Mixed messages

In a world where advertising is pasted onto buses, propped up along roadsides

and flashed from most commercial Web sites, there remains one domain where

the medium is not yet at home: government Web pages. But this area, too,

is in Madison Avenue's sights.

A handful of state and local governments' Web sites display insurance,

automobile, bank and technology advertisements. While the ads get a lot

of eyeballing from citizens, they also get scrutiny from government officials.

Governments are looking hard at the idea of accepting ads on their sites

because they're interested in the extra money they might generate. But they're

most interested in how the public will react. They worry about conveying

an image of favoritism or endorsement or, even worse, the appearance

that advertisers have a say in site content.

So most municipalities are taking the wait-and-see approach. "This is

an industry that likes to see what their peers are doing in the marketplace,"

said Rishi Sood, a principal analyst with Gartner Group Inc., a market research

firm. "It's never a first-advantage, first-mover industry."

Still, some municipalities and states have decided the potential revenue

is reason enough to give Web advertising a try. And at least one company,

eGovNet of Ohio, has decided the potential market is compelling enough that

it has created a new business focused on government Web advertising.

Should these early deals work out as intended, and should the public

take it in stride as they do other advertising strategies, the potential

for growth is undeniable.

One of the first localities to take the plunge was Honolulu. After suffering

through a recession that lingered through the better part of the last decade,

Honolulu needed a ticket into the Digital Age. The city had a Web site,

but a tight budget made e-commerce services a reach. Enter the private

sector.

The city decided to consider charging citizens convenience fees for

e-services and selling ad space on its Web site.

"Regardless of which company we would have gone with, providing e-commerce

had to be done at no cost to the city," said Courtney Harrington, deputy

director of Honolulu's information technology department.

Hawaii Internet Consortium, a subsidiary of National Internet Consortium,

said it doesn't support advertising, only convenience fees. EGovNet, a Columbus,

Ohio-based e-government provider, proposed charging convenience fees and

using advertising. Ad revenues would be split with the city, which would

get 60 percent.

With full support from elected officials, Honolulu signed a contract

with eGovNet in April. They reasoned that the extra ad revenue would keep

convenience fees low because the company didn't have to rely on fees for

a return on its investment.

Two months later, the first banner ad — for the Bank of Hawaii — appeared

on the site, followed by an ad for The Prudential Insurance Co. of America.

Under terms of the contract, eGovNet hosts the city's portal, which

gets about 700,000 hits a month. It's done for free on the company's equipment

at a downtown Honolulu site. In exchange, eGovNet gets exclusive rights

to post ads on the city's Web site for the next five years.

Little did Honolulu know that it was one of the first localities to

test the waters of what some are predicting will be a tidal wave of this

type of advertising. "There's a part of me that doesn't like it, but the

fact remains this is a part of life," said Harrington, who has fielded inquiries

from interested officials in other localities. "What we can do is...keep

it under control."

Officials of state and local governments that accept ads or are looking

into it said profit isn't the impetus. Rather, they just want to defray

operating and start-up costs while keeping convenience fees low. Representatives

from smaller municipalities said without advertising revenue, they couldn't

offer e-government services at all.

EGovNet is the first, and perhaps the only, company offering such a

deal. The company was formed in July 1999 and created a subsidiary six months

later called govAds to deal specifically with advertising on government

Web sites. The company's goal is to develop a network of public-sector sites,

a one-stop shop for advertisers.

Internet advertising is typically sold based on the cost per thousand

impressions, or CPM. When a user accesses a Web page, measurement software

counts it as an impression. So, for example, a $50 CPM for 200,000 page

views would cost an advertiser $10,000.

Honolulu received about $7,800 for the quarter ending Sept. 30 from

its first two ads. (Ads for BMW and American International Group Inc. have

since appeared on the site.) Harrington said the site will display no more

than 10 advertisers on a page, which could generate up to $100,000 annually

for the city. He said eGovNet has probably spent $500,000 on the city's

portal so far. But that's peanuts compared to the potential windfall from

advertising, company executives said.

"They have a monopoly," CEO and co-founder of eGovNet Tim Bartlett said

of government Web sites and the traffic they get. A private company might

spend a tremendous amount of money branding their sites to generate traffic,

but government sites get traffic without having to do anything, he said.

On average, state government Web sites get 10.9 million page views,

or impressions, a month. Based on that, governments could generate about

$4 million a year, he said. "The average growth [of page views] of public

sites is 6 percent per month," Bartlett said. "The numbers are astounding

when you do comparisons to the private sector."

According to the Internet Advertising Bureau, a trade association, online

advertising in the private sector surpassed $4.6 billion in 1999 and is

expected to garner between $8 billion and $10 billion in 2000.

But it's too early to tell whether the public sector will produce the

same results. "We're probably at the start of that period," Sood said about

the Gartner Group. "I don't see a lot of activity taking place over the

short term."

Sood declined to predict advertising revenues in the public sector,

but said smaller municipalities, with fewer resources, might be more likely

to consider advertising. Officials at eGovNet also declined to share their

public-sector projections.

In October, Salt Lake City signed a three-year deal with eGovNet that

includes advertising. "I think many cities face budget constraints and that's

true here," said Deeda Seed, the chief of staff for Mayor Ross "Rocky" Anderson.

"[Advertising] seemed like something worth trying."

When the mayor took office a year ago, he considered advertising as

an option to help pay for a revamped Web site. A new site will be launched

in four months with expanded online services. Ads are expected to appear

on the site before then.

For eGovNet and potential advertisers, the city could be a gold mine

because it will host the 2002 Olympic Winter Games. The city's special projects

manager, Al Porter, said the site is expected to get a million hits per

week right around the Olympics, and that's a conservative estimate.

