If you want to argue that advertising on the Web is a waste of money, you won't convince the executives at NextCard.

The San Francisco-based company advertises exclusively on the Internet. Since its founding four years ago, NextCard has attracted 880,000 customers. In the last year, largely because of falling rates for banner ads, the cost for the company to acquire a customer online dropped from $95 to $49.

'We do virtually no off-line advertising,' said Daniel Lemin, a spokesman for the company. 'We've held course, and it's paid off for us.'

That attitude is not limited to one company. In fact, while mainstream thinking tends to lament the failure of Internet advertising to support Web sites, some media analysts offer a different outlook: They're optimistic, and they're giving good reasons for it.

'The rumors of our death have been greatly exaggerated,' said Kevin Wassong, senior partner and director of digital@jwt for the J. Walter Thompson agency in New York. 'I'm still very bullish on this, and I think we will come out of this sluggishness in the next six to 12 months.'

Further, he said, advertisers are aware that 'the reality of it is, people are online. They continue to spend more time online, and that's not going to stop.'

The cost of online advertising has fallen so low this year that companies are buying ads in greater volume. Because of the low cost, advertisers are experimenting with new ways to reach people online, and they are looking beyond the low click-through rates to gauge the effectiveness of advertising on the Web.

In this environment, analysts say, someone is bound to hit a winning idea. The producers of online ad campaigns are creating conceptual work that reaches well beyond the large banners, pop-up boxes and floating objects that have become pervasive on the Web in recent months. But because of substantial blurring between content and advertising, some of the most potentially profitable concepts could present ethical problems for those who manage news sites.

Research by AdRelevance, a division of Jupiter Media Metrix, shows that the volume of advertising on the Web has increased substantially this year.

The first week of January, the company captured 13.3 million impressions in its monitoring of close to 1,000 Web sites. The third week of May, the company captured 16.9 million impressions.

An impression, by the researchers' definition, reflects the number of times an ad is rendered for viewing. AdRelevance calculates that number by multiplying the traffic on a Web site by the rotation of the ad.

One reason for the increase in volume: drastically dropping rates for advertising.

Through surveys of the Web sites it tracks, AdRelevance found that the average site offers the rate of $25 per thousand impressions - down from $33.22 in the fourth quarter of 1999. Half of the Web sites surveyed reported charging less than $25 per thousand impressions. Those numbers do not account for discounts off the rate cards, a practice that is increasing in the current climate.

Even so, advertisers would not buy the ads at any rate if they were not getting something out of them.

'There are a number of advertisers who clearly know that this process is working for them,' said Charles Buchwalter, vice president of media research for AdRelevance.

The key, he said, is to boost the interest of major advertisers like Pepsi, Nabisco and Proctor & Gamble. 'This industry will take off once these companies embrace it,' Buchwalter said.

Pepsi Cola, for one, launched its first major Web-based promotion last fall. The company moved its Pepsi Stuff promotion entirely to the Internet. In the past, customers would mail in bottle caps, then wait to have items like sweatshirts mailed back to them. During the Web-based promotion, customers got 10-digit codes from a bottle caps, plugged them into a Web site, and earned points toward prizes like CDs and DVDs.

Not only did handling the promotion online save the company money on postage and color brochures, but it may have pushed sales as well. For 20-ounce and 1-liter bottles - the two products that featured the promotion - sales increased by 5 percent.

'It's hard to correlate sales to one particular promotion, but we think it had some kind of impact,' said Dave DeCecco, spokesman for Pepsi Cola.

The company also registered 3 million users on the site, and 80 percent of those individuals indicated they wanted to hear from Pepsi again.

In its most recent campaign, Pepsi worked with Yahoo! and Britney Spears to push users to a site with features like 'Britney's Diary,' exclusive interviews and behind-the-scenes footage of the pop star. At one point, Pepsi bought every banner ad on the front page of Yahoo! for a 48-hour period. Large skyscraper ads featuring Britney received a click-through rate of 10 percent.

The company went to the Internet to connect with teen-agers.

'We've got to find as many ways as possible to reach teens,' DeCecco said. 'We want them to become engaged with our ad.'

Now, the Internet component makes up 2 percent of the company's advertising mix, and at some times during the year, it makes up as much as 4 percent of the mix. The advantage of advertising on the Web, DeCecco said, is that 'you can't get a database off a TV commercial.'

In keeping with that approach, the creators of Web-based advertising are edging away from the notion of selling the medium on the basis of click-through rates.

Instead, the idea is to use the Web as part of promotions across several media to reinforce brand names, much the way billboards are used. AdRelevance found that 63 percent of the ads it captured online in the fourth quarter of 2000 were designed to encourage consumers to remember brand names, and only a little more than one-third sought click-through.

The previous quarter, only 57 percent of ads online were designed to reinforce brand names, and 43 percent sought click-through.

Some companies, like BMW, are going to great lengths to use online tricks to reinforce brands. BMW is running a campaign in which television ads show a trailer for a short film, and users, after giving their e-mail addresses, can download the full film from a Web site at BMWfilms.com.

On the site, users have an option to download the 'BMW player,' which conveniently leaves the manufacturer's logo on the user's desktop. (This campaign is unquestionably targeted to the well-equipped user; it takes five minutes to download a large-sized six-minute film on a prime T1 connection.)

In the Lipton Brisk campaign (www.liptonbrisk.com), users move between the Web sites of seven sponsors and complete a challenge on each site to register for a contest.

The objective of campaigns like these, Wassong said, is to create an experience like a movie that never ends.

'It's creating a whole user experience both in the online and off-line world,' Wassong said. 'That's exactly what marketing is all about - not letting them leave the movie.'

Another popular device is the product-driven search engine. Modem Media, an interactive marketing firm in Norwalk, Conn., has created search tools for companies including Delta Airlines and Kraft Foods. The search engine for Delta, placed in the Yahoo! travel section, allowed users to create itineraries. The search engine for Kraft Foods produced recipes that used Kraft products and was placed on sites like FoodTV.com.

Sharon Katz, vice president and director of media for Modem Media, said some product-driven search engines have produced click-through rates of more than 100 percent because individuals go back to use them several times.

One reason for the high click-through rates, she said, is that the search engines are well-integrated into the sites.

'It looks like part of the content,' she said.

Although that look-alike component helps sell the concept to advertisers, it clearly presents problems for news sites. Analysts predict this kind of integration will become even more pervasive as broadband connections reach more households.

Wassong described it as an evolution of the magazine advertorial. He said that news executives, as the medium develops, will be forced again to wrestle with standards for advertising on news sites.

'At some point,' he said, 'church and state are going to have to get together to find out where that line is. The hardcore news publications are going to have to find a way to integrate a marketing message that does not cross the line.'