By Ronna Abramson, Investing Across Borders

For The Industry Standard, January, 2001

Faced with more pressure to rein in costs, executives at NextCard were alarmed last summer to see their company ranked as the second-biggest advertiser on the Net.

NextCard's online advertising rang in at $25.8 million in August, trailing only behemoth America Online, according to AdZone Interactive, the youngest of a handful of firms that measure Internet advertising.

However, NextCard's filings with the Securities and Exchange Commission showed that the online consumer credit company spent only $7.9 million on marketing, advertising and branding during the third quarter from July to September, meaning that New York-based AdZone had overstated NextCard's spending by at least 200 percent.

Although companies have long complained about inaccurate Internet metrics, online advertising has become a particularly tricky beast to track. And changes in the rules of the advertising game since the dot-com bubble began deflating last year have led to more discrepancies similar to what NextCard encountered.

For starters, with fewer companies vying for online ad space, the power to negotiate rates has shifted from Web sites to advertisers, leading to deep discounts off list prices, often referred to as rate cards.

And though everyone agrees that rate-card figures are inflated, there's even more doubt surrounding advertising measurements as companies also report erroneous impression counts - the other key ingredient in the calculation of advertising revenue.

"I've never seen one [advertising estimate] that's actually close," says Rob Bethge, chief marketing officer of Datek Online Brokerage Services, which estimates having spent $30 million on advertising in 2000.

AdZone, meanwhile, reported that Datek spent $18.9 million in August alone, ranking the company as the No. 6 advertiser.

"I would be very impressed if I could find that much money," Bethge says. "It's far more than what we've spent that month or any other month."

AdZone and Seattle-based competitor AdRelevance multiply the number of ad impressions by rate cards to measure online advertising. To calculate impressions, AdZone and AdRelevance rely on proprietary technology that scours thousands of Web pages for ads 24 hours a day. Not surprisingly, officials at each company maintain that their tracking system is the most reliable, though companies report problems with both.

NextCard maintains that it receives about four times as many impressions each month than the 791.4 million AdZone calculated in August. The company averages 3 billion impressions each month, according to David Dowhan, group VP of credit card acquisitions for NextCard.

AdRelevance's figures are not necessarily more accurate. RedEnvelope CEO Martin McClanan says the 484 million impressions AdRelevance reported that the online retailer's Internet ads received in November are "significantly over" the company's internal numbers.

"I don't have a high degree in confidence in the numbers at this point," he says.

While AdRelevance and AdZone officials acknowledge the shortcomings of rate cards these days, they stand by their impression numbers. Charles Buchwalter, VP of media research for AdRelevance, a Jupiter Media Metrix company, says his firm's technology continually trawls for ads on the most heavily trafficked sites and automatically visit sites more frequently as their popularity grows. AdRelevance multiplies ad frequency by pageviews to calculate ad impressions.

AdZone President John Cardona points to a couple of reasons why his company finds more impressions than the advertisers themselves do. His company's technology, which launched last summer, picks up ads regardless of whether they are being paid for, he says, noting that some Web sites are running one company's ads more than required under contract simply because they have no other advertising to run.

Cardona insists that only audited numbers should be compared with AdZone impression figures, but he acknowledges that many companies do not audit impressions or even track ad exposure internally.

Indeed, company numbers are difficult to come by. Several companies on the top 10 online advertising lists of AdZone and AdRelevance declined to comment for this story.

Given the difficulties of ranking advertiser spending, the Internet Advertising Bureau is probably the most reliable source for tracking Internet advertising. The bureau has employed PricewaterhouseCoopers for nearly five years to compile confidential ad revenues provided by the top online advertisers. The bureau reported that third-quarter advertising spending totaled $2 billion - more than half than the $4.5 billion estimated by AdZone.

But there's a catch: Companies provide revenue data on the condition that their individual numbers will never be released. Therefore, the bureau can release only total numbers. Pete Petrusky, PricewaterhouseCoopers' director of new media, says this arrangement ensures that no company has a reason to inflate numbers.

Unfortunately, it also means that while such information would be valuable, figures for individual advertisers remain elusive until companies are willing to make their numbers public. And there's little sign that will happen anytime soon.

"There are very few examples where a trusted source is able to broker this information," notes RedEnvelope's McClanan, who encountered similar resistance in the food industry. "People were never willing to share the data."

Ronna Abramson, a former staff writer at The Industry Standard, writes about technology and media for Investing Across Borders.