcement describing the rules, the product, and the duration/end time of the auction with hopes of attracting enough bidders to generate a high selling price. If the auction is too short and few bidders participate, then the final price is likely to be lower than if more bidders had participated. In a research on coin auctions on eBay, it was found that longer auctions led to higher prices (Lucking-Reiley et al. 1999). Conversely, long auctions can also reduce the value of the product and reduce the seller's revenue (Lucking-Reiley et al. 1999). The buyer also can be affected by costs associated with the length of the auction (Pinker, Seidmann, and Vakrat 2001). Usually, a buyer/bidder chooses to participate in an online auction because it is the only venue in which the product can be found or because the product is cheaper than purchasing it through a conventional venue. When bidders select an auction in order to save money, they are trading the extra effort and cost involved in participating in the auction, the risk of fraud, and a possible delay in receiving the product or service against the benefit of saving money. The longer the duration of the auction, the greater the delay the bidders face and the probability they will be outbid. A deadline influences the bidding process. Two approaches are used in handling the deadline in online auctions: (1) a rigid deadline or (2) a "going-going-gone" deadline. A rigid deadline enforced by the sponsoring party does not accept bids beyond the deadline. eBay, which is a C2C auction and acts only as an intermediary, enforces a rigid deadline (Elab 2000; Pinker, Seidmann, and Vakrat 2001). A rigid deadline increases the phenomenon in which buyers place bids in the final minutes or seconds of an auction so other bidders will have no time to out bid them. A "going-going-gone" approach allows the auction to continue past the original deadline as long as there has been recent (i.e., within 5-10 minutes) bidding activity.

Newspapers and Online Auctions

Online sellers who have deployed Internet auctions are diverse in product categories, objectives, and strategies. Some of the reasons companies have deployed online auctions are: (1) to test prices to see what the market will accept, (2) to keep customer acquisition costs low, (3) to sell quality products at an appealing price, (4) to sell overstocked products, (5) to generate traffic to a company's main Web site, (6) to acquire new customers, and (7) to generate excitement about the company's online site by involving customers in a more interactive environment (Becherer and Halstead 2004; Pinker, Seidmann, and Vakrat 2001). Becherer and Halstead (2004), in an exploratory study on the characteristics of online auction sellers and their online advertising strategies, recommend further examination of the strategies of sellers in various industries and various sizes of industries. 

Jade Cusick, Vice President of NFO Ad Impact, examined online newspapers and online advertising (Phipps 2000). According to Cusick, local online newspapers have at least three factors that make their sites attractive to other industries: (1) brand--almost everyone knows the newspaper, (2) local business connections--an established sales force with connections to local advertisers, and (3) community connections--makes forming strategic partnerships easy (Phipps 2000).

A company can sell its products or services through an auction intermediary, building brand equity and revenue for the company. Local newspapers and their Web sites can serve as intermediaries as well as appeal to readers and advertisers because they can offer unique expertise in the immediate community (Goodman 2003). By providing local content, local newspapers can differentiate their own product from those of competitors. Additionally, a local newspaper's Web site can serve existing readers, appeal to former residents, attract new online readers from outside their circulation area, and appeal to advertisers.

Determining the return on online advertising investment is one of advertisers' biggest challenges (Arnold 2003), due in part to the problem of quantifying the effectiveness of a function that is so inherently qualitative. Online advertising's proponents tout online advertising as the most accountable of all media, noting that it provides a wealth of data not available with offline elements of the marketing mix, from impressions (i.e., page views) to click-throughs and downloads. These metrics are measurable and the means to measure impressions, response rates, click-through rates, and responses to promotional offers have become sophisticated.

New merchandise auctions that combine online bidding with print promotion and advertising are generating newspaper revenue (Robins 2002). CityXpress of Vancouver, British Columbia, provides a platform for media companies, such as newspapers, to generate advertising revenue by using their existing local sales force to sell joint print and online packages. CityXpress provides a service that manages all aspects of an online auction. The company helps newspapers conduct online auctions through the use of its in-house hosted software and online sales assistance. The financial model involves advertisers providing goods and services in exchange for newspaper space (Goodman 2003). The retail value for each item is set, with the newspaper having the right to determine a reserve price or minimum price for the item. Then, readers bid on each item through a Web browser or telephone call. The highest bidder who exceeds the reserve price wins the item. The advertiser then receives an advertising credit equal to the retail value of the item if it is sold. Retailers benefit from increased online traffic and the opportunity to move a different mix of services and goods. Most of the advertising for online local auctions is done through print, online banner ads, and radio.

