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ONLINE AD SPENDING HITS NEW HIGH
have probably noticed that across the Web, two
different things are happening right now:
second trend is true of nearly all commercial
Web sites. There are many new forms of Web
advertising, and they are more and more obvious.
Many Web users have questions about all of these
new ad types. For example:
In this article, we will look at all the different forms of Web advertising in use today, as well as the economics that are driving them, so that you can have a much better understanding of how Web advertising works. Whether you are a casual surfer or someone running your own Web site, you will find this article to be a real eye-opener.
In the Beginning: Banner Ads
In the beginning, "advertising" on the Internet meant "banner ads" -- the 468x60-pixel ads you see at the top of almost all Web pages today (including this one). In 1998 or so, banner advertising was a lucrative business. Popular sites like Yahoo could charge $30, $50, even $100 per thousand impressions to run banner ads on their pages. These advertising rates provided fuel for much of the venture capital boom on the Web. The idea was that sites could start up and increase their page impressions to make easy money from banner ads. If a site could generate 100 million page impressions per month, it could make $3 million per month with banner ad rates at $30 per thousand impressions.
Where did numbers like $30 or $50 per thousand impressions come from? That's what magazines typically charge for full-page color ads. The Internet took the same payment model and applied it to banner ads.
At some point, advertisers came to the conclusion that banner ads were not as effective as full-page magazine ads or 30-second TV commercials. At the same time, there was an incredible glut of advertising space -- thousands of sites had a million or more page impressions available per month, and companies like DoubleClick began collecting these sites into massive pools of banner-ad inventory. The economic principle of "supply and demand" works the same way on the Web as it does everywhere else, so the rates paid for banner advertising began to plummet.
Let's look more closely at what determines banner ad rates.
Banner Ad Prices
Branding refers to the process of impressing a company name or a product name onto society's collective brain. Let's say you have come up with a new brand of soda, or you are opening a new restaurant, or you are selling a new widget. You want to get the product's name (and sometimes the product's features and benefits) firmly planted in people's heads. This is branding.
Branding happens with both new and existing products. When you see a billboard that says nothing but "Coke" on it, or you see a NASCAR car that says "Tide" on the hood, or you see a feel-good ad on TV about a car company or an oil company but there's no mention of a product, that is branding. The advertiser does not necessarily expect you to do anything today -- the advertiser simply wants to impress itself on your consciousness.
On the other hand, a direct sales ad is an ad that is trying to get you to do something today, right now, as you look at the ad. The advertiser wants you to:
...or do some other active thing so that you buy something, download something or sign up for something today. The advertiser counts the direct responses to the ad and measures the effectiveness of the ad by those responses.
What branding advertisers came to feel about banner ads is that banner ads are not the most effective vehicle for branding. Relative to a magazine ad or a TV ad, banner ads are small and easily ignored.
What direct sales advertisers came to feel about banner ads is that the response rate for banner ads is low. For most banner ads, the industry average seems to hover between two and five clicks per 1,000 impressions of the ad. That is, if a banner ad appears on 1,000 Web pages, between two and five people will click on the ad to learn more.
Those five clicks per thousand impressions don't have much value to most advertisers. The reason is because those five clicks will not all generate sales. Out of 100 clicks, perhaps one person will actually do the desired thing (buy something, download something, etc.).
Obviously, paying $300 to sell one book is not a good economic model for a publisher, especially since the budget is $3.00 per book. For this type of advertising to work for the publisher, the publisher would need to pay 30 cents per 1,000 impressions, rather than 30 dollars.
It is possible for some Web sites to charge more than 50 cents per 1,000 impressions. For example, the top 100 or so Web sites can charge a premium because of their size. There is also a process called targeting. For example, if you want to sell a GPS, you can advertise on the HowStuffWorks GPS article and get a targeted audience for your ad, which will typically increase the click-through and response rate for the ad. Yahoo and many search engines target their banner ads to the search words people type in, and they charge more for these targeted ads. But for most other Web sites, there is very little money to be made from banner ads.
In order to charge more than 50 cents per thousand impressions, Web sites have to offer ads that either:
Therefore, you find many different advertising formats and experiments on the Web today.
A sidebar ad has more impact than a banner ad for at least two reasons:
Because of this increased impact, sidebar ads have higher branding power and a higher click-through rate. A typical sidebar ad has a click-through rate of 1 percent (10 clicks per 1,000 impressions), or about two to three times that of a banner ad. Advertisers will typically pay $1.00 to $1.50 per 1,000 run-of-site impressions for sidebar ad placement. Advertisers pay more for targeted sidebar ads, just like they do with targeted banner ads.
Varied Shapes and Sizes
Sites don't get paid much for these smaller ads, because generally the click-through rates are low. But by putting 10 ads on the page, it can add up to $2 per 1,000 page impressions.