"That's the bare minimum," Porter said. "We'll probably get four or

five times more based on a projection by the Salt Lake Organizing Committee."

Officials at eGovNet are confident that seeing ads on government sites

will not turn off the general public. Bartlett said advertising is part

of Internet life, and people are used to it. However, the company does not

want online advertising to be annoying or invasive and instead places ads

where they make the most sense, he said. For example, a user registering

a car would see advertisers for auto insurance, sales, loans and parts.

Seed said Salt Lake City would not hesitate to pull advertising if people

complain. Harrington said Honolulu residents haven't fussed about them,

although he received one e-mail claiming that the city appeared to be endorsing

a business.

EGovNet has rules and standards for appropriate advertising, which is

"limited to advertising of goods and services available for lawful purchase

by individuals of all ages." That means no tobacco, alcohol, obscene material

or other goods and services that minors are legally barred from purchasing.

Jon Allison, eGovNet's general counsel, equated advertising on government

Web sites with what's seen on public television, where companies sponsor

or underwrite programming. "This is no different than PBS getting advertising,"

he said. "It's controlled advertising."

However, some worry about commercial-sector control and influence over

the public sector, and the appearance that governments are endorsing products

or companies.

"It's fraught with some dangers because once you open the door to certain

speakers, you have to allow the door open to anyone," said Jef Richards,

chairman of the advertising department at the University of Texas at Austin.

He said he's "heard a lot of rumblings" from government agencies about the

issue of advertising.

For example, an agency might ask, if a government site posted a Honda

ad, does that discriminate against Toyota? The public might also question

whether government information has been influenced by advertisers. "If you

open it up to advertisers, are you turning over control to the advertisers?"

Richards asked.

Based on case law relating to public transportation property advertising,

such as ads on a metropolitan bus, Allison said his company has the right

to pick and choose advertisers.

"In essence, because government Web sites are a tool by which governments

provide information and services to citizens — and are not vehicles for

public dialogue — governments have significant latitude to limit the content

of ads on their Web sites," he said. If issues of endorsement and favoritism

arise, a government could include a disclaimer, he said.

Among states, Massachusetts appears to be the only one experimenting

with advertising on its Web site. So far, ads appear only on its procurement

site, called Commonwealth Procurement Access and Solicitation System, or

Comm-PASS. Honda EV Plus, TEN Corp., Getronics and Central Reprographics

are among the advertisers. If a user clicks on a certain ad, this disclaimer

appears: "The Commonwealth of Massachusetts does not endorse the following

linked Web site and is not responsible for any of its content, representations

or errors contained therein."

David Lewis, the commonwealth's chief information officer, said the

site began accepting advertising this past summer as a pilot project,

and ads are directed only to statewide vendors. The site also solicits advertisers

through a banner ad called "Your Ad Here." Click on that ad and you're pitched

site statistics (20,000 unique visitors a month), ad size specifications

(234 x 60 pixels) and rates ($200 per month). It says each advertisement

can expect to appear 1,800 to 2,000 times. Lewis said he thought the concept

could fly, but only if done sensibly and with citizens in mind.

For example, if a state resident is renewing a vehicle registration,

then maybe coupons for Jiffy Lube would appear, he said. Or if a resident

is applying for hunting or fishing licenses, then the user could click on

a link for lodges in a particular area.

But he said state officials are still grappling with issues such as

legality and avoiding the appearance of endorsement. "There doesn't seem

to be any middle of the road on this," he said. "It's either do it or don't."

Lewis said a public/private e-government task force is still exploring

the idea and is expected to share its findings this month.

Dierdre Cummings, consumer program director of the Massachusetts Public

Interest Research Group, said the caution is justified.

"We have been raising questions as far as the concern the public should

have when the government is beholden to industry to fund information," she

said. "Some of the information would affect those very businesses. Could

we have faith in the information being presented independent of any influence?"

Other states considering advertising are Florida, Ohio and Texas. Nicolle

Devenish, spokeswoman for Florida's state technology office, said state

officials are intrigued by the idea and discussing it. "It's not something

you leap into," she said.

The Ohio Department of Administrative Services has a moratorium on the

use of ads, endorsements and sponsorships of all state-controlled Web sites

until the issue has been fully addressed.

"We found [the advertising issue] extremely large," said Mary Carroll,

the state's deputy director of information technology policy. "There are

a lot of legal issues to it, and there are also policy issues to it."

Carroll said Ohio surveyed several other states to see what they were

doing, but could not find another one endorsing ads on its Web sites. She

said Ohio's Bureau of Motor Vehicles was considering advertising when the

moratorium was imposed.

In November, Texas released an e-government feasibility study, part

of which looked at advertising as a revenue model. Although it cited surveys

in which 75 percent of residents found advertising entirely or somewhat

acceptable in funding e-government, it cited issues of control, censorship

vs. freedom of speech, implied endorsement by the state and service for

citizens vs. service for businesses.

"The lack of industry standards and guidelines regarding the "best practices'

in Web advertising makes it difficult to determine how to best use advertising

as funding for the state portal," the report concluded.

Several recent studies also acknowledged the increasing buzz about advertisements.

A Brown University study found that 44 government sites — about 2 percent

of the sites surveyed — had some sort of advertising. A University of Texas

study, conducted this summer, said most respondents would rather see advertising

or pay for services directly rather than use general tax funds or sell government-collected

data in support of e-government services.

The public may have the ultimate say on whether advertising is appropriate

on government Web sites. Several government officials said if the public

doesn't want ads on their sites, then they will pull them.

"Under any circumstances, we don't want to make government annoying,"

said Massachusetts' Lewis. "Government can be annoying enough."