Although local online auctions are relatively new (i.e., began in June 2002) compared to other models of online advertising (i.e., began in 1994), they are garnering increased advertising revenues as well as attracting, retaining, and reactivating advertisers for newspapers (Martineau 2004). Newspapers can generate between $4 and $9 per paid daily newspaper subscriber. For example, a newspaper with 20,000 paid subscriptions can derive about $80,000 worth of revenue from an auction. The Hamilton Spectator, a newspaper with a circulation of 110,000, generated $2.6 million in revenue from its local online auction in 2003. The Grand Forks Herald in North Dakota held an online auction for one week in the summer of 2002 and earned $95,000 in ad revenue (Robins 2002; Scripps 2003). According to Tom Kuchera, advertising director for Grand Forks Herald in North Dakota, the $95,000 in revenue was significant for a paper that generates $12 million in advertising revenue annually. In a 2003 Denver News Agency two-week local online auction hosted by CityXpress, advertising revenue was $580,000 with a net profit of $138,000-a 23.7% margin (Denver Newspaper Agency 2003). In addition, 215,000 visitors placed 9,700 bids. Furthermore, the auction attracted 48 new advertisers, which was a 23% increase in new advertising clients.

In addition to the Denver News Agency, the Hamilton Spectator, and the Grand Forks Herald acquiring increased advertising revenue, the Orange County Register newspaper, with a daily circulation of 307,000, held its first online local auction with CityXpress in 2003 (Scripps 2003). The promotion included ads in the paper, community weekly papers, rack cards, direct mail pieces, and banner ads on myOC.com and OCRegister.com. A total of 750 items were offered at the advertisers' minimum acceptable prices, and more than 1,800 services and goods were offered at a value of $2.2 million. The newspaper netted $105,000 in one week. The results of these auctions reflect the potential for online newspapers to increase their Return on Investment (ROI).

Online Advertising Effectiveness

According to industry experts, it is difficult to produce a universally acceptable definition of effective advertising (Rice and Bennett 1998) even though there is a large body of literature on measuring advertising effectiveness (Kuen-Lee, Stout, and Leckenby 1990; Stewart and McGann 1992). The core of advertising effectiveness is discovering how it influences consumers in making a choice of one brand or product over another (Sheth 1974).

Some experts believe that the development of the Positioning Advertising Copy Testing (PACT) established a good foundation for effective copy testing (PACT Agencies 1982). According to PACT principles, a good copy testing system: (1) provides measurements that are relevant to the objectives of the advertising; (2) requires agreement about how the results will be used in advance of each specific test; (3) provides multiple measurements; (4) is based on a model of human response to communication; (5) allows for consideration of whether the advertising stimulus should be exposed more than once; (6) recognizes that the more finished a piece of copy is, the more soundly it can be evaluated; (7) provides controls to avoid the biasing effects of the exposure context; (8) takes into account basic considerations of sample definition; and (9) demonstrates reliability and validity.

Many theories exist about the effectiveness of traditional advertising. Several share the common assumption that advertising works by changing consumers' attitudes toward brands (Miller and Berry 1998; Vakratsas and Ambler 1999). The AIDA (Attention, Interest, Desire, Action) model states that brand awareness is required before interest in a brand (Miller and Berry 1998). Stewart and Furse (1986) found in their study of 1,000 commercials that feelings-based advertisements are associated with greater brand recall than are fact-based ads. They state, "The single most important advertising executional factor related to persuasiveness of a commercial is the presence of a brand-differentiating message" (Stewart and Furse 1986, p. 119). Rossiter and Percy (1987) purport that their model demonstrates that the cognitive dimension uses the concept of perceived risk or involvement attached to the purchase of the brand. Their model was based on an interaction of brand awareness seen as recognition opposed to recall based and brand attitude shown in the traditional cognitive and affective components of attitude. In addition, research has shown that creative elements and content of ads determine whether it will be effective and the degree of the effectiveness of ads is influenced by the medium in which it is placed (Bendixen 1993).

