Ever since the first banner ad was published 22 years ago by AT&T, the web has seen an evolution of advertising speeding along at a breakneck velocity. Today the opportunities to reach consumers in the digital space are nearly without limits. Technology has become so pervasive and at the same time so powerful – a potent mix for reaching an audience in new and innovative ways.
But wait, what about ad blocking? CPO? CPMA? Do people really click on banners? How much can I earn doing affiliate sales on my blog?
These are just a few of the infinite questions surrounding digital advertising – and display in particular. In this incredibly long post I’m going to explain everything I can about how display advertising works. Hopefully, by the end you’ll surf away with at least a few of your questions answered.
Let’s start off with some history.
A Brief History of Display Advertising
1996 witnessed the spread of display ads to other countries, the first version of our beloved Flash and the first advertising server: DoubleClick. Google launched in 1998 which started to change how we think about websites and how websites should be ranked, by popularity and importance. It wasn’t until 1999 that tracking systems were put in place to measure how well display advertising was working. Hard to imagine that for almost five full years display ads were not tracked!
The transition to the third millennium came with the arrival of high-speed internet, mobile advertising, and the first rich media campaign “Web site blues” launched by IBM. Then the dot-com bubble burst, leaving in its wake the wreckage of internet businesses that had been living off of hype and promise without delivering real value.
Though the bubble claimed many casualties the smart and cunning players found themselves with fresh space to maneuver. In 2002 BMW utilized new technology to identify the connection speed of internet users to determine which ads to deliver to them. Ads were getting smarter, more effective, and much more common. Sites would feature shavings of content surrounded by flashing and dinging banners. For marketers it was the gold rush. For consumers it was a rush of blood to the head.
Facebook arrived in 2004 to forever change the direction of communication from one to many to many to many. But 2004 was also notable for being the year when XP launched the first pop-up blocker to help internet users keep their content in front of their eyes and not buried behind an avalanche of pop-ins designed to trick people into clicking. The next year ADBlock Plus came out, an even more effective tool for people to take back their internet experience.
Once high-speed connections became much more widespread the consumption of video began to explode. In 2006 the first video featuring a clickable link in the video was launched, along with the first ads on a rapidly-expanding Facebook. YouTube launched sponsored videos in 2008 and in 2009 the total ad spending online passed total TV ad spending in the UK.
Now that the importance of digital advertising was beyond reproach, it was time for things to get more serious. The first RTB (real-time bidding) platforms launched in 2009, allowing big brands and agencies to compete for coveted space among the web’s most valuable sites. The major social networks like Facebook launched their own RTBs and once there were smartphones in people’s hands it wasn’t long before native ads and mobile specific campaigns became part of the digital standard.
Who does what?
There are four major categories of actors when we talk about display advertising. Two are pretty straightforward. There are the brands that do the advertising. They want to sell their products and so they look for places where their potential customers are.
Then there are the websites that sell space on their pages. Examples include media sites, blogs, magazine sites, etc. Websites demonstrate their value to brands by showing how many visitors and page views they get, showcasing the profile of the types of people that visit their site, and by developing engaging content.
Depending on the size of a brand and their strategy, they might work with a media agency to plan their specific display campaigns. In this case, the brand hires the ad agency to come up with a strategy, negotiate, buy, and manage the ad space where a certain advertisement is going to be promoted.
The final major actor is comprised of advertising agencies. These are groups that aggregate available advertising space from multiple websites in order to target certain types of consumers. They make planning a wide campaign much more efficient and convenient for a brand or media agency. And because of certain laws that are in place such as the Loi Sapin in France, advertising agencies cannot charge whatever they want, they have to charge the client exactly what the website is asking for, and then they take a professional commission on top of that.
Display: The Nitty Gritty
A display advertisement – more commonly known as a banner – is a piece of content that occupies a predetermined space on a third party website with the goal of raising awareness of a brand or product and/or driving traffic to the advertiser’s site or digital properties. Because a banner is a piece of content it has a spatial size with standard or special dimensions, a file size, and a length if it’s a video or GIF.
