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Online marketing will build on recent innovations and continue strong growth in 2007.

A lot of things happened in the online world in 2006 that no one could have predicted - that Google would pay $2 billion for an amateur video network, or that almost 2 million people would take up virtual residence in Second Life.

Of course, that doesn’t stop us from making predictions about the things we think are likely to happen next year. So without further ado, here are my thoughts on online trends to watch out for - and capitalise on – in 2007.

Company websites and branded sites will become cool

This is the trend that corporates the world over have been waiting for – customers flocking to your website to see what you have to say.

In the US, the Proctor & Gamble website is boasting six million unique visitors a month, while Unilever is reaching three million customers a month. That’s a lot bigger than the audiences for many of the magazines and TV shows where they advertise.

How do they do it? Advertising Age reports that “much of the traffic to the big package-goods marketers’ sites appears to be coming the way originally envisioned in the online advertising model: as a response to online display advertising.” Ad-heavy sites such as Yahoo are driving more traffic than search traffic from Google.

In the case of Unilever, a lot of the traffic is being generated by its “Dove Evolution” viral video, which shows an ordinary-looking woman getting the full make-up and Photoshop treatment to turn from frumpy to thin and glamourous. It clocked up more than three million views in the first two months after its launch in October, and helped generate a 34% overall increase in visitors to Unilever websites.

Brands are also driving traffic by participating in the growing community activities available on the Web, such as user-generated videos. Coke has introduced branded video holiday cards in a promotion on YouTube that has been taken up by hundreds of thousands of customers.

A recent Nielsen BuzzMetrics study showed that one-third of creators of consumer-generated media (think YouTube or bloggers), also provide email feedback to companies or brands via their websites, and 13% participate in brand or company blogs - well above the norm for the general population.

There’s money in those online customers. Another study by McKinsey for an unnamed consumer brand showed that while its website reached only 800,000 consumers a year, those consumers were generating $40 in profit on average, compared with $5 for consumers reached by traditional media.

Podcasting will grow, but don’t call it a revolution

The number of Internet users who report that they have downloaded podcasts to listen to something (music, a radio show, a speech, etc.) at a later time has practically doubled over a six-month period this year, according to the Pew Internet & American Life Project. However, it’s still only 12% of Internet users (up from 7% early in 2006), and only 1% of those users tune in regularly to podcasts, according to Forrester Research.

It is estimated that there are more than 60,000 podcasts available for users to sample, which could account for the lack of regular use – maybe there is just too much choice at this point in the evolution of podcasting.

About half of iTunes’ top 100 podcasts are from traditional media companies (see also my prediction about traditional media companies below), indicating that radio has little to fear and much to cheer about podcasting.

The Pew study’s author, Mary Madden, says, “Podcasting is still in its infancy. It is unlikely that it is going to usurp traditional media. It is more likely that it will become one of the many different ways that we get content in an increasingly mobile environment.”

Better TVs will hasten PCs dominance

This one is counterintuitive. Why would improvements in TV picture quality such as LCD screens strengthen the growth of computers? Because LCD screens, which offer better quality, clarity, brightness and movie-screen ratios than plasma screens (as well as an even flatter screen), can easily be plugged into the back of a computer and used as a monitor.

For people who don’t have the room or the inclination to give up tens of square metres of space for a home theatre setup, LCD screens used with computers are a good compromise in these situations, and they are already cheaper than equivalent-sized plasmas.

ClickZ columnist Gary Stein writes, “Consumers will begin to realise they can buy a movie on iTunes, plug their computer into the TV, and watch the movie on TV. From there, it will be a short step to realise that a cheaper, purpose-built computer may be better for the job, and the path to our digital television future is paved.”

In Australia, a University of Sydney study shows that 25% of people already download TV programs twice a week or more (many of them illegally), and downloads are now the main form of TV viewing for more than 20% of respondents. How many of them will be watching on an LCD screen in 2007?

Newspapers will have a revival - online

The Newspaper Association of America (NAA) is predicting that ad spending in newspapers in 2007 will be flat or even negative, pulled down by a decline in classified advertising and no growth in demand from national advertisers.

