Advertising Models

Very informative write up on online advertising from Google Blog

Because online advertising is complicated, I thought I'd step back a bit and offer some more context ... I hope this gives you a better understanding of how advertisers, publishers, ad serving companies, agencies and other companies such as Google all fit into this exciting new mix.

A little history
In the earliest years, online ads were simple banner ads on websites. Advertisers would purchase these banner ads for those sites their customers would likely visit. A tire company, for example, would place banner ads on sites for automobile enthusiasts.

An innovation followed: Text-based ads targeted at search. Type “drip irrigation” into a search engine and up pop ads, or “sponsored links,” to gardening service and supply companies. This development made online advertising accessible to small advertisers for the first time. According to a May 2007 IAB (Interactive Advertising Bureau) study called the "Internet Advertising Revenue Report," text-based search ads now account for 40 percent of online ads. Google, Yahoo! and MSN are the leaders in managing this category of text-based ads. The same IAB study notes that display ads account for roughly another 40 percent of online ad sales. Unlike text ads, these may incorporate 3-D graphics, full-motion video, sound and user interactivity. And the remaining 20 percent consists of other categories such as email, classified and lead-generation ads.

Three portals – AOL, Yahoo! and MSN – lead the industry in display ads. Each has more than $1 billion in annual display ad revenue. Content sites such as CNET and ESPN.com are also in the game. Google, however, has been a minor player in display advertising.

Meanwhile, ad serving companies such as DoubleClick, Atlas, and MediaPlex have been helping advertisers get their ads onto these sites and measure how effective the ads are. Since Google has never played in this space, acquiring DoubleClick will enable us to complement our search and content-based advertising capabilities. Its products and technologies will help to improve online advertising for consumers, advertisers and publishers.

By enabling our AdSense network to work with DoubleClick’s delivery mechanisms, for example, advertisers can obtain more precise metrics in order to judge the effectiveness of their campaigns. The combination of the technologies and expertise of Google and DoubleClick will help publishers better monetize their unsold inventory, thus helping to fuel the creation of even more rich and diverse content on the Internet.

What ad serving is
As you might expect, ad serving is the act of serving, or delivering, ads to websites. Google and DoubleClick play different but complementary roles in online advertising. Google primarily sells ads, and DoubleClick delivers (serves) ads. The relationship between Google and DoubleClick is analogous to the relationship between Amazon.com and Federal Express. Amazon.com makes money by selling a book to the consumer. Federal Express makes money by delivering it to the consumer.

For some perspective on the relative size of the ad serving business versus the online ad sales business, some industry estimates put the latter, globally, at about $20-30 billion. According to various eMarketer studies (available by subscription), estimates of ad serving, on the other hand, are many times smaller -- probably 20 times smaller, or even less.

How ad serving works
There are two types of ad-serving products: publisher and advertiser-agency. Publishers use ad-serving products to manage how and when the ads they have sold appear in their websites. For example, will the ad appear on the front page of the site, or on a subsequent page? The process of placing the ad on the appropriate page and in the appropriate size is managed by the publisher’s ad server.

In addition to placing ads in the right location at the right time, ad servers report on the performance of the ads. This is an absolutely vital function. Real-time performance reporting enables advertisers and agencies to change the content, and timing of ads almost on the fly. The value to the advertiser-agency of an ad-serving company such as DoubleClick is having a single place to measure and report on all online campaigns for ads that run on different sites across the web.