The online medium offers researchers the opportunity to perform tasks such as evaluating tactics and promotional strategies (Forrest 1999). There is a panoply of ways to measure online advertising effectiveness. Software can provide response rate metrics such as page impressions, ad impressions, clicks, and conversions (Anfuso 2005; Dainow 2004; Roche 2005). Advertisers have an advantage in advertising online over traditional methods because of the tracking possibilities. Metrics can be used for evaluating exposure, popularity, stickiness, user loyalty, reach, and behavioral responses (Anfuso 2005; Bhat, Bevans, and Sengupta 2002; Dainow 2004; Maity and Peters 2005; Roche 2005).

One of the best measures of advertising responses on the Web is the click-through rate because the rate represents a behavioral response and conversion (Anfuso 2005; Briggs 1997; Lawrence 2000). The conversion rate is the percentage of users who follow through on an action and occurs when an Internet user follows through on an action within a site, such as clicking on an ad, requesting to opt-in for a newsletter, or completing a credit card payment process (Carrabis 2005; Dainow 2004). Banner ads are usually charged on cost per thousand (CPM) impressions or click-throughs. Impressions, which are also known as page views (i.e., how many times a Web page is viewed), measure an ad's reach to an audience in terms of visibility of the ad on a Web page (Bhat, Bevans, and Sengupta 2002). They are an estimate of how many pages are served in a specific time period and are a good indicator of a Web page's exposure. Click-throughs measure the number of clicks divided by the number of ads requested or clicked on by users during a time period.

Banner Ads

Banner ads are one of the most prevalent online ad models (Hoffman and Novak 2000; Mangani 2004). There are two types of banner ads: run-of-site and targeted (Mangani 2004). Run-of-site banner ads are randomly placed anywhere within a Web site and they are usually used for products and services that have universal appeal. Examples include discount telephone rates and travel services. Targeted banner ads are displayed when searches arc carried out for predefined subjects. For example, if a user looks up Marriot Hotels the user is likely to see a banner ad displayed by a hotel.

Banner ads generally appear in different sizes, with 90% of them ranging from 120-500 pixels wide and 45-120 pixels high. The median is 460 pixels wide and 60 pixels high. Advertising banners, which are small rectangular images with clickable graphics and text, appear on sponsored content sites, sponsored directories, and entry portal sites. Many ad networks charge advertisers based on the number of banner ad click-throughs or CPM impressions (Menn 2000).

Designing banners for interactive advertising could potentially meet any of three basic advertising goals: cognition, affect, or behavior (Hofacker 1999). Advertising banners could be designed to facilitate awareness of the product or service even if consumers do not click on it. Additionally, banner ads could focus on emotions, which could draw consumers to the ad's site (Singh and Dalal 1999). Most banner ads are designed to get consumers to click-through, and the real ad campaign is launched when they arrive at the site (Hofacker 1999). The banner ad is one link on a three-link chain. The first link is the page that hosts the banner. The second link is the execution of the banner, and the third link is when the visitor clicks on the banner and is swept away to the ad's site.

In addition to employing banner ads with interactivity to hook users' attention, Li and Bukovac (1999) studied the effectiveness of banner ad size and type on viewer cognition. How viewers attend to ads is affected by three factors: stimulus, individual, and situational. Their study focused on the stimulus factor, which included the following categories: message distinctiveness, image size, and user mode. Li and Bukovac (1999) found that the distinctiveness of a banner ad could attract viewers' initial attention away from the rest of the Web page content. The study also showed that large banner ads attract viewer's attention. Another finding suggested that banner ad size and user mode interacted to affect the click-through rate. Large banner ads had a higher click-through rate for Web surfers than information seekers, which highlights the importance of user mode on effectiveness of banner ads. Additionally, the study's results indicate the animated banner ad impact on recall is consistent with research on message distinctiveness; however, the study did not measure separate recall scores for animated objects and still objects within a banner ad. This warrants further study. Furthermore, the study only used one banner ad and did not examine the interaction of multiple banner ads of different types to unearth results of banner ad distinctiveness and recall.

In addition to Li and Bukovac's (1999) study that indicated large banner ads attract viewers' attention, a study done by AdRelevance revealed that large banner ads placed on an uncluttered site make a startling impact (AdRelevance 2000). Online ad placement closely mimics print; thus, many online ad sites are tackling banner blindness by enlarging the banners deployed. For example, ZDNet's Skyscraper runs 120x800 and IGN.com's Avalanche runs 120x800. These large banner ads are in need of a rate standard. For example, most standard-sized banners cost advertisers $30.52 for 1,000 online impressions ($30.52 CPM).

