Thursday, April 17, 2008

Changes in Online Advertising

I was training a new project team member on how the advertising works on my company's website, all as part of a project to migrate the site to a new content management system. He wasn't aware of the business behind the banner ads that our users see when the visit our site.

Just this year, Google bought DoubleClick for $3.1 billion. Microsoft bought aQuantive for $6 billion. AOL buys Quigo for $340 million. Why such big purchases? In part because internet advertising is expected to top $27 billion this year, and there are a lot of people and companies who would like to make advertising money from all the advertisers. But picture the stock market and other financial markets. I might want to invest some savings I have, but I wouldn't do it myself. The most cost-efficient (and time-efficient) is to work with a broker who will make the transaction. Ad networks act the same as the broker - taking the money to be invested by the advertiser and spending where it will have returns most likely to make the advertiser happy.

In my broker analogy, I might want my money to go into options, or environmentally friendly companies only. The broker would then be limited to some markets (Chicago Board of Options Exchange) or need to know companies in several markets that represent a given sector. In the same way, some ad networks only provide a certain format of advertising (video on VideoEgg, or text links through Google's AdSense), while some ad networks specialize on demographic (Hispanic sites and visitors through HispanoClick).

In my experience with DoubleClick's DART for Publishers, we focus on where we want ads to be displayed on our site. You can add ad networks (which provides the ads themselves) through DART, as well as schedule and manage the ad campaigns.

To implement online ads, we first define how many ads will be on a given page, and what dimensions the ads will be. We give each of these ad slots an ID, and then place the same number of code\tags, each with its own ID, into our webpage (see the nice overview on Google's Ad Manager here). Now when we load our webpage, the tags call out to the ad server, which returns an ad. The ad server also tracks which ads where server where and when, and which were clicked.

Part of the business opportunity is that these ad networks take a cut of the money coming from the source (advertiser) to the destination (publisher site where ad displayed). Part of the business problem is that publisher want the best paying ads, but aren't in control of which ads come trough and their pay rate. Ideally, publishers would cut out the middle man, but managing and serving ads is challenging, while calling all the advertisers and lining up the deals is time consuming.

If we want to try and manage the ad serving with a tool, there are free ad management solutions (Google's Ad Manager for one). There are also now meta ad servers that sit between the publisher and the ad network. These applications work with many ad networks, while gathering statistics on ad performance and even making recommendations (see The Rubicon Project for an example).

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