Friday, November 16, 2007

Online Advertising... In a nut shell

I work in online advertising. It’s a great space to play in - I liken it to the wild, wild west – things happen fast and everyone shoots from the hip. How does it work and why are there so many companies and people making tons of money? The answer is YOU! As more people are becoming wired – blogging, news, sports, services, products, whatever – the marketplace for online advertising expands. Huge companies such as Google, Yahoo, and Microsoft are all making significant plays and acquisitions to get into the advertising space.

In the last 16 months, the following advertising companies have been acquired:

  • aQuantive (Microsoft) - $6 billion
  • Doubleclick (Google) - $3.1 billion
  • Right Media (Yahoo) - $680 million
  • Blue Lithium (Yahoo) - $250 million
  • Tacoda (AOL) - $275 million
  • AdECN (Microsoft)
  • 24/7 Real Media (WPP Group) - $650 million

And don’t forget-

  • Facebook (Microsoft) – 1.6% share of company was bought by Microsoft, valuing the company at $15 billion! (I hate you Mark Zuckerberg, boy genius)

Why such a flurry to get into Online Advertising? Unlike traditional advertising – TV, Print, Radio, etc – online advertising is performance based. You don’t just guess about what might work and try it like traditional advertising. Advertisers have the ability to target, optimize, and segment based off of actual performance and metrics. The online advertising space has really become a performance driven machine – convert or get out.

At one time ads were paid for at a cost per impression (CPM) rate. As the industry began moving towards performance, ads began being paid for on a cost per click basis (CPC). Today, the ultimate in performance based pay out is cost per action (CPA). Not only do you have see an ad, click on it, but you actually have to buy something in order for the ad placement to get paid. This is the reason that behavior targeting and optimization ad companies are getting bought like mad. If you have the ability to target and base what ads are being shown according to history – what they have seen and bought – or contextual as to what they are looking at, its very, very powerful.

Where its going? The next frontier will be mobile. This is obvious to me every time I walk down the street or ride the train. Everyone is now mobile wired. Everyone has a cell phone and everyone is always on it. As the mobile platform expands into a more viable advertising platform many things will change – how we buy things, how we pay for things, and how we advertise. This is why there is a huge push by Google and Apple to get into mobile – either with software (Google) or hardware (Apple).

One of the most interesting things I’ve heard is that Google is attempting to make a play for TV band that is being used for broadcast (its being phased out due to cable and satellite). They want to put mobile on it. Those guys are way too smart and have way too much dough.

Quick Glossary:

  • Impression – View of an ad
  • Fold – What a user can see on a page without scrolling
  • CPA – Cost per acquisition
  • CPM – Cost per mil aka cost per impression
  • CPC – cost per click
  • Media – Any page, email, search term, or placement that can be bought to place an ad.
  • eCPM – effective CPM – Revenue made per user

Anyway, I’ll expand on a later day on Mobile. Comments Appreciated!

1 comment:

Janet said...

hey, mike, you are in an industry that didn't exist when you were born and getting your elementary education.

it's interesting and amazing.