Thursday, April 5, 2007

Online Advertising 101 - Larry Tate please smile upon me!

I do not think online advertisements are evil.

I think, badly done, untargeted online advertisements are evil.

When you are in the market for a car, isn't it nice to see the different videos for automobiles that you didn't know about? What if "they" knew about your love of Orchids and instead of showing you an obnoxious ad for a mortgage that you are not in the market for, they showed you the latest Orchids that had arrived at your favorite nursery?

The industry is not there yet. Actually, it has a way to go.

I've been coming up to speed on the online advertising world and it's a fun one. Online advertising is not that complicated by itself, it's just that a) they have their own vocabulary and b) the whole industry is much more complex that one would guess.

I guess I thought that:
  1. Seller would contact ad agency
  2. Ad agency would produce a nice picture of a cow dancing and give to a web site
  3. Web site would occasionally show ad
  4. Seller would pay ad agency who would pay the web site
And that is true, a little. Well, it's true other than that whole "Devil is in the details" thing.

First thing are Networks.

o Think of a network in a TV way, not connecting computers. NBC and their affiliates take in commercials and display them to their viewers during different targeted
o A network can be as small as a college student’s blog displaying an ad to sell their
roommate’s bike.
o Or Google, Yahoo! and Microsoft.

I will limit this to a very simplified discussion on display advertisements. If you go to my personal blog you will see a banner across the top. That is a display advertisement. (And if you haven’t been there in a while, you have got to check out the sound clip I put on last week!)

The place where everything gets much more complicated than you would expect is all around two questions --
o When do you play the commercial?
o When do pay the person with the web site who displayed the commercial?
The basic answers are:
o When your targeted user (demographics) is likely to show up at a web site (keywords).
o Per Click, Per 1000 plays or per some pre-defined activity. These are described below.

A large part of the Ad Network is a bunch of tools that allow the ad people the ability to upload and manage their advertisements. The larger agencies have staffs of people who do nothing but this all day long! A single ad campaign might have over a 1000 keywords. It might also be targeted by gender, age, time of day, day of week, etc. And they might have 200 ad campaigns running simultaneously. Also, one ad might be doing better than another, so they will swap out active campaigns as quickly as they receive the data.

But the big thing here is the Advertising Stock Exchange.
o In a struggle as old as time, sellers want to pay as little per ad as possible, while publishers (web sites) want as much as possible. And because there are so many variable involved the networks (Google, Yahoo! and Microsoft, et al) create a real time “stock” exchange.
o Advertisers bid on keywords, demographics and time.
o The web sites also have their keywords and prices. So, the MSN Automotive web site may say we will only ever accept advertisements where the minimum cost per 1000 impressions is $2.00. If there isn’t a publisher willing to pay their price, then MSN Automotive will either show a public service advertisement or an in-house one.

Let’s walk through an example:

1. Google offers to sell CPM advertisements. This means that they will pay a fixed sum of money to a web site for each 1000 times an advertisement is displayed. Impressions mean that the advertisement was served to a web page, hence creating a chance for a user to be impressed. Google signs up to manage advertisements from Nordstrom’s and to display advertisements on

2. Nordstrom knows that its target customer is a college educated, 25-35 year old woman, who shops on a weekday. They may offer to pay $4.00 per 1000 impressions to try and reach this woman. But they know they have very poor turn around if it’s a man on a weekend. In this case all they might be willing to pay is $0.15 for 1000 impressions.

3. is doing a featured story on the latest shoe styles from Paris. But they get a good return just by running their own ads advertising their own shows. CNN knows that if they don’t get $3.00 per 1000 impressions, they are losing money. So would accept the ad from Nordstrom for the woman but not for the man.

There are more types of ads and they are dreaming up even more new ones every day. Different strategies work best for different advertisements and for different web sites and different browsers at different times of the day, etc. Research is figuring out new ways to gather demographic information and tune keywords. As you can imagine, this is a way complex real time mess. And we haven’t even started talking about the technical issues.


Anonymous said...

This is fascinating -- you're going to be in hog heaven! I'm really happy for you. - po

merben said...

Interesting. Your perspective on Internet advertising is anew one to me. You have a valid point though. I think that targeted ads are the key to success in online ventures.