by Tim Clark

Japan's website banner market is maturing rapidly, the result of increasingly severe competition for the attention of Japanese consumers (who now comprise the world's second largest Internet user market). How much would it cost your company to launch a banner ad campaign in Japan? What kind of results can you expect? Will you be able to negotiate significant discounts with website operators? And, perhaps most importantly, what kind of creative approach should you take to appeal to Japanese consumers?

For those interested in testing banners or launching full-fledged online ad campaigns in Japan, the following attempts to answer these and other pertinent questions.

Industry structure

Just like the traditional advertising sector, the banner advertising market in Japan is characterized by a cartel-like industry structure. A few major players dominate the popular channels (in this case, websites) that can offer clients either the most viewers or the most credibility as information sources.

Japan's traditional advertising sector leaders moved quickly to take control of the budding online ad scene. In 1996, advertising agency powerhouse Dentsu teamed up with SoftBank to form Cyber Communications (http://www.cycom.co.jp/). Dentsu rival Hakuhodo followed soon afterwards, forging an alliance with Yomiuri Advertising and others to create Digital Advertising Consortium (http://www.dac.co.jp/). Cyber Communications' key banner hosting site is Yahoo! Japan, while DAC's is Infoseek Japan.

Last year, NTT also entered the online ad market under a partnership with DoubleClick of the US. The new entity, DoubleClick Japan (http://www.doubleclick.net/jp/), is promoting NTT's "goo" search engine as its primary advertising vehicle.

The bottom line is that aspiring Net advertisers generally must go through one of the leading agencies if they want to book ads on the highest traffic servers in Japan. If you're a first-time advertiser, be prepared to pay your banner ad fees in advance. And be prepared, too, for the frustration of dealing with a 22-year-old college graduate whose entire business experience consists of four months with an Internet firm. Unfortunately, you'll too-often find such inexperienced account execs acting as the "gatekeeper" for key sites you'd like to advertise on.

Learning the jargon

If you're considering advertising on the Japanese Internet, here is some basic banner ad terminology that you should be familiar with. I've included comments specific to the Japanese market.

Agency fees -- As many as four parties can be involved in an advertising buy: the advertiser (you, the client), the client's (your) agency, the ad host (a specific newspaper, magazine television channel, or website), and the host's agency. So, how much do the agencies earn on a buy (i.e., How much extra will it cost you?), and how is that commission calculated? Let's say the card (published) rate for a one-month banner ad on a particular website is \480,000. That's what you, the client, will pay to your own agency. Your agency then makes the actual buy, contracting either directly with the website operator or with the website's agency to buy the ad at a discount off the card rate. This discount represents the buying agency's commission.

For the example purchase described above, your agency typically might contract with the website's agency to buy the banner ad for \432,000. The \48,000 difference between the card rate and the actual fee represents the buying agency's commission (10%). The website's agency, in turn, might retain 10% of card rate as commission as well (\48,000), so that the site operator collects a net of \384,000 (80% of \480,000).

In some cases, especially among the smaller sites, a website operator may not use an agency, choosing instead to deal with potential advertisers directly. And some agencies may take a 15% or even 20% commission. (Ordinarily in Japan, an advertiser's agency takes a 15% commission when it buys directly from the website operator.)

Why use an agency? Well, aside from the fact that dealing with them is often unavoidable (some media won't deal directly with potential advertisers), agencies can provide their clients with a number of services, such as in-depth knowledge of the local market, recommendations on the best channels through which to advertise, creative expertise and production capability, and the negotiating leverage gained from executing many buys on behalf of different clients. Also, a good agency can offer objective, third-party advice to help its clients think "outside the box" when appropriate.

Page views -- Often abbreviated as PV (or PVs), page views refers to the number of times an HTML file containing your banner is displayed to a viewer. The total number of page views for an entire website each month isn't a very useful figure since it includes views of many, many pages that don't contain the advertiser's banner. Be sure to ask the representative of your banner hosting site to express its PVs strictly in terms of the page(s) on which your banner will reside.

Impressions -- The number of times your advertisement is exposed to the target audience is termed the "impressions." This is essentially the same as page views, unless your company for some reason has multiple banners on the same page or another arrangement that provides more than one exposure per page view.

Clickthrough -- The number of times viewers actually click on a banner and "jump" to the site being advertised, as a percentage of the total number of actual impressions, is called the "clickthrough rate." For example, if your banner is displayed 17,000 times during a month and is clicked on 306 times, the clickthrough rate is 1.8% (306 divided by 17,000). Clickthrough rates vary widely by product/service category, with computer-centric offers generating more response than ads for products and services less directly related to computer use.