Online advertising space is sold both through the traditional pay-per-view model (PPV), which involves the advertiser paying a unit price (CPM-Cost Per Thousand) for banner impressions, and through the pay-per-click model (PPC) or cost-per-click model (CPC), where the advertiser sustains a cost-per-action (CPA) when the consumer sees the banner and clicks on it. In addition, there are pricing models that are hybrids of these two (Mangani 2004).

Methods, Sample, and Procedure

Online auctions represent one of many online advertising models and it is a growing area that warrants further research (Becherer and Halstead 2004; Wang 2002). Further, the strategies used by online sellers of different sizes (e.g., large and small retail companies) and in various industries need to be examined (Becherer and Halstead 2004). In an effort to examine online auction strategies used by newspapers, this research investigated the effectiveness of the Ventura County Star newspaper (about 94,000 daily circulation) deploying local online auctions as part of its media mix to enhance advertising revenue. The overall purpose of this research was to investigate the effectiveness of the Ventura County Star newspaper's local online auction format by the advertising revenue generated from local auctions for seven months compared to concurrent revenue generated from online banner ads during the same time frame. It also examined whether the local online auctions increased Web site traffic by examining the local online auctions' page impressions. Page impressions are an estimate of how many pages are served in a certain time period and are a good indicator of a site's exposure (Bhat, Bevans, and Sengupta 2002).

To measure advertising revenue generated from local auctions hosted by venturacountystar.com for seven months, metrics were gathered through Scripps' Netgravity software and compared to banner ad revenue during the same time period. A descriptive analysis was used in this study to compare advertising revenue generated by banner ads and advertising revenue generated by online auctions on venturacountystar.com during the same time fame. This was compared in percentages and revenue dollars. Netgravity software was also used to capture the number of page impressions for the local online auctions and banner ads and this was presented in the number of impressions and percentages.

Ventura County Star's Online Banner Ad and Auction Format

One of Ventura County Star's goals is to increase advertising revenue by becoming a host site for advertisers and by deploying online banner ads and local online auctions to generate revenue. The Ventura County Star and its online site, venturacountystar.com, are owned by The E.W. Scripps Company (Scripps 2003). The E.W. Scripps Company is listed on the New York Stock Exchange with the ticker symbol SSP. The Ventura County Star is a daily newspaper that serves Ventura County, CA, with a daily circulation of about 94,000 (Staff Reports 2005). In addition to its newspaper, the Ventura County Star has an online presence at http://www.venturacountystar.com. As of September 2004 venturacountystar.com reached over 100,000 registered users (free registration), and nearly six million visitors accessed the Web site in September 2004 (Owens 2004). In addition, the Ventura County Star's Web site was awarded a general excellence award for its size in the fifth annual Online Journalism Awards (Macchiarella 2004). The awards are a joint project of the Online News Association and the University of Southern California Annenberg School for Journalism.

The newspaper operates an online site that deploys online banner ads and measures the impressions and revenue generated from the banner ads each month. The metrics are captured by DoubleClick's NetGravity, which is server software that allows Web sites, such as venturacountystar.com, to deliver and track online ads. Ventura County Star's site deploys five kinds of banner ads (1) sponsorship buttons (small spot/static banner ads) placed at the bottom of the page; (2) standard banner ads (468 x 60) placed on the top or bottom of every page; (3) small banner ads (115x60) placed at the top and bottom of every other page; (4) section sponsors (e.g., business section); and (5) ad spots, which are placed on the left hand side of the page.

A four-week reach of a banner ad on venturacountystar.com was included in its online ad campaign. Frequency was determined by how many impressions a banner ad acquired each month. The Ventura County Star charged $4-4.50 per 1,000 impressions or page views. Table 1 provides a sample of costs for popular online ad units.

Table 1. Commonly Used Online Advertising Units and Sample Costs

 

Ventura County Star's Online Media department began online auctions to increase advertising revenue and to drive more traffic to its site. The software costs to run the local online auctions were absorbed by the newspaper's operational costs (Owens 2005). New Media Director Howard Owens (2005) asserts that the software and hardware costs were operational costs that did not cost the newspaper additional funds to deploy online auctions.

