Monday, May 01, 2006
Online advertising, the monetization strategy
The World Wide Web transformed the media industry; before its arrival, you had to use one of the traditional mass media services to get exposure but with the Web any individual can get a comparable audience with his/her website. The low-barrier to entry led to a proliferation of websites and in this scenario, the number of visits (traffic) became the success metric.
Advertising has been paying the bills for traditional media and banner advertising did the same for the web before the dot-com burst, it was the tool that businesses used to promote and brand their sites and companies like DoubleClick - through ad serving using the eyeballs model (CPM) - were mentioned by web entrepreneurs as the tactic to generate cash flow, something similar of what happens nowadays with Google AdSense.
In the web, advertisers have the metrics to evaluate their spending and banner ads were not being effective in generating traffic, so ad providers try to force exposure - following the tactics of traditional advertising model - using pop-ups; this move backfired because the most used web browsers incorporated pop-up blockers functionality in the application or via toolbars listening to users’ request who were being annoyed by the banner ads. This example of consumers rising power in the web is also impacting traditional media, advertisers are feeling that TV ads had become less effective and technologies like DVRs and iTV are beginning to impact the way TV advertising works.
What has shown effectiveness in the Web is the pay-per-click model introduced by Bill Gross, which is the success factor for the top public company in Computer Services industry. Google reported revenues of $2.23 billion generated by online advertising in the first quarter of 2006, with 41% of their total revenues coming from their AdSense partner network and 58% being generated by users who click ads in Google-owned sites. Yahoo, the second in market cap, reported revenues of $1.38 billion generated by their marketing services division in their financial results for first quarter.
The IAB reports that Internet Advertising revenues grow 30% in 2005 in the US and search spending has a 33.5% growth compared to 2004. With these healthy results from the leaders in paid search advertising, the projected increase in search marketing spending may fall short but they still do not show that the optimistic prediction made by Mark Kvamme in a keynote on Ad:Tech San Francisco this week - indicating that Internet Advertising will reach $35 billion in 2008 - is going to happen.
There is enough market for more players so the unusual spending projected by Microsoft for 2007 to support the software+services strategy and the upcoming announcements in next week’s MSN Summit related to their advertising program AdCenter combined with the Primetime exposure Ask is getting to gain attention could drive up even more online advertising market share numbers in US advertising, currently at 4.7 percent.
Web globalization is also validated with the figures reported, Google’s outside of the US revenues represent 42% of total and Yahoo’s international revenues are 30%; given that USA Internet users are only 18.3% of more than 1 Billion users worldwide and the growth of online advertising spending in Western Europe - with a 3.1% market share in media ad spending - and other regions, the future of the global online advertising industry looks promising, specially if you consider that local online advertising is just getting awareness.
Media economics were based on linear replication, but with current technologies easing the duplication of material there is no control on the generation of copies; while other business models get more mature the fact that Chris Dobson told Mark Evans in the Sympatico/MSN Digital Ad summit that online will be an ad world, not a subscription one is an indication that online advertising is recognized as the preferred monetization strategy in the Web nowadays.
Labels: online advertising