Until recently, slightly under 2% was considered the average clickthrough rate for the Japanese market. Now, though, it is increasingly difficult to achieve even a 2% clickthrough, due to the explosion of competition for websurfer attention and the extremely aggressive use in banner ads of prizes, giveaways, contests, and the like.

When considering your clickthrough rate, keep in mind that a hosting server generally counts a double mouse click on a banner ad as two clicks -- even though it only requires one click on the banner to jump to the advertised site. This means that the number of clickthroughs reported by a hosting server is almost always substantially higher than the true number of clickthroughs recorded at the destination site.

CPM -- A standard term used in the traditional advertising sector is CPM, which stands for cost per thousand impressions (the "M" in "CPM" is from the Roman numeral that means 1,000). To calculate the CPM of a banner buy (or magazine ad buy, for that matter), simply divide the number of impressions (readers) by 1,000, then divide the price of the buy by this figure. For example, if the price of a banner on a search engine for one month is \480,000 and it receives 150,000 impressions, dividing 150,000 by 1,000 gets 150, then dividing \480,000 by 150 gives the answer of 3,200. The CPM in this case is \3,200 (at the exchange rate when this article was written, about $26). I'll talk more about typical CPM figures below.

Inventory -- The number of unfilled banner slots available on a site is termed its "inventory." While this concept makes intuitive sense for ad space in more tangible media, such as newspapers and magazines, in the online world it can be misleading. After all, can't a website accommodate a potentially unlimited amount of content?

Yes, but properly managed sites have firm policies concerning the number of banners that will be displayed on any given page. And, they can offer reliable, up-to-date statistics concerning monthly page views for each of the pages on which banner advertising is sold. Nevertheless, as a practical matter, nearly all sites have "inventory" available almost all the time; webpage banner advertising is still very much a buyer's market.

Run of site -- Analogous to "run of station" in radio and television and "run of paper" in the print sector, "run of site" means your banner can be placed anywhere on the site at the operator's discretion. In other words, you have no choice as to where, specifically, your banner ad will appear. An upside of "run of site" is that the CPM rate is usually lower.

Banner management/reporting software

Website operators who are serious about banner management and result reporting use sophisticated automated software, such as NetGravity (http://www.netgravity.com). In addition to providing highly detailed page views, clickthrough results, and other data that you as the advertiser can view online at any time, such software can enable the site operator to automatically swap banners and control how many times different banners are displayed. It can even control to whom specific banners are displayed based on such parameters as browser or type of computer used, or time of day. A key advantage of banner management software is the ability to automatically rotate multiple banners in a given slot, with page views apportioned in any way that is desired. Incredibly, many sites in Japan (including some of the biggest newspaper sites) still don't use automated banner management software. What they do instead is charge outrageous fees (sometimes as much as \100,000) just to manually swap in a different banner in mid-run. This absurd and behind-the-times practice penalizes advertisers for providing more variety on the website; it will probably be phased out this year.

Creative strategies

Creating a compelling banner and placing it properly so that it draws the attention of qualified prospects is a challenging task. The first thing to consider is whether your primary goal is direct conversion to sales (as with direct mail) or creating brand awareness (as with "corporate" advertising in print or broadcast media).

Most likely, with Web advertising your main interest is persuading viewers to buy, or at least to take some sort of direct action after clicking on your banner. The creative strategy used to achieve your goal will depend on several factors, including the nature of the product or service being advertised, the demographics of the targeted customers, and your corporate personality. If your product or service is highly computer-centric, for example, you can presume that 100% of the banner ad viewers will have at least some degree of familiarity, so that your ad is likely to resonate to some extent with many viewers. It's a complicated process, but here are some basic strategy guidelines for the Japanese market.

Make the benefit apparent -- If possible, make clear what the benefit of clicking on your ad will be. Obscure references and simple presentations of company or product names are not compelling. Benefits are getting harder and harder to offer in Japan amid the proliferation of online giveaways, including high-value prizes such as computer gear and overseas vacations, so you'll need to be creative.

Use an appropriate concept -- Humor and surprise work well. Cynicism and politics are out. Avoid grasping. A certain humble nonchalance, combined with some good-natured humor and surprise, is ideal. And if you want people to instantly read your banners, make sure the text is in Japanese. Sure, you'll see a lot of English words in many Japanese banners, but they are used primarily as graphic elements, not as meaningful messages. (You'll find some samples at http://www.tkai.com/jbanners.html.)