The Ventura County Star's online auction model involved bartering. Bartering is a popular trend in broadcast radio and television (Arens 2006; Belch and Belch 2004; Lane, King, and Russell 2005). Generally, it involves acquisition of broadcast time by an ad agency or advertiser in exchange for merchandise or operating capital. It does not involve any cash. The Ventura County Star obtains advertisers who provide products or services for bidding in exchange for print advertising and banner advertising. Auctioneers provided goods or services for online bidding in exchange for online and print advertising by the Ventura County Star. For example, if a local hotel provided a two-night's stay for bidding, the Ventura County Star exchanged print and online banner advertising to promote brand awareness, online auction awareness, and to attract bidders (Wanamaker 2003). If a golf shop provided athletic apparel for bidding, the Ventura County Star ran ads in the newspaper to promote the golf shop.

The open-cry, "going-going-gone" deadline local online auctions ran for 12 days and included multimedia advertising made up of print and online exposure from: (1) the Ventura County Star newspaper, (2) The Bremerton Sun (Seattle) newspaper, (3) Abilene Reporter News, (4) San Angelo Standard Times, (5) Wichita Falls Times Record News, (6) Evansville Courier and Press, (7) HGTV.com, and (8) FoodNetwork.com (Scripps Online Auctions 2003). In addition, a sponsor was highlighted each day in a display ad. The Ventura County Star ran print advertisements in its paper to promote the online auction. The ¼ - ½ page ads ran 11-19 days to promote the online auctions-an $18,000 advertising value (about $1,200 per ad). This was one way the Ventura County Star generated bidders. In addition to promoting the online auction in the newspaper, in-house banner ads were showcased on the Ventura County Star's site at http://www.venturacountystar.com. Kip Wanamaker, Sales Representative for the Ventura County Star, said it was one way to leverage the use of the paper and its site (Wanamaker 2003). Furthermore, e-mail newsletters to registered members of the Ventura County Star's networks (e.g., 1,102,000 registered members of HGTV, FooodTV.com and DIYnet.com) were notified by e-mail about the auction.

In summary, the auction was promoted in three ways: (1) on the Web sites of three popular networks (3,360,000 unique visitors of HGTV.com, FoodTV.com, and DIYnet.com); (2) e-mail newsletter about the auction sent to registered members of HGTV.com, FoodTV.com, and DIYnet.com; and (3) banner ads on seven regional Web sites for 20 days (i.e., Ventura County, CA, Metropolitan Denver area, Kitsap County, WA, Corpus Christie, Abiline, San Angelo and Wichita Falls, TX). Businesses were promoted in five ways: (1) newspaper advertising (i.e., 20 consecutive days of newspaper promotional ads with logo to 2,230,000 readers in Ventura County, CA, Denver, CO, Kitsap County, WA, Corpus Christie, Abiline, San Angelo and Wichita falls, TX); (2) auction Web site sponsor pages with a photo of the business' location, name, and link to the full page in the auction; (3) auction Web site browser page with a photo of the business' location, name, short description, current bid amount, and link to a full page descriptive page; (4) full page detail on the auction Web site with a link to the business' site and bidding history for the package; and (5) a 120 x 60 animated banner rotating on every online auction page for businesses whose packages exceeded a combined $750 retail value.

To further encourage participation in the online auction from local merchants, the Ventura County Star offered a 75% retail value guarantee of return, which was known as Star Rewards Auctions (Scripps Online Auctions 2003). For example, when an advertiser gave the Ventura County Star a $50 dining certificate and the final bid amount was $28, the Ventura County Star gave that advertiser $37.50 (not $28) of online advertising (e.g., banner ad) value.

Some of the auction item recommendations given by the Ventura County Star included certificates for dining, hotel stays, day spas, retreat spas, hair salons, nail salons, resorts, bed and breakfasts, special events, golf packages, and theme parks. The Scripps Online Auction Letter to Businesses (2003) stated, "If online auctions items look good to the sales rep and have some mass appeal, then it will have mass appeal" (p. 1). Included in the letter's guidelines for sales, each sales representative that brought a certificate to the auction coordinator was responsible for bringing in an accurate item description, an accurate business description, an accurate advertiser URL, and photos taken with a camera. Sales representatives were informed that auction item photos were taken off the advertiser's Web site. If photos or scanned material were not brought to the auction coordinator by the due date, stock photos were used. All auction items and descriptions were printed by the auction coordinator and given to the sales representatives to read and to note any corrections if needed. The Ventura County Star stated clearly that it was the sales representatives' responsibility to "bridge the gap between the advertiser and the auction coordinator" (Scripps Online Auctions 2003, p.1).

