broken globeThere’s a nasty little blog debate in progress today between Wharton School of Business professor Eric Clemons and some industry analysts about whether internet advertising actually works. Before you draw a big breath, knit your brow and get ready to enter the debate, relax a bit. Of course it works. Clemons’ missive provides an opportunity to restate the case for internet marketing.

Clemons, professor of operations and information management at The Wharton School ranted on TechCrunch today that the “internet is not replacing advertising but shattering it, and all the king’s horses, all the king’s men, and all the creative talent of Madison Avenue cannot put it together again.”

His three basic reasons: consumers don’t trust advertising, they don’t need it, and they don’t want to view it. He urges internet content providers to turn to other sources of monetization such as paid content, and paid access into social communities. Both good ideas, and he has other ones. However, his reasoning aside, advertising continues to reinvent itself and connect to human emotion. It is there that Clemons’ argument starts to get thin.

A new study from Nielsen IAG fuels the argument that internet advertising does work. It researched the effect that financial services advertising has on customer confidence. Says Nielsen, consumers are more likely to have confidence in ailing financial brands if they see ads for them during the economic downturn. What doesn’t work is “pulling back on their advertising and marketing efforts to cut costs to avoid the appearance of wasteful spending, according to the study, which suggests that these institutions are actually putting their long-term brand health at risk.”

When asked about their own financial institutions, the study found that 55 percent of consumers who say they had seen more advertising reported having “complete confidence” in the financial health and soundness of their financial company, while only 18 percent said they had “little or no confidence” in their company. Among those who said they had seen less advertising, only 18 percent had “complete confidence” in their financial company and a significant 45 percent said they had “little or no confidence” in their company.

With all the talk around how much actual budget companies assign to the internet, it showed equality in results. Respondents said their confidence was improved by receiving regular mail or email offers from that institution (25 percent) and regularly seeing internet offers/advertising from that institution (21 percent).

The study comes on the heels of other recent Nielsen reports that show year-to-year reductions in advertising expenditures in the financial services and insurance categories. Year-over-year ad spending on financial services and insurance was down 13.4 percent in 2008 compared with 2007. The dropoff was even sharper (-23.3 percent) for Q4 2008 vs. the same period in 2007, according to Nielsen.

Now, advertising did not save any bank or insurance company. But the data here show that an intangible emotion can be affected by advertising. For banks, confidence from consumers might right up there with government bailout as a key to the future. Whether it not internet marketing works it not a semantic debate that banks could afford to have.