The Internet Alters the Ad Landscape

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When the Internet made its appearance as a new mass medium in the 1990s, it presented a host of new decisions for companies to grapple with—such as what kinds of ads to invest in and where to place them. It also opened the door for new giants (such as Google) to dominate the online-advertising industry.

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Advertising in the Digital Age

This video discusses how ads evolve to overcome resistance to advertising.

Discussion: Do you recall many ads from the last few times you used the Internet? What do you think this might mean for advertisers?

The Rise of Web Advertising

The earliest form of Web advertising showed up in the mid-1990s and featured banner ads, the print-like display ads that load across the top or side of a Web page. Since that time, Web advertising has grown in sophistication. Other formats have emerged, including pop-up ads, pop-under ads, multimedia ads, and—ironically—the classic thirty-second video ad. Internet advertising now also includes classified ads—the most prominent is Craigslist—and unsolicited e-mail ads known as spam. In fact, a number of companies have emerged in the past few years, several in India, devoted simply to producing spam ads for various clients.

Today, paid search advertising dominates sites such as Google, Yahoo!, and Bing. These search engines have quietly morphed into online advertising companies, selling sponsored links associated with search terms and distributing online ads to affiliated Web pages.3 This type of advertising is far more precise than the earlier Web ads, enabling companies to reach target customers defined in ever-narrower terms, such as where they live and what key words they use while searching the Web. Some observers claim that clients in the near future will pay only for highly targeted ads and proven results.

Currently, online companies pose a real threat to traditional advertising agencies. In recent years, Internet ads have accounted for at least 9 percent of all advertising spending in the United States, and by 2012, Internet advertising was estimated to be a $36.8 billion industry.

Online ads are mostly placed with large Internet companies like Google, Yahoo!, Facebook, and Twitter. Such services have allowed small businesses access to more customers than traditional advertising because the online ads are cheaper and only shown to targeted users. Social media sites have become particularly popular for advertisers.

How Online Ads Work

Online ads are generally placed by advertising agencies and served to hundreds of client sites by the agencies’ computers. The agencies track ad impressions (how often ads are seen) and click-throughs (how often users land briefly on a site before clicking through to the next site). They also develop consumer profiles that direct targeted advertisements to Web site visitors. Online agencies gather information about Internet users through “cookies” (code that tracks users’ activity on the Web) and online surveys.

Mobile phones and tablets have provided a “third screen” (in addition to TV and personal computers) for online advertisers. These devices present the possibility for advertisers to tailor ads to phone users’ specific geographic location. For example, a restaurant chain can display a special promotional ad on the mobile phone of someone driving a car or walking in the area of its nearest location. Google has also developed unique applications for mobile advertising and search. For example, the Google Goggles smartphone app enables users to take a photo of an object such as a book cover, a landmark, or a logo and then have Google return related search results. Google’s Voice Search app lets users speak their search terms. Such apps are designed to maintain Google’s dominant Web search-engine position (which generates most of its profits) on the increasingly important mobile platform. Other mobile ad technologies include QR (Quick Response) codes, square bar codes that are easily scannable by mobile phone cameras and link to videos and Web pages. Mobile phone cameras can also be used to launch “augmented reality” views (not unlike the effect of the digital “first down” line in football television broadcasts), which can layer advertising and other sorts of information over a camera’s real-time image of a product or shopping district. Google has put that same augmented reality technology into eyeglasses, which have small cameras that “see” what we see, then layer information (and ultimately advertising) in the small screens for each eye. Dubbed “Project Glass,” the glasses interface with Google apps and allow users to send e-mail via dictation, take pictures and upload them, and get directions.

Advertising Invades Social Media

Social media, such as Facebook, Twitter, and Foursquare, provide a wealth of data for advertisers to mine. These sites and apps create an unprecedented public display of likes, dislikes, locations, and other personal information; advertisers use such information to further refine their ability to send targeted ads. Facebook and other sites like Hulu go even further by asking users if they liked the ad or not. The information users provide goes straight back to advertisers so they can revise their advertising and better engage their viewers. Most social media also encourage advertisers to create their own online identity, with a Facebook page that users can “like” and share with one another. Despite appearances, such profiles and identities still constitute advertising and serve to promote products to an online audience for virtually no cost.

Companies and organizations also buy traditional paid advertisements on social media sites. A major objective of their paid media is to get earned media, or to convince online consumers to promote products on their own. If you “like” a particular ad or product on Facebook, your friends may view it, knowing that you like it. Social media are helping advertisers use such personal endorsements to further their own products and marketing messages.

Web Advertising’s Growing Power

The leading Internet companies aggressively expanded into the advertising market by acquiring smaller Internet advertising agencies. For example, in the past few years Google bought DoubleClick, the biggest online ad server, and AdMob, a mobile advertising company. Yahoo! purchased Right Media, which auctions online ad space. Microsoft acquired aQuantive, an online ad server and network that enables potential advertisers to place ads on many Web sites with a single buy. Apple purchased Quattro Wireless, a mobile ad company, while Facebook bought Rel8tion, another mobile advertising firm. Amazon.com didn’t purchase an ad agency, but partnered with San Francisco-based online advertiser Triggit to sell ads to Amazon users based on their browsing history. This kind of micro-targeted advertising—based on the data mining of browsing or buying history, social media contacts, and other personalized information—is becoming ever more common as mass media (and other aspects of life) converge onto the Internet.

With their deep pockets and broad reach, these companies also began to move beyond the multi-billion-dollar Internet ad market and have become ad brokers for other mass media. Meanwhile, the traditional advertising agencies have struck back by expanding their Internet capabilities.