Some common names for banners are skyscrapers (vertically-oriented banners in a side bar), leaderboards (horizontally-oriented top of the page above content), and rectangles (you get the idea). You can check out the standard definitions courtesy of the IAB (Interactive Advertising Bureau). Of course not all banners are static, there are also pop-unders, expand banners, interstitials and transparent Flash ads (where an entire site is modified or covered by an ad).
**Aside: While Flash used to be the preferred mode for animating display ads and making dynamic websites, Apple put a huge dent in the utilization of Flash when they did not support it for the iPhone. In my opinion, Apple did everyone a favor since there are few things more annoying than having to update your Flash player every two weeks. Luckily, HTML5 has stepped in to take Flash’s place. The good news, it works everywhere on the web. The better news? It doesn’t require a player!**
Display ads can also be dynamic in real time, changing depending on who is seeing the ad. By linking in an XML feed and checking for cookies in a browser, an ad server can deliver content tailored to one individual. We’ll talk more about how this works later when we get into retargeting but it’s important to know that almost all display ads are hosted on ad servers. Ad servers will deliver the content of the ad when the internet user opens the web page. The website itself does not host the content of the advertisement on its own server. Each banner will have a tracking tag either in the form of a cookie or a specific URL that directs to the advertiser’s digital property, whether it’s a sign-up form, a product page, or a game. That URL is called a referring URL and it will tell the advertiser where the traffic comes from.
Cookies are used to determine the number of impressions of a specific ad on an internet user too. In order to prevent one person from seeing the same message 100 times, capping is used to limit the number of impressions. This ensures that a message is widely diffused and impressions are not wasted on someone who is not interested.
The position of a display ad is very important. An ad buried at the bottom of a web page might never be seen whereas a leaderboard is almost always visible even before the content of the page loads. But be careful! Ads at the bottom of a web page actually have better click rates because people have finished consuming the content they were looking for and are more open to the idea of clicking away to a different website.
Also contrary to what many marketers think, static banner ads actually work better than animated banners. Even if an advertiser wants to include more information, it can be viewed negatively by the internet user.
Mobile Display Ads
People use mobile devices differently than they use their desktop computers. Therefore advertising on mobile devices takes on a different approach. Obviously, the size of the screen and the resolution have a big determining factor on the formats. It’s increasingly common to see interstitial ads, that is to say, ads that take up the full screen and require you to wait or skip the ad before accessing the content that you want.
The biggest challenge with mobile display is cross-device tracking. Since so much tracking is done with cookies that are stored in a specific web browser, as soon as someone changes to another device they can no longer be identified by the website as being the same person, so they will see the same content that they saw before. Cross-device is one of the biggest challenges with analytics as well. Some things help, such as using Chrome on your PC and mobile and signing in, but generally speaking it’s impossible to know for sure if one visit from mobile and one from PC are the same person or two different people.
Strategies and Acronyms
You’ve no doubt heard things like CPC, CPM, and CPA. You probably even know what they are. But do you know how they are used depending on the marketing objective?
There are two unofficial umbrella classifications for display advertising strategies, awareness and performance.
Just like buying traditional offline advertising media, display can be purchased in CPM, or the amount of money you’re paying for one thousand people to see your ad. This type of ad-buying model is appropriate when you want to present a new message or product without necessarily driving traffic back to your site or digital property. Digital advertising thrived under CPM in the early days when traffic was precious and there were few sites with very large audiences. Today, competition has diluted CPM money across so many web properties, but the biggest effect is the rise of performance-based strategies that give a clear picture of ROI and can, therefore, be optimized for maximum results.
Even though CPM is not a performance strategy, it does have some advantages that the other ad buying strategies do not. For example, when you purchase in CPM you can choose where you want your ad to appear on a web page. You can also generally control the time period you want it to be shown, and you can increase the frequency in order to build notoriety among your targeted audience more rapidly. And finally, many of the world’s biggest websites won’t accept performance campaigns since it would implicitly remove the value from their impressions, while they are already forced to heavily discount their CPM rates as it is.
Tracking technology has enabled a slew of performance strategies for display advertising ad buying.