The Ventura County Star's online auction's advertising revenue was generated from the money received from the winning bidders for products or services. Exhibit 1 shows a sample of August's auction products and services hosted by the Ventura County Star. Exhibit 2 is a sample of detailed bid information.

Exhibit 1. Sample of August's Online Auction Products for Bidding

Exhibit 2. Sample of Detailed Bid Information

Results

The Ventura County Star's online site, venturacountystar.com, deployed an open-cry, "going-going-gone" deadline, 12-day local online auction during the following months: January, March, April, May, June, July, and August. During these same months, the Ventura County Star deployed online banner ads. The revenue and impressions (i.e., page views) generated from the online banner ads were captured by Netgravity software and the impressions (i.e., page views) and revenue generated from the local online auctions were also captured by Netgravity software. Table 2 provides a breakdown of banner ad impressions and revenue for the 12 days during each month for local online auctions and banner ads.

Table 2. Auction and Banner Ad Impressions and Revenue

Auction impressions for seven months (12 days each month) totaled 15,056. Banner ad impressions for seven months (12 days each month) totaled 92,831,294. Overall impressions totaled 92,846,350. Auction impressions increased the site's exposure and traffic by 1.67%. Total revenue for the auctions during the seven months was $46,568. Total revenue for banner ads during the same seven months was $33,893. Average auction revenue during the seven months was $6,652 while the average banner ad revenue was $4,841. Table 3 shows the impressions and revenue of Ventura County Star's auctions and banner ads for 12 days during the seven months, and Table 4 shows the mean auction and banner ad revenue during the seven-month time period (12 days each month).

Table 3. Total Impressions and Revenue for Auctions and Banner Ads

Table 4. The Mean Auction and Banner Ad Revenue

Examples of some of the auction suppliers included various amusement park admissions; hotels, inns, and resorts; a host of books and products from FoodTV.com; golf shirts; dinners at various restaurants; golf at various courses; photo sittings; artwork; professional football game admission; helicopter skiing; hotel and casino packages; retreats; bike tours; fishing trips; rugs; workout gyms; presidential library admissions; and more. Examples of some banner ads included American Airlines, Better Business Bureau, Camarillo Travel, California Wine Club, Better Kitchens, Albertsons, Alfresco, Embassy Suites, Moorpark Country Club, Opolo Vineyard, Old Creek Ranch Winery, Sterling Travel, Steve Thomas BMW, Wild Horse, Comstock Loans, Careers at the Court, Wades Wines, Western Pacific Housing, and more.

Interpretation of Results

Newspapers' online versions, not bound by static sheets of processed pulp and ink, are pursuing innovative formats to enhance the media mix and to increase advertising revenue and traffic to their online site. One innovative type of online advertising format for newspapers is the local online auction. Research in the area of newspapers deploying local online auctions, however, is still at an embryonic stage. This study contributed to the growing field of research examining online auctions by examining strategies employed by online sellers of different sizes (e.g., large and small retail companies) and in various industries. This study investigated how one newspaper, the Ventura County Star, launched local online auctions for the first time and measured their effectiveness by comparing online auction advertising revenue to advertising revenue generated from banner ads during the same time frame. It also examined the local online auctions' page impressions and banner ad impressions to investigate how much traffic was generated. This study provided the metrics (i.e., impressions and revenue) of an open-cry, "going-going-gone" deadline, 12-day local online auction held at venturacountystar.com during January, March, April, May, June, July, and August. Metrics were compared to banner ads deployed during the same months the auctions were deployed.

Based on the metrics provided by Netgravity, the local online auction revenue increased online advertising revenue by $46,568, which was a 134% net increase in online advertising revenue. This answered the first research question: Does Ventura County Star's local online auction format increase revenue? In addition, this study answered the second research question: Does Ventura County Star's local online auction format bring in more advertising revenue than banner advertising revenue during the same time period? The seven local online auctions garnered higher revenue than banner ads for four of the seven months and the overall online auction revenue exceeded banner ad revenue. The online auction revenue was $46,568, which exceeded overall banner ad revenue of $33,893. Online auction revenue generated 26% more total revenue than the total banner ad revenue.