Pop-Up and Pop-Under
Pop-up and pop-under ads annoy many users because they clutter up the desktop and take time to close. However, they are much more effective than banner ads. Whereas a banner ad might get two to five clicks per 1,000 impressions, a pop-up ad might average 30 clicks. Therefore, advertisers are willing to pay more for pop-up and pop-under ads. Typically, a pop-up ad will pay the Web site four to 10 times more than a banner ad. That is why you see so many pop-up ads on the Web today.
This page has been set up so that a floating ad should appear every time you load the page. If you have the right browser combination, then you should have seen the ad when you clicked into this page. The ad is about 5 seconds long. It floats over the page and then should settle in the upper right hand corner. If you would like to see lots of other examples of different floating ad campaigns, see UnitedVirtualities.com and EyeBlaster.com.
Floating ads are appearing more and more frequently for several reasons:
The high click-through rate, as well as the greater branding power, means that advertisers will pay a lot more for a floating ad -- anywhere from $3 to $30 per 1,000 impressions depending on the advertiser and the ad. Because they can pay a lot of money, Web sites are willing to run floating ads.
The only problem with floating ads is that they annoy people. Some people become infuriated by them, and will send death threats and three-page-long rants via e-mail. That is why you do not yet see them everywhere.
The annoyance problem points out something interesting about advertising, however. When pop-up ads first appeared, they bothered lots of people and you did not see them on very many sites. After a while, people got used to them and stopped complaining, and now pop-up ads can be found on tons of sites.
Television provides another useful example. If television programs were ad-free today, and suddenly a TV station were to start running eight minutes of advertising every half hour right in the middle of programs, people would go NUTS! There would, quite possibly, be riots in the streets. But since we are all familiar with TV ads, they don't bother us much. In fact, during the Super Bowl, the ads are a big part of the show!
As people get used to floating ads, they will become more common.
If you would like to see examples of ads from Unicast, go to Unicast.com.
A Unicast ad has roughly the same branding power as a TV commercial. However, a Unicast ad offers something that TV ads cannot -- the ability to click on the ad for more information. And people do click on them at an amazing rate -- a 5-percent click-through rate (50 clicks per 1,000 impressions of the ad) is not uncommon.
Because Unicast ads have branding power and because people click on them, $30 per 1,000 impressions is a common rate paid to Web sites. Because they pay so well, they are likely to spread rapidly.
All of these different ad formats are trying to find combinations that give advertisers what they want -- high click-through rates and branding power. In return, advertisers are willing to pay Web sites for running these ads because the ads work.
How Bad Can It Get?
This page could be set up to give you a barrage of advertising:
If there were a Unicast ad playing over the top of it all, that would be a worst-case scenario. It is hard to imagine a Web page having much more advertising than this.
I have never seen a Web site go this far, but some get close. The reason you see things like this is because it pays well. A Web site can, in theory, make between $40 and $50 per 1,000 impressions if every page were loaded with this much advertising. That is a lot of money. On the other hand, this much advertising tends to turn readers off.
Let's create a hypothetical Web company and use it as an example. The company is called XYZ, and it is a small, successful content site. Here are some of its parameters:
XYZ therefore spends $68,000 per month.
If XYZ places banner ads on its 8,000,000 pages per month and gets 50 cents per thousand impressions, it makes $4,000 per month. Obviously, that isn't going to cut it -- $4,000 per month does not even cover one person, or the bandwidth and equipment.
If XYZ is able to sell floating ads or Unicast ads at $30 per 1,000 visitors (not page impressions -- visitors), then the site's 1,000,000 visitors per month can generate $30,000 per month. That, plus the banner ads, gets the company to $34,000 per month. You can see that there is still a problem -- XYZ is only halfway to breaking even. But $34,000 is much better than the $4,000 that banner ads alone would generate.
Keep in mind that there is no guarantee that XYZ will be able to sell all of its ad inventory. It would take a very good sales person (or sales force) to find companies to sign contracts and pay for all of that inventory (8,000,000 banner ad impressions per month, 1,000,000 Unicast impressions per month). There is no guarantee, for example, that XYZ can find companies to pay $30 per 1,000 impressions for 1,000,000 floating ads or Unicast ads. If XYZ is able to sell ALL of its inventory, it is extremely lucky, so getting to $34,000 per month every month is a long shot.
XYZ therefore needs to find other ways to make money. If XYZ now:
...then the company might be able to bring in another $15,000 per month, and it is getting close to its goal of breaking even.
That kind of math is exactly why you see so many ads on Web sites today. It's either:
A Web site is a business, and it must cover its expenses to survive.
Keep in mind that many sites offer an option. If you do not like all the advertising, you can subscribe to the site. For example, HowStuffWorks offers the ad-free server for just $1.00 per month (click here for a 7-day free trial). If ads truly annoy you, or if you simply don't like all of the time that ads waste, then the ad-free option is definitely the way to go.
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