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Monday, August 18, 2008

U.S. Web Sites Draw Traffic From Abroad But Few Ads

U.S. Web sites are waking up to a sobering reality: A huge share of their traffic now comes from overseas, but they are struggling to make money from it. Now, Internet companies big and small are scrambling their business models to try to cash in on foreign markets they have largely ignored.

The internationalization of online traffic in the U.S. has accelerated at a pace that has surprised even some people in the Internet business. Many U.S. sites now draw more than half of their audiences from international visitors but generate only about 5% of their revenue from that traffic, according to recently compiled figures by Internet tracking firm comScore Inc. and industry analysts.

For example, Web sites published by Condé Nast, such as GQ.com and Style.com, derive 55% of their traffic from overseas, while Facebook's international audience accounts for 73% of its 124 million monthly visitors.

Most of these sites started drawing foreign visitors without any effort on their part. The changing demographics of their users owed in part to the rapid increase in broadband Internet penetration in countries such as Russia, Brazil, India and China in recent years.

U.S. Web content is proving popular with those new Web users, just as American TV and movies have been in those and other countries. Also, technology investments by U.S. Web sites have helped them appear prominently in search results for Web surfers world-wide.

This trend has huge financial implications for big U.S. publishers. Many sites have paid little attention to foreign traffic because it was so small and because, in some cases, marketers in those countries weren't yet buying online ads. As a result, international visitors to U.S. sites still often see ads that are completely irrelevant to them.

A recent visit to CNET.com from Australia, for example, showed an ad for Verizon Communications Inc.'s FiOS TV service, which is available only in select U.S. cities. U.S. marketers know they aren't reaching their intended audience with those ads, so they normally don't pay Web publishers for them.

"Web sites are neglecting a massive opportunity," comScore analyst Andrew Lipsman said.

Now, some sites are moving aggressively to build their international sales operations. Closely held Glam Media, whose properties include fashion and celebrity gossip site Glam.com, recently acquired London digital marketing firm Monetise Ltd., jump-starting its strategy to add several dozen salespeople in countries that include Germany, Japan, India and China. Half of Glam's 77.4 million visitors come from abroad, but only 5% of its revenue is from non-U.S. advertisers.

"We really have a global media company, but we were running it locally," said Samir Arora, chairman and chief executive of Glam, which by visitors is the largest U.S. Web property aimed at women.

Other Web sites are outsourcing ad sales to companies with on-the-ground sales teams. This includes Adconion Media Group, a London firm that sells ads for sites such as the Drudge Report and Sony Corp.'s video site Crackle from 12 international offices. Meanwhile, niche players are cropping up to focus on individual countries, such as Komli Media, a start-up based in Mumbai, India, that sells ads for 250 U.S. Web sites, including CNET Networks Inc.

But selling Internet ads to local advertisers in overseas markets can be a tough feat. While most sites are technologically capable of targeting ads to visitors from different countries, online marketing is still a nascent phenomenon in many places. Amar Goel, who left Microsoft Corp.'s online ad sales group to start Komli, said many Indian brands still view the Internet as an afterthought, partly because there is still such fast growth in traditional media such as newspapers and television.

Mr. Goel said he had tried to pitch the chief executive officer of a large consumer packaged-goods company at a recent conference. "When he heard I was with an Internet marketing company, his eyes just glazed over," Mr. Goel said. "He doesn't yet believe the Internet can significantly impact his brand." Mr. Goel said he has made some headway with companies such as Naukri.com, India's largest job-search site, and MakeMyTrip, a large travel site, as well as multinational banks and software companies with operations in India.

Traditional U.S. media companies such as ESPN, Forbes and CNN have a head start because they already publish and broadcast overseas and have sales teams in place. But even those companies still have to coach local marketers to spur more online ad buying. ESPN, for instance, says it has been showing marketers in Latin America how sports fans are using the Web.

While overall non-U.S. Internet ad spending jumped to $25.1 billion in 2007 from $4.5 billion in 2003, according to Publicis Groupe's ZenithOptimedia, developing markets still aren't providing a huge share. In India, for example, online ad spending will only be about $111 million this year. In Brazil, it will be $453 million, ZenithOptimedia predicts. In comparison, U.S. online ad spending is expected to reach $19.8 billion this year, up 23% from $16.1 billion in 2007.

"It's taken the U.S. Internet 13 years to get to where it is now, these other places are still in years zero through two," said Ross Sandler, an Internet analyst at RBC Capital Markets.

MySpace is trying ramp up its sales teams outside the U.S. and hopes to eventually generate 50% of its revenue from abroad. The company recently announced a campaign by Cartier for its "Love by Cartier" collection, in which the French luxury jeweler is launching MySpace profile pages targeted at users in eight European and Asian countries.

By: Emily Steel and Amol Sharma
Wall Street Journal; July 10, 2008