- CPC: cost per click – how much an advertiser pays when someone to comes to their website. CPC campaigns have the advantage of being very precise, an advertiser can pay for exactly the amount of clicks they want, and they will never over pay. It also has the added benefit of generating a high number of impressions anyway, since it needs to be shown to many people before a certain volume of clicks is achieved. However not all sites accept this type of arrangement, and you don’t have control over where your ads appear since the website or platform is going to maximize clicks which may not be the same thing as always being in the leaderboard.
- CPA: cost per acquisition/action – how much an advertiser pays for someone to come and complete an action on their site, such as a purchase or filling out a form. It’s basically a souped-up version of CPC that follows the internet user from their first click through the completion of the desired action. There are many subforms of CPA:
- CPL: cost per lead, such as when a prospect fills out a form
- CPO: cost per order (transaction)
- CPE: cost per engagement
- CPMA: a combination of CPM and CPA where ads are optimized in real time to only show up where and when they are generating clicks. It prevents websites from showing content and then not getting paid since there were no clicks.
- CPV: cost per visit, along the lines of a “Double Click” where a website is paid when a visitor clicks the sponsored link and then clicks something on the advertisers website. It takes CPC a step further since someone can click a link but then have problems loading the website or they can open the window but never even look at the content.
- Retargeting: delivering personalized content based on an internet user’s past behavior. If she visits a website, puts a product in a shopping cart, but does not complete a purchase, the website can deliver her personalized message in display form on the other sites that she visits afterward. Retargeting generates a very high quality of traffic and prospects since they are people who were already very close to making a purchase. Click rates rise to 5% for retargeting campaigns, a huge improvement over regular display click rates. The downside is that consumers can opt out of having the type of retargeting cookie necessary.
- RTB: real-time bidding platforms where advertisers and their agencies compete for the best placements. The platforms generally partner with a multitude of websites to automate campaigns and use data to optimize performance. DSPs (demand-side platforms) connect agencies to ad exchanges and optimize ad-buying, and SSPs (supply-side platforms) connect through to the websites that show the ads, helping them optimize who shows which ad.
- Native Ads: content like links, text, or video that are integrated into the non-advertising content on a website. Native ads don’t disrupt the user experience like a bright banner ad and are usually in line with the interests of the target by providing some sort of content, not necessarily just a link to a marketing landing page.
- Mix Targeting: uses data to create profiles of internet users combining information about their interests, behavior, age, and sex. It helps to avoid targeting ads to the wrong people.
- Social Ads: promoting content and pages on social networks.
CPA is really a catch-all for any strategy that involves paying the originator of the click either a fixed rate for an action or a portion of a sale. It can also be thought of as Affiliation because the affiliate becomes an extension of the sales process. The examples listed above like CPO and CPE are nothing short of incredible for marketers who want to pay only when something specific is achieved.
Affiliation is managed by affiliation platforms like TradeDoubler and was first popularized by Amazon in 1996 as a way to sell more books. Some websites like price-comparison sites run an exclusive affiliation model where they sell no products themselves, they only provide catalogs that link back to the brand sites. Brands supply product feeds via XML, multiple banner formats, and possibly dedicated email supports so that affiliates can optimize how they sell those products to their audience.
To block, or not to block?
In the year 2000, banners had a click rate of almost 10%. That number dropped to 0.17% by 2016. Why is that? Are today’s banner ads that much shittier?
Arguments could be made that ads today are better than ever, the problem is competition. There are so many more ads, more types of banners, more placements and a public that’s more skeptic to advertising.
Enter ad blockers. Technically speaking, ad blockers will identify third party content on websites and keep that content from being shown on the screen. Back when XP launched their solution to block pop-ups it was hailed as a victory against the invasive advertising that could unleash a torrent of pop-ups upon visiting the wrong site and could end up crashing your operating system.
Today’s ad blockers are not as cut-and-dry. There is a case to be made that there is too much advertising, but ad blockers that prevent legitimate websites from monetizing their audience – and thus financing their existence – may be going a step too far.
Whew! You just read almost 3000 words about display advertising. What did I leave out that you’d like to know? Get in touch and tell me! Thanks!