But while that decline can be laid firmly at the feet of the boom in online advertising, don’t feel too sorry for newspapers, because they are also cashing in on online ad growth. The NAA also predicts spending for ads on newspapers’ website will increase by 22% in 2007, following on from a 34% increase in 2006.

Media research firm Borrell Associates has predicted with within 10 years, ad revenues from many newspaper websites could be as large as the newspapers themselves.

Mobile entertainment content will skyrocket

All this talk about computers - let’s not forget about mobile phones. The increasing use of 3G networks means that the total global mobile entertainment market (including gambling, adult content, mobile games, mobile music, mobile TV and entertainment) will grow from $17.3 billion in 2006 to nearly $50 billion by 2009.

While today music downloads makes up the largest proportion of mobile entertainment content (and 80% of the music content is ringtones), music will be overtaken by mobile gaming, mobile TV and mobile gambling by 2011.

This is one area where the Asia-Pacific is dominant over North America, with 41% of mobile entertainment revenues currently being generated in our region.

Virtual worlds will become immersive marketing platforms

There is an enormous difference between the first generation of brand placement in computer games and what is now possible with 3D worlds like Second Life. Executed properly, this is a very clever way of infusing brands into online life.

More and more companies will launch extensions of their businesses in virtual worlds which will be used as super-charged, technology advanced marketing and communication tools.

And to some extent many of the virtual products and services developed for consumption in online worlds will become blueprints for new products and services in the real world.

There is one common theme through these predictions - in 2007 the magic will continue online. Good content drives traffic and effective branding. Cleverness and creativity is more important to marketers than ever before - not in terms of advertising messages, but giving consumers what they want so they will visit you online. Companies that understand this will prosper in 2007.

Simon van Wyk takes a look into the frenzy of excitement around the rich virtual world of Second Life and what it holds for brand marketers.

BusinessWeek put Second Life onto its front cover in May this year accompanied with the provocative headline “Virtual World, Real Money”. Since then the 3D virtual world has never been far away from the media spotlight.

Now home to close to 1.9 million super savvy, switched on individuals, media coverage has intensified lately for two major reasons. Firstly, there’s an increasing number of brands moving into the space and secondly the link between the thriving, if fledgling, virtual economy and real world US dollars is suddenly enticingly apparent.

It seems that so far most of the money being made in Second Life is a result of virtual land speculation. Just last month, a Second Life property tycoon Anshe Chung, known in our world as Ailin Graef, announced that she had amassed virtual assets worth over $US1 million purely by buying and selling land within Second Life.

But it’s just a game - isn’t it?

Not exactly. The 3D world is attracting savvy digital natives from around the globe and with them opening up major new branding opportunities for switched on brands. Second Life is a virtual world that anyone with a broadband Internet connection can be belong to. In Second Life you create a virtual identity or avatar and live out an imaginary life. In this virtual world using the software’s tools you can hang out, meet people, visit music and film festivals, buy things, build things, create things and sell them all for Linden dollars - the game’s currency. At virtual currency exchanges you can convert your stash of Linden dollars into cold, hard US dollars.

As the site says: “From the moment you enter the World you’ll discover a vast digital continent, teeming with people, entertainment, experiences and opportunity. Once you’ve explored a bit, perhaps you’ll find a perfect parcel of land to build your house or business.”

A thriving economy

Most Second Life residents just hang out there for free. But there is a growing interest in buying land in the virtual world. Happily though, we’re not talking about Sydney real estate values with a typical parcel of land selling for the equivalent of US$15. Businesses on the other hand are splurging on private islands and building stunning architectural masterpieces for their Second Life headquarters or reinventing the retail experience with ambitious landmark designs for their flagship stores.

Of course, it’s not just land that you can buy. Second Life residents can purchase a growing array of products and services from apparel and footwear, cars and hotel accommodation.

For brands that are finding it increasingly difficult to get traction with other forms of media, Second Life offers a halcyon environment - a truly social world where consumers can immerse themselves in the brand. No doubt helping to strengthen the brand appeal in the real world.

