Reference no: EM133349121

Online Advertising is Booming: Here's Why

For several years, Internet advertising has been the only major media ad category to show significant growth. Online ads boomed during the pandemic as people worldwide spent more time in front of screens than ever before, U.S. elections attracted an unprecedented amount of spending, and online advertising is poised to overtake traditional advertising for the first time ever in 2021. There are three factors driving online ad growth trends: (1) increased user time online, (2) improved measurement and accountability, and (3) targeting.

Americans (and citizens in many other nations) spend more time on mobile devices than they do watching TV. So advertisers are simply following the market. Online channels also provide advertisers with a way to reach consumers at work-something that was previously much more difficult to do.

Many advertisers have also been frustrated by how difficult it's been to gauge the effectiveness of traditional ad channels such as TV, print, and radio. This frustration is reflected in the old industry saying, "I know that half of my advertising is working-I just don't know which half." Well, with the Internet, now you know. While measurement technologies aren't perfect, advertisers can now count ad impressions (the number of times an ad is shown on a website), whether a user clicks on an ad, and the product purchases or other website activity that come from those clicks. And as we'll see, many online ad payment schemes are directly linked to ad performance. Various technologies and techniques also make it easier for firms to target users based on how likely a person is to respond to an ad. In theory a firm can use targeting to spend marketing dollars only on those users deemed to be its best prospects.

Ad Formats and Ad Purchasing

Online ads aren't just about text ads paid for on a cost-per-click (CPC) basis. Ads running through the Google Display Network or on most competitor networks can be displayed in several formats and media types, and can be billed in different ways. The specific ad formats supported depend on the ad network but can include the following: display (or image) ads (such as horizontally oriented banners, smaller rectangular buttons, and vertically oriented "skyscraper" ads); rich media ads (which can include animation or video and sometimes encourage user engagement or interaction); and interstitials (ads that run before a user arrives at his or her intended destination in a website or app). There are also various formats for other forms of digital advertising, such as video and in-app ads. The industry trade group, the Internet Advertising Bureau (IAB), sets common standards for display ads so that a single creative (the design and content of the advertisement) can run unmodified across multiple ad networks and websites.

One of the most popular ways that online advertising is sold is cost-per-click (CPC), sometimes referred to as pay-per-click. The search ads that you see on Google's website are sold on a CPC basis. Under CPC, the advertiser pays nothing if the ad is displayed; they only pay if the consumer clicks through an ad. Advertisers love this approach since it's so return-on-investment focused. You pay nothing unless you have evidence that someone has responded to an ad. Even though you would rightly wonder about the effectiveness of such a mechanism, since you may go days without clicking an ad, this method is responsible for the majority of ad revenue at Google, the most successful advertiser that the world has ever seen. More info on Google CPC and how ads are presented appears in Chapter 20 "Google in Three Parts: Search, Online Advertising, and an Alphabet of Opportunity".

And there are lots of other ways ads are sold besides cost-per-click. Most graphical display ads are sold according to the number of times the ad appears (the number of impressions). Ad rates are quoted in CPM, meaning cost per thousand impressions (the M representing the roman numeral for 1 thousand). Display ads sold on a CPM basis are often used as part of branding campaigns targeted more at creating awareness than generating click-throughs. Such techniques often work best for promoting products like soft drinks, toothpaste, or movies.

Cost-per-action (CPA) ads pay whenever a a user responds to an ad by performing a specified activity, such as signing up for a service, requesting material, or making a purchase. Advertisers have also negotiated flat-fee advertising deals, such as YouTube masthead takeovers that featured promotions from a single advertiser. Such efforts cost advertisers upwards of $2 million a day before YouTube switched to impression-only advertising for the site. Affiliate programs are a form of cost-per-action, where vendors share a percentage of revenue with websites that direct purchasing customers to their online storefronts. Amazon runs the world's largest affiliate program, and referring sites can earn 4 percent to 15 percent of sales generated from these click-throughs. Purists might not consider affiliate programs as advertising (rather than text or banner ads, Amazon's affiliates offer links and product descriptions that point back to Amazon's website), but these programs can be important tools in a firm's promotional arsenal.

And rather than buying targeted ads, a firm might sometimes opt to become an exclusive advertiser on a site. For example, a firm can purchase all ads served on a site's main page; it could secure exclusive access to a region of the page (such as the topmost banner ad); or it may pay to sponsor a particular portion or activity on a website (say a parenting forum, or a "click-to-print" button). Such deals can be billed based on a flat rate, CPM, CPC, or any combination of metrics.

Question:

After reading the passage above, put yourself in the role of a traditional media firm that is seeing its market decline. What might you do to address decline concerns? Have these techniques been attempted by other firms? Do you think they've worked well? Why or why not?