Whilst there may be some confusion as to the appropriate mix of ad types there is no argument regarding the explosion of ad spending in the online sector. According to Nextec ad expenditure in Australia grew from under $200,000 in 2002 to over $1 Billion in 2006. So there is money there if you have a significant user base or traffic, and that is where the catch is.

Home truth number one: Effective advertising returns requires volume.

The harsh reality is that ad revenue is incremental and based on micro payments for individual actions whether this be simply giving a visitor an opportunity to see the ad (CPM), paying in return for a visitor clicking on a link (PPC), or even as a result of them taking a specific course of action after the click (CPA). Each of these has its respective pros and cons and can provide successful outcomes but each will require volumes of visitors to deliver any meaningful returns.

Essentially there are 5 main ways that you can earn revenue from your web content.

1. Use it to directly promote goods and services you sell either directly on site or via referring a visitor to somewhere where they can transact.
2. Allow advertisers to run advertising targeting your visitor base or content via on an incremental display fee. (CPM)
3. Allow advertisers to run advertising targeting your visitor base or content via on a fee per click through. (PPC)
4. Allow advertisers to run advertising targeting your visitor base or content via a commission for completion of a defined action after the click (CPA)
5. Allow sponsorship of specific areas or communication channels

Success on the web is not just about maximising the traffic in to the site but in ensuring that as many as possible of these visitors exit via a means that provides you with an opportunity to make a buck. Developing a hierarchy of desired outcomes allows you to map out how this can occur to the maximum effect. An example of this could be as follows.

Priority 1: - Engage with the main purpose of the site (eg.Buy something from the shopping cart/Make a booking etc)
Priority 2: - Make contact with a sales rep (eg. phone, email, live chat, walk in store)
Priority 3: - Register on site for future contact (eg. Email newsletters, members area)
Priority 4: - Click on an ad

So in implementing this hierarchy you look to gear the site navigation, text links and visual spotlights to funnel visitors to these outcomes. Successful web businesses don’t encourage aimless meandering by visitors they actively direct them to engagement areas and this thought process should include advertising.

The idea is that you minimise the number of links that a visitor can leave by without providing you with some sort of value. In this way you are effectively monetising the near misses. Not everyone who comes to your website is ready to purchase today but they may be ready in the future if you maintain appropriate contact, or they may be ready to buy a complimentary product or service from someone else. This is where advertising can provide a supplementary revenue stream. Once you have done this properly and plugged the leaks then any incremental boost in site traffic should lead to a corresponding boost in revenue.

Planet of the Acronyms

The first thing you need to get a handle on when looking into advertising options for a website is the language. It seems hardly a day goes by without a new abbreviation or contrived jargon phrase to muddy the waters and clutter the nice white board diagram you prepared for the budget meeting. What ensues is often a game of acronym tennis.

“What’s the average PPC?”

“NFI”

“What can you tell me about ROI on the CPA campaign?”

“SFA”

“So your ROS revenue estimates were…?”

“Completely FOS”

“SNAFU!”

On Planet Of The Acronyms (POTA) the holder of this secret knowledge is King.

The lay of the land on POTA:
There are two main players in online advertising.

1. Publishers run the websites on which the ads appear.
2. Advertisers buy space on these websites according to a variety of formats as defined below.

So if you are a website publisher the methods to monetise your website content essentially fall into three buckets.

1. Self Service
At the most basic level on site advertising can be obtained via self service centres where web site operators can set up and run advertising campaigns themselves via automated registration with third party providers. Examples of this include Google AdSense (https://www.google.com/adsense) and Commission Junction (www.commissionjunction.com) who can provide advertising feeds or artwork and code in return for a cut on the revenue earned.

2. Direct Negotiation
If you are big and popular enough then you may be able to directly negotiate campaigns. The problem with this is that the acquisition and ongoing management of these can be time consuming and unless you have extremely high traffic volumes it may be difficult to