Although banner ads generated more overall impressions (i.e., page views) than the local online auctions, the overall revenue was lower (i.e., $33,893) than auction revenue ($46,568). Auction revenue spiked during the month of May to $10,698 from $7,835 in June; however, May had fewer impressions than in June. There was an increase in auction revenue from months one to four, and following the spike in May, there was a slight decrease from months five through seven. Online auction impressions increased site traffic by 1.67%. This answered the third research question: Do the Ventura County Star's online auctions generate traffic to its Web site?

Although the local online auctions' overall impressions were 15,056, the impressions metric could indicate that some of the impressions were conversion events. Conversion rate and revenue are essential to online profitability (Roche 2005). Conversion is a site's ability to persuade users to take desired action on the site (Anfuso 2005). The number of impressions (i.e., 15,056) indicates that the revenue generated (i.e., $46,568) is a result of how consumers are getting from a page impression to the point of conversion (i.e., winning bids that generate revenue). A percentage of the winning bidders comprised the impressions metrics and contributed to the revenue (i.e., conversion). The overall banner ads impressions (i.e., 92,831,294) did not indicate conversion because revenue generated from the impressions were based on CPMs and not conversion events.

Limitations and Suggestions for Future Research

Growth in the use of online auctions to sell products and services suggests that this area needs more systematic and extensive investigation, especially since literature reviews indicate that online auctions have not been studied as extensively as other areas of online advertising (Becherer and Halstead 2004; Gilkeson and Reynolds 2003; Wang 2002). This study contributes to the growing need to examine the various online auction formats within different industries, with specific focus on the newspaper industry and with one newspaper's approach to using local online auctions as part of its media mix to increase revenue and site traffic

Because the use of local online auctions as part of the media mix is newly emerging for newspapers, this study posed some limitations. Some of the limitations to this study were: (1) diversity of auction products, (2) number of online auctions deployed, (3) dates of online auctions deployed, and (4) daily circulation of newspaper.

Based on this study's results, newspapers that deploy local online auctions have the potential to increase online advertising revenue and increase traffic to the site with potential for conversion events. This supports research that local online auctions are increasing advertising revenue (Martineau 2004). The evidence from this study shows that one newspaper with a daily circulation of around 94,000 generated an average of $6,652 for seven online auctions in which each online auction lasted 12 days. This was compared to an average of $4,841 generated from online banner ads during the same time period. This study could be extended in a number of ways. For example, a suggestion for future research is to conduct an ongoing study to verify potential revenue verses costs to examine effectiveness for more than seven months.

This study examined one newspaper's approach as an exemplar of newspapers' use of online auctions as part of the media mix. Another suggestion for future research is to compare the format of local online auctions' revenue, impressions, and conversion events among several newspapers. This supports the need for more studies on strategies used by Internet sellers of different sizes and in a variety of industries (Becherer and Halstead 2004).

Vendors that give newspapers the tools to run online auctions can anticipate a strong future. While the Ventura County Star's auctions have been trade-based events featuring general merchandise, other suggestions for future research include extending auctions to classified print sales and running auctions in specific categories of merchandise or special events (e.g., golf apparel or golf events).

Capturing the revenue and impressions generated during local online auctions is only one method of examining local online auctions' effectiveness. For example, a research study can investigate other behavioral measures, such as examining conversion rates by comparing the number of auction impressions to the actual number of bidders and revenue or comparing actual number of bidders and banner ad click-throughs. Additionally, a study can investigate branding effects of local online auctions deployed by newspapers.

Newspapers that are not using local online auctions could be limiting their growth by ignoring this component in the media mix and the potential revenue and Web site traffic that accompanies it. An investigation of other online auction types applied to newspapers could be investigated to examine revenue, impressions, and conversions. In addition, a comparison of local online auctions' effectiveness could be employed to other online advertising formats besides banner ads.

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About the Authors

Ginger Rosenkrans (Ph.D., Nova Southeastern University) is Assistant Professor of Advertising at Pepperdine University. Her research interests include online advertising metrics/Web analytics, Internet advertising effectiveness, online ad design and interactivity, and newspapers' use of online advertising. You may email her at: grosenkr@pepperdine.edu

Acknowledgements

The author would like to thank the Ventura County Star and its Publisher Tim Gallagher and former New Media Director Howard Owens, two Seaver Dean Research Grants, and one Seaver Research Council Grant for making this study possible. The author would also like to thank the editors of JIAd, Dr. Hairong Li and Dr. John D. Leckenby; the reviewers for their recommendations; and JIAd's associate editor and copy editor, Dr. Karen M. Lancendorfer.