The global advertising industry is heading for its worst year in a decade: 2001 could be a relative disaster, with the US market shrinking by 4.2% and the biggest European markets by an average of 2%, according to one of the world's leading media forecasters, Zenith Media.
The fall has affected the internet too. Zenith predicts that the burst of the dot.com bubble only 18 months ago will slow internet advertising growth to 10% this year. In comparison, the growth of the internet itself is estimated by IT firms and independent observers at around 400% annually, this year being no exception.
But in Slovakia the situation is different. For the last three years the volume of money spent on advertising has been rising slowly but surely, and with it internet advertising. What's more, internet firms say, scope exists for that same growth to occur in e-advertising if the internet, and internet penetration in particular, keeps growing at its present rate.
"The European Union average internet penetration rate [the ratio between the total population and the number of people who have access to the internet - ed. note] is about 35%. Slovakia, if you look at the latest figures, has a rate approaching 20%. Take the case of Sweden, where internet penetration is 65%. The internet market is close to its limits and won't grow that much more. That means we still have a lot of room for growth," said Lukáš Alner, head of the firm behind Slovakia's largest website, Zoznam.
According to estimates by Alner and advertising agencies, between 12 and 15 million Slovak crowns ($240-300,000) was spent on internet advertising last year. Figures from ad agencies and marketing firms show that total advertising expenditures last year came to around 8.5 billion crowns ($170 million).
The ratio between internet advertising and total advertising in the West comes to around 2%, argues Alner. While at less than 0.2% last year in Slovakia, the country's internet-to-total ad ratio is expected to rise to 0.5% this year, or 35-40 million crowns out of 8.5 billion crowns in advertising, according to internet ad agencies.
This is encouraging, argues Alner.
"The ratio between internet advertising and advertising as a whole in an economy should be 2%. We're clearly not there yet. But this is year zero for internet advertising in Slovakia, frankly, and there are more agencies now focusing solely on internet advertising," said Alner.
In 2002, he predicted, the amount of money spent on internet advertising would be 80 million crowns, more than double this year.
Questionable future
However, despite Alner's optimism, the truth about growth in Slovakia's internet industry, and hence internet advertising, is unclear. Figures on internet penetration vary from 2.3% (the estimate of the Association of Internet Providers in Slovakia) to 18% (the results of a study carried out by the Taylor Nelson Sofres Slovakia polling agency earlier this year).
The discrepancies arise from how penetration rates are defined. The API defines it as the percentage of inhabitants that have home Internet access, while the Taylor Nelson Sofres study defines it as the number of people using the world wide web more than twice a week.
Recent reports released by the International Data Corporation (IDC) predict that across the Visegrad 4 countries (Slovakia, Hungary, Poland and the Czech Republic) the number of internet connections will grow from 2.2 million at the end of this year to 4.5 million in 2005. At the end of 2000, about 8% of the region's population accessed the world wide web at least once a month. IDC predicts that this figure will have risen to 23% by the end of 2005.
However, the group warns that internet potential will not be fulfilled in these countries until there is a change in the influence dominant telecoms operators hold on the market.
Slovak fixed-line telecoms monopoly Slovenské telekomunikácie (ST) incurred the wrath of internet providers after a set of July 1 price rises. Providers claimed that because of the rises, the cost of internet access was one of the highest in Europe and that this was a step backward for the internet industry in the country.
ST is to lose its monopoly in 2003, and new FWA (Fixed Wireless Access) phone service operators are expected to next year provide some competition on local telephone links, possibly bringing down the price of calls and dial-up internet connections.
Fighting over pieces of a small cake
Firms like Zoznam are also struggling to attract customers with limited budgets in an overcrowded market. While the internet market has, if not exactly exploded, grown rapidly in the last three years, the current government's austerity measures, aimed at putting the economy back on an even keel after years of borrowing, have slowed economic growth. Although there are encouraging signs of a move back to better health, some smaller companies are still wary of splashing money on advertising they feel they can get by without.
"There are too many firms fighting for a piece of a very small cake," said Alner. "These are difficult economic times, and many firms, when facing these conditions, take a look at their budgets and say, 'well, the advertising budget can go. We can survive without advertising, but not without paying the rent'.
"This is why we are not at the stage where we have a lot of small advertisers in the internet market, as is the case in the West. The main advertisers are the bigger firms, the finance houses, mobile phone operators, the IT firms. But smaller firms often don't advertise because they don't have a budget for advertising. They just can't afford it."
The top ten advertisers in Slovakia in February this year included the financial and trade group Drukos, traditionally one of the biggest advertisers in the country, finance firm AGW, mobile operators Eurotel and Globtel, Slovenské telekomunikácie and international drinks giant Coca-Cola.
The lack of smaller companies advertising means a smaller range of potential clients for Zoznam and other similar firms, and problems for all market players in the near future.
"There are a lot of smaller companies who will be forced out of this market. That will be good in the long run, but in the short run they will try to take what they can from it and prices [charged for advertising] will inevitably be 'dumped', go as low as they can. That will not be so good for us," says Alner.
Changing approaches
But in spite of that potential threat, ad agencies are convinced the future of internet marketing is bright, even though the challenges of a changing approach to the internet worldwide will not bypass Slovakia.
"The figures for money spent on internet advertising are doubling every year - there is a definite growing interest in this sector. But at the same time internet marketing is being fragmented, presenting people like us with our biggest challenge - to find the best internet advertising solution for our clients," said Marek Jakubovie, media director at Universal McCann.
"Rather than just looking at volumes of people using the internet, there is a move more towards looking at effective target groups of internet users," he explains. "And with the internet, clients have learned that you have to aim as close as possible to an ideal, target customer."
Changing customer demands are already beginning to feed through to Zoznam's operations, and not always in a positive way. What advertising agencies say is a relative preponderance of 'interstatial' or interactive advertising, demand for these types of ads has actually cost his firm visitors to the Zoznam site, reported Alner.
"Problems come when customers want more than just a banner ad, as they seem to always do. Connections here are usually through dial-up, meaning that the ads take a long time to download and users find it inconvenient. Of course they won't wait five minutes while an ad downloads, so they say to themselves 'I'll go to another web page where I don't have to wait so long'," says Alner.
"It's a vicious circle: we lose users because of ads, but we need the ads to survive. We just have to try and keep some sort of balance."