Design lightweight banners -- Keep your banners as light as possible memory-wise. Japanese Web surfers tend to be very conscious of the amount of time they spend online (since they're paying per-minute telephone charges). If your banner loads too slowly, it may annoy the viewer and make him or her avoid clicking on it or cancel the page download. Or, viewers may scroll down the page while your banner is still loading, meaning they'll never see it. Most major sites now impose memory size limits on advertiser banners, commonly ranging from 12K to 20K (but may be even more severe).

Server selection

Website selection is a relatively objective process. If, for example, your product or service is highly computer-centric, you can be confident that no matter where you place your banner, 100% of the viewers are computer users, many of whom may have at least some interest in your product. But if you're marketing auto-related products or services, many of your exposures will be wasted on non-prospects who don't drive. In such a case, it's important to identify a website that will provide you with qualified traffic.

Smaller websites that attract viewers with specific interests are often more effective than larger sites, such as search engines, that boast huge volumes of traffic but unfocused visitor bases. Another benefit of using smaller sites is that they generally cost less -- often dramatically less. On the other hand, some special-interest sites attract a large percentage of repeat visitors, meaning you may not reach a lot of new viewers after the first couple of weeks.

To be fair, search engines can help you target visitors by linking your banners to certain keywords or subject categories. Such extra services cost substantially more, however. For "branding" campaigns designed to simply boost awareness of a product or service, gaining "maximum eyeballs" means buying on high-traffic venues, such as search engines and news sites -- an expensive move for which relatively few companies have the budget.

Evaluating the results

Clickthrough is a rough measure that describes only how many people have been brought to an advertiser's site. Measuring how many of these visitors actually become customers is a complex process -- one that requires sophisticated server-side analysis at the destination site.

Few advertisers have the software and analytical resources in place to accomplish this kind of measurement; most must rely on "before and after" measures of Web activity or order volumes. The most important measure that you as an advertiser need to get a handle on, prior to implementing a banner advertising campaign, is the percent of site visitors who ordinarily become customers. If 1% of all visitors typically buy, for example, it is a simple matter to use CPM, expected clickthrough rate, and total advertising budget to calculate the approximate number of new customers that can be acquired through a banner advertising campaign, and whether it is worth the cost.

CPM rates in the Japanese market

The key variable, then, becomes CPM. And this leads to the question of what level of discount from card rates you can reasonably expect to achieve when buying banner advertising space on Japanese websites.

Published CPM rates vary widely in Japan, from $80 or more to $6 and less. The actual rates paid by advertisers depend on several factors, including the prestige of the advertiser, the negotiating ability of the agency, depth and length of the buy, and the types of sites chosen. Advertiser prestige is a key element. Most website managers are very interested in having high-profile, highly recognized brand and company names associated with their sites. Companies with powerful brands clearly enjoy more leverage than do less-recognized firms.

An agency's negotiating ability and track record of previous buys is also a key element. A history of multiple buys on a broad range of servers, on behalf of different clients, builds the agency's relationships with media sellers. This, in turn, provides negotiating traction that works to the advantage of the agency's clients. As one in-house example, my ompany recently negotiated a one-month banner run on one of the most highly trafficked and widely recognized websites in Japan (33 million page views per month) at a CPM of less than $2. Longer runs can also bring lower rates for advertisers. But buying a run that's too long can be risky. CPM rates are trending downward, and locking yourself into a rate today means you may be paying a premium three or six months down the road. If anything, the banner advertising market is even more volatile than the Internet market on the whole, and prices are constantly falling. Finally, the type of site you select is crucial. Of all the sites you can advertise on, search engines are the most costly and toughest to talk down in price. Top-level sites such as Yahoo! Japan enjoy significant "vendor power" with respect to prospective advertisers, since their services are essentially one-of-a-kind. In our experience, it is difficult to negotiate good deals (say, CPM rates in the $20 to $50 range) with such sites. Moreover, what these sites can offer often can be achieved through multiple buys on other sites, at lower cost.

What does the future hold?

The CPM/clickthrough model is likely to evolve as advertisers demand more accountability for the advertising dollars they spend, as well as more precise cost justification on the part of banner hosting sites. New measures, such as Price Per Lead (PPL) and Cost per New Customer (CNC), are being adopted to more accurately measure the bottom-line effectiveness of online advertising.

Moreover, site integration, partner programs, and other online advertising techniques now being used in the US will undoubtedly be adopted in revised form for the Japanese market. In the near term, however, banners will continue to be the key online advertising tool for foreign firms targeting Internet users in Japan.

Tim Clark, a partner at consultancy TK Associates International, Inc. (http://www.tkai.com/), provides Japanese customer acquisition services -- including banner advertising research, consulting, creative development, and purchasing -- to clients such as Amazon.com, Cyberian Outpost, and JC Penney. He can be reached at tim@tkai.com.

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