Trends suggest that spending on online promotions will soon surpass spending on banners, search, email and other interactive advertising. Find out why.

There's a seismic shift underway that has considerable implications not only for traditional media, but also increasingly for traditional verticals as advertisers try to communicate better, quicker and more effectively with end users. 

Online promotions are beginning to significantly pull ad dollars from online advertising. A recent study by Borrell Associates, a Williamsburg, Va.-based market research firm, uncovered three major trends:

• Spending on online display ads (web page banners, pop-ups, etc.) have been flat the past two years and are expected to top out at $12.6 billion in 2008, then decline more than 50 percent by 2012.
• Paid search advertising will peak at $16.9 billion by 2009 and start declining.
• Online promotions generated about $8 billion in 2007. This category will nearly triple by 2013 to $22.8 billion, exceeding all other online advertising categories, including paid search, banners, email and online audio/video advertising.

"The allure of creating one's own advertising channel is attracting more and more spending, much of which comes directly out of budgets once earmarked for traditional advertising," says Gordon Borrell, the firm's founder/CEO. 

Online promotions: a gamble or common sense strategy?
Online promotions can encompass many elements -- contests, giveaways, coupons, sales of half-price gift certificates and more. Bruce Hollander, executive vice president of Melville, NY-based Don Jagoda Associates, an independent promotion marketing agency, says promotions are less of a gamble and easier to control than advertising because of a number of key factors: fast results that can be evaluated; a format based on specific objectives; you can adjust the mechanics if the promotion is not receiving the level of expected involvement; and since "everybody wants something for nothing, you're guaranteed the ability to create a database of names."

Andrew Frank, research vice president, cover advertising and marketing, for market research firm Gartner, Inc. adds: "It's much easier to measure and compute ROI on direct response -- which seeks to drive sales and conversions -- than advertising, which is focused on softer, more indirect goals of branding and demand generation."

But Rob Enderle, who heads up The Enderle Group, a San Jose, Calif. market research company, says that he's not absolutely convinced that promotions are less risky -- just easier to assess.

"Promotions are typically tied to actual sales; advertising is vastly harder to measure. You may never know for sure whether an advertising program is truly successful, but a promotion's success or failure tends to be rather obvious," says Enderle.

As to whether online promotions are more effective, that's debatable; it depends on who you talk to.

The Gartner Group's Frank says the interplay and relative effectiveness of sales promotion versus brand advertising has been a subject of long-standing study and debate in marketing circles.

"Clearly there are certain combinations of goals, products and conditions that will favor one approach over the other, while other times some combination might be the right play," says Frank. "One could say that sales promotion is more effective in driving direct sales because that's what it's designed to do. It's not, however, designed to justify high profit margins."

Whether or not it can proven that online promotions are more effective than advertising, most industry experts concur that they do deliver measureable results rather quickly since promotions are run against specific objectives -- displays, sweepstakes entries, auto entries, database generation, sign up for a newsletter, electronic billing and more. 

"Because they have an immediate call-to-action, they are generally quickly measurable," says Hollander.

On the other hand, "with advertising, you generally don't know what made the customer come to you," says Andrew Martin, a research analyst with Borrell Associates. "With a coupon or code, you can easily measure as someone responds and most promotions are time-limited -- the response is directly a function of the promotion itself."

Some online promotions have achieved notable success. Following are a few examples.

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