If recent surveys are trustworthy, almost 10 percent of Russians and a quarter of Muscovites log on to the Internet. The most popular sites and portals, such as Yandex, Rambler or Lenta, have a regular audience of millions.

Advertisers are clicking on to the fact that many of their potential customers may be surfing the Web, and the Russian Internet advertising industry is beginning to take shape.

"Internet advertising is not a fashionable toy any more like it was in 1997; it's a normal working instrument, and it's growing as fast as it can," said Timofei Bokarev, CEO of Promo, one of the leaders in dedicated Internet advertising in Russia.

Bokarev, whose firm has published an "Encyclopedia of Internet Advertising" on its Web site, said firms were waking up to the selling potential of the Internet. "Things have changed for the better. Many companies have learned to analyze their activities on the Internet and learned to treat the Web as just another marketing tool."

What is beginning to happen is that new types of businesses are becoming interested in Internet advertising as the potential audience expands, specialized Internet advertising agencies said.

In the early days, IT companies dominated the market because they were the only ones who could be sure their potential customers were online. But that has and is changing gradually, said Vera Bondarenko, media director of the MediaStars agency, which works with the Internet as well as other media.

"There is still the opinion around that it's only IT companies that advertise on the net," she said. "Yes, a big percentage of advertising space is still taken up by IT, but, over the last year, we've seen other clients take a share, many of whom are setting aside advertising expenditure for the Internet – automobiles, construction companies, financial firms. Now banks and real-estate agents are actively pursuing Internet advertising, and even beer companies are getting in on the act."

But despite this apparent enthusiasm, the Internet is not necessarily a gold mine, simply because the audience is very limited. "The audience made available through the Russian Internet is less than 10 percent, and the resources [sites] available for pushing the biggest brands can be counted on your fingers," said Bondarenko. "The reason why many FMCG firms don't invest in Internet advertising is simply because they know the audience is too small."

A survey published by the Fund for Social Opinion in September put Internet use in Russia at 9 million, or 9 percent of the adult population. In Moscow, this figure is much higher, at 27 percent. A quarter of users are said to log on every day. Another survey by MASMI Research Group estimated that the average income of Russia's Internet users was $800 a month, well above the national average.

The 10 most popular Web sites for that small army of 9 million are led by Yandex and together control more than half of the advertising revenue. One major agency said that a big campaign aimed at capturing a mass audience could cost upwards of $50,000.

Renting a big banner on the likes of Yandex is, naturally, expensive. A main banner on a homepage measuring 600 pixels by 60 pixels will set you back $40,000 for one week. On lenta.ru, the most popular news site, the main 120 pixels by 600 pixels banner on the home page costs $13 for every hit.

Arsen Revazov, president of the Internet Media House, the Web division of advertising giant Video International, told The Russia Journal the Internet advertising was grossly underpriced because of insufficient knowledge among potential buyers of advertising space.

"[Companies] don't know what CTR is, how a normal site differs from a promo site, how targeting works, what rich media technologies are. That's why there is such a huge mispricing of the Internet as a medium," he said.

CTR stands for "click-through rate," which is the number of site visitors who click on a given advertisement.

As an example of this distortion, Revazov pointed out that Vechernyaya Moskva, a newspaper with a circulation of 50,000 copies, mostly sold to people with low incomes, earns up to $200,000 a month from advertising. By comparison, lenta.ru, with an audience of about 500,000 mostly middle- to high-level earners every month, earns only about $50,000 a month in advertising revenue.

"This is a marketing absurdity," said Revazov, "the reason for which lies in sparse knowledge of the Internet among normal advertising agencies and their clients."

This lack of knowledge of what the Internet is really about as a marketing tool takes various forms, from simple misunderstanding of what is involved to a naive belief in the salutary power of the Internet to generate new business.

"Russian companies like to think they know a lot about the possibilities of online advertising," said Maria Grachyova of the Breakthrough agency. "But they have only public information, which is always the self-advertising of the agencies. As a result, many companies are sure that the Internet will solve all their marketing problems."

She said the number of clients turning to Breakthrough for online advertising has doubled, but that over half of new requests are simply spurned because the firm has not grasped what is really possible on the Internet. "We have many requests from small printing agencies, and we can't help them; the cost of online-attracted clients is more than the profit from this type of client," she said.

"It seems that it would be better if new clients were as fresh-minded about the Internet as they were two or three years ago. Now we have to destroy their myths of nonstop profit before we can start serious collaboration," Grachyova added.

But despite those cautionary words, there are companies that can and do achieve success through their efforts to reach the Internet audience. Car manufacturers have been chief among the rising players in Internet advertising. BMW, for example, recently sold four seven-series cars as a direct result of Internet users double-clicking on one of its advertisements; the company has tripled Internet spending in its advertising budget for next year.

Mobile-phone companies, whose own market corresponds quite well with the Internet audience in Russia, have invested a great deal of effort in Internet campaigns. The Dzhins campaign from MTS was launched with an Internet gimmick involving colorful spots exploding from the main banner of top Web sites.

Megafon, another mobile operator, also claims it has a strong commitment to the Internet advertising. "The Internet has been very important to us right from the beginning," said its marketing manager, Dmitry Smetanin. He said the 5 percent of Megafon's total advertising budget that is devoted to the Internet is a "small amount."

But, given that mainstream advertising agencies as a general rule spend a lot less than 1 percent on Web-related projects, this figure takes on a greater significance.

"We are getting very good results from the Internet, but it will probably stay at around 5 percent next year," said Smetanin, adding that Megafon has two people in the marketing department focused exclusively on harnessing the opportunities presented by the Web.

The actual size of the market is the subject of considerable controversy. For example, Bokarev of the Promo agency estimated last year's total Internet ads market to be worth some $6 million. This year he estimates $12 million and next year "no less than $20 million," boosting the sector's share of total advertising spending towards 1 percent.

But, according to the Russian Association of Advertising Agen-cies, the first nine months of 2002 saw $6 million of expenditure on Internet ads, which should reach $9 million by the end of the year.

In fact, in a brief round of surveys conducted by The Russia Journal among the major market players, estimates of this year's market value ranged from $7 million to $17 million. And if that was not strange enough, the Russian Chamber of Trade and Industry valued last year's market at $3 million to $5 million, while at the same time one leading Web site operator – RosBusinessConsulting – confused observers by claiming an income of $7.75 million for itself alone.

But despite the controversy about figures, even a casual browser of the Russian-language Web sites can see that the number and the range of advertisements is on the rise. The question for the Web sites and Internet advertising agencies is what they can do to attract more business.

"There is still much to do in terms of popularizing the Internet among advertisers," said Andrei Chernyshev of the AdWatch agency. "One of the problems is that there just isn't enough being done in terms of quality offline research into the Internet audience. Such research costs a lot, and up until now the market simply hasn't allowed it.

"We hope that, in the future, Internet agencies and sites can cooperate to produce this kind of research. As soon as we have it, the agencies and advertisers will have real data, which can help a great deal in terms of building trust in approaching the idea of advertising on the Internet," he said.