The connections across Second Life run deep

The first thing most new residents do is to join a group - depending upon their interests and virtual lifestyle needs. Marketers can tap into this connectivity by creating groups to which interested residents can join and in that way enabling the brand to exercise precision marketing campaigns and enjoy the connectivity inherent within the targeted groups.

So it’s no surprise that for some time now companies have been opening virtual extensions of their businesses in Second Life and using the virtual world as super-charged, technology advanced marketing and communication tools.

From opening up virtual stores or offices, to conducting market research and testing virtual products, Second Life is quickly becoming an effective marketing platform and realising a number of communication objectives, both internally and externally.

For instance, a presence on Second Life could be used to establish employee collaboration and networking opportunities. Or consider the test marketing and research potential. There’s also the opportunity for real world event tie-ins and promotion. Indeed the clothing retailer, American Apparel, proudly boasts a fabulous retail environment in the virtual world and offers a 15% discount to Second Lifers who visit online and later shop in a real world store.

The key aspect of getting into Second Life is to develop the brand within the virtual world and translate products into virtual ones.

A taste of the trend setters

Teleporting is the preferred means of transport in Second Life allowing residents to fly off anywhere in the Second Life universe at a whim. So whilst cars are totally unnecessary, it’s interesting to see that car manufacturers are creating a strong presence in the virtual world in the hope of making a strong impression in the real world.

For instance, Toyota opened a dealership in Second Life in its own neighbourhood called Scion City. Here it sells three models of its Scion which are all fully customisable. The virtual vehicle costs about 300 Lindens - or about US$1.00.

Meanwhile Nissan provides its Sentra to Second Life residents free of charge. Residents pick up their cars from a gigantic vending machine the size of an office building and then take their Sentra for a spin on the Nissan Island test track.

And GM has a Pontiac dealership which sells the Solstice GXP. Like the Toyota Scion, it’s fully customisable and comes in absolutely any colour you want. GM has also created Motorati Island where it is giving away land grants to residents who are interested in spending time in car related projects.

The new retail experience

American Apparel was the first clothing brand to set up shop in Second Life. With its imposingly sleek store, it’s a very cool environment to check out their label. Adidas and Reebok both boast flagship stores on private islands. In the Adidas store, customers can test the bounciness of their Adidas sneakers on a special trampoline, while Reebok extends its real world marketing by only selling white shoes and allowing customers to customise and colour their shoes to their particular tastes.

Serious money

ABN AMRO, the Netherlands’ biggest bank has opened a branch in Second Life that offers financial advice and is set to create a virtual bank that resembles ABN’s real-life branches.

Serious entertainment

SONY BMG Music Entertainment has created a feature-packed space on The Electric Sheep Company’s Media Island. Their space contains fan zones for leading SONY BMG artists with video and audio content. The company plans to experiment with selling music within Second Life directly to residents.

Meantime, Sun Microsystems has created the Sun Pavilion as a better way to reach out to developers and customers than conference calls or webinars.

Whilst Starwood Hotels owner of Westin, Sheraton, and W chains is testing out a new loft-style hotel in Second Life called aloft. The virtual world provides a test market for the hotel’s design and a means to prototype the evolving design.

And respected news service Reuters has opened up a news bureau inside the virtual world and, very smartly, has employed a virtual reporter to cover it full time.

The test market

It’s easy to see why companies are flocking to Second Life. Residents in Second Life are giving companies first hand insights into what they would like to do by enjoying experiences that aren’t quite possible in our world.

And whilst traditional media is losing its appeal, having a presence on Second Life certainly suggests being in touch with the latest trends and an understanding of where the market is headed.

Although the number of residents at 1.8 million and counting is not vast, these residents are pure gold - technologically savvy early adopters - key influencers that are vital to brand building.

Of course the brands spending real marketing dollars to create a presence in the virtual world will need to establish clear measures of success. At this stage, it would be fanciful to expect to generate revenue from such a presence, but the benefits of providing immersive branding experiences will undoubtedly flow through to real world perceptions.

Clearly, for a company considering jumping into Second Life now, serious homework is needed. But Second Life gives consumers an opportunity to engage with a brand on so many levels. And what I think is becoming apparent is that companies will all need to have virtual world extensions of their real world businesses in order to gain a foothold into new products and services development.