Innovation in Internet Advertising

By: Research Factory

Abstract

The article presents the paradigm shift happening in internet advertisements from banner advertisements to more specific form of advertisements which are much more accountable for advertisers and focused towards customer. It discusses on how Google despite being the biggest disguised form of advertising agency has been constantly changing to be more cost effective for the advertisers at the same time delivering the message to the target segment. We have tried to explain the advertising costing model prevalent in the industry plus the new innovation in internet pricing, tools and advertising methods coming up. Innovations like cost per click and pay per call have lead to serious competition in the online advertising front between MSN’s Adcetre and already established Google’s Adword. The article also discusses Google’s unique Adsense concept which has given business opportunity to thousand of bloggers and non serious website owners.

Introduction

John Wanamaker the man who invented department stores and price tag in 1870 famously said “Half the money I spend on advertising is wasted, the trouble is, I don't know which half.” More than a century later the proverb still holds true and more so for the internet based advertisements. According to a Mckinsey research internet advertisements going to the wrong audience accounts for $332 billion of wasted resources of which $112 billion is spent in America alone. For any marketer this waste of resources is a night mare. In the following article we will try to look at the various tolls and technique which companies and agencies are using world wide to track their advertisement so that it reach the correct audience.

Traditional media like television commercials have come in for serious criticism in the past often relating it to as if dropping an atom bomb. The message hence sent reaches the entire population rather than small fraction of our target. Also television rating point system (TRP) used for measuring viewer ship of program does not take into account viewer’s involvement with the program. For example a person may have switched on the TV and gone in for shower or to his kitchen. Also, the viewer might have switched channel at the time of commercial break or the advertisement featuring men after shave is being watched by a women. Internet advertisements on the contrary are more specific and more narrowed down to the desired target segments. With more than 10 million program recording software like TiVO already being used, agencies are more than skeptical about the future of television commercial. More so consumers also tend to be more alert on the internet. Whereas people might watch a television show in a semi-comatose state of mind and at obtuse angles on their couches, consumers typically surf the web leaning forward while paying attention to the screen.

Internet advertisements which mainly comprises of banner ads, sponsored searches, videos and text files. Innovation is the key for internet advertisements, with advent of video ads their distinct advantage in the inability of user to avoid them plus with additions of sounds and graphics make them more appealing as compared to banner ads. However of late internet advertisements have developed a problem of their own. Often we encounter interruption by mysterious banner ad only to be taken to a site that offers us no value. Internet is more a medium of knowledge than entertainment hence any disconnect between the kind of work we are doing online and the advertisements generates negative feeling towards that advertisement and site. This is unlike in the case of TV where entertainment is the main reason for viewer ship. Advertisers therefore are looking at options which put advertisements relevant to the content of the site and add value to the site. According to Mckinsey report although the inventory of banner ads—$4 billion to $8 billion—appears more than sufficient to accommodate the likely demand of $2.5 billion, advertisers probably won't be interested in much of what's available. The complex task of spreading media spending across thousands of small Web sites, many with different ad formats, means that advertisers tend to return to heavily trafficked sites, where supply is at a premium. Even on the big portals, marketers are leery of having their ads placed near consumer-generated content that might be objectionable. In fact, advertisers currently direct 96 percent of their spending for online display ads to pages that represent just 30 percent of overall Web traffic.

Innovation in internet advertising

The above reason have lead to series of innovative steps being taken by various online advertisement companies to make cost of advertisement more accountable and driven by actual customer interaction rather than theoretical exposure of users. Advertisers now pay only for real and measurable actions by consumers, such as clicking on a web link, sharing a video, placing a call, printing a coupon or buying something. This has lead to pricing on the basis of every click that a user makes on the advertisement, also called as “Cost per click (CPC)”. New interactive forms of advertisements have replaced the traditional banner ads and lots of new innovative steps are being worked upon.

Generally CPC model of payment was preceded by cost per impression (CPM) model which still being widely used as the mode of calculating advertising rates for the internet.The CPM model refers to advertising on the basis of impression. It is used for measuring the worth and cost of a specific e-marketing campaign. This technique is applied with web banners, text links, e-mail spam, and opt-in e-mail advertising. This type of advertising arrangement closely resembles Television and Print Advertising Methods for calculating the cost of an Advertisement. Often, industry agreed approximates are used. The total price paid in a CPM deal is calculated by multiplying the CPM rate by the number of CPM units. For example, one million impressions (theoretical audience) at $15 CPM equal a $15,000 total price.

1,000,000 / 1,000 = 1,000 units
1,000 units X $15 CPM = $15,000 total price

The amount paid per impression is calculated by dividing the CPM by 1000. For example, a $15 CPM equals $.015 per impression.

The Cost per Click model was formulated by Google under the banner of Adsense and Adwords. The innovative practices being followed by Google helped it to garner a turnover of $6.1 billion last year hence making it one of the biggest disguised form of online advertising agency. Adword an online advertising tool offered by Google helps advertisers to tag searches to definite keywords which are widely used. When such a keyword is searched on Google search engine generates a set of sponsored searches along side the search result. An advertiser is then charged when such a sponsored is clicked by the user. All this comes with an added twist that advertisers could bid for these keywords in an online auction. Google also has AdSense a system that goes beyond search-results pages and places “sponsored” (ie, advertising) links on the web pages of newspapers and other publishers that sign up with Google. Like AdWords, even AdSense advertisements are “contextual”—relevant to the web page's content—and the advertiser pays for them only when a web surfer clicks. Adsense is path breaking in the respect that bloggers and people who own non commercial sites enriched with good content can make money out of this tool. A typical Adsense customer when signs up give space on his website to Google for putting up ads on his website. This ad when clicked gives the owner of the site some royalty. Google in return insures that advertisements are relevant to the content of the site by using various sophisticated tools and techniques. Various filters are used to block competitor and pornographic ads coming on ones website. This also makes process more user friendly and regulated. Google puts relevant CPC (cost-per-click) and CPM (cost per thousand impressions) ads through the same auction, and lets them compete against one another. The auction takes place instantaneously, and, when it’s over, AdSense automatically displays the text or image ad(s) that will generate the maximum revenue for a page -- and the maximum revenue for you. Google goes beyond normal advertising auction but offers tools used for designing websites in order to become more advertisers friendly. Site owners can give the URL’s of their site which Google scans and finds out all the relevant keywords present in them in order to be picked up in a search. Also the Google search bar we find in many websites is another feature of Adsense. A sponsored search result when searched through search bar is clicked; some amount of money gets paid to the owner of that website. A full vertical diversification of Google can be seen from the following case:-

I own a site and want to earn revenue from it. This is how I will go about doing it with the help of Google.

a. Once my site is completed I will submit my URL to Google for it to be included in its free searches.

b. Once the site becomes popular and I start getting few hits I run this site in Google analytics, a statistical tool used for analyzing my site on the parameters of hits depending on location, time and age of visitors. I can even find out which all portions of my site are more frequently visited and which are not.

c. The portion of sites which are less visited can be boosted by using Adword in which I buy keywords in those portions of my site which are least visited. Hence, when a next time a query for such a word is raised my website features as one of the result.

d. The most frequently visited portions of my websites can be used through Adsense for putting up ads via online auction hence adding to my revenue.

e. I can even add Google search bar for increasing my revenue besides which there are number of tools available which help me in designing better websites in order to brand it in a better way for advertisers.

The massive indents created by Google have to be countered by none other than Microsoft recently launched Adcentre. Adcentre goes a step beyond Adsense and targets customer on the basis of gender, geographic location and day part and day of week. Critics of Adcentre say how such segmentation be achieved specially when user is not disclosing any of these information online. Analyst feels this is being achieved by targeting through demographics via MSN Passport profile. So, IF a user is logged into their passport account and IF their Passport data is valid, and IF the person that is logged into the Passport account is the person who "owns" the Passport, then demo targeting is achieved. This can also be done though huge information available to MSN through licensing information of various Microsoft products plus the personalized cookie which gets updated when one travels around the web. This surely is a brilliant concept but we have to wait and see for its effectiveness.

Future Ahead

Cost per click is fast being replaced by pay per call or pay per view. EBay is coming up with pay-per-call advertising on a larger scale through its recently bought Skype (Like Gtalk) software.

Another company Kontraband track exactly how many times a video is viewed and where, so that clients can see neat pie charts that summaries their success and hence are billed accordingly.

ZiXXo, saw that almost 90% of the discount coupons issued on the net were wasted hence now lets advertisers issue coupons online and places them on search results, but charges advertisers only when a consumer prints one out. Such initiatives are breakthrough in its kind and allow the manger to mange his advertising budget in more effective and efficient manner therefore generating widespread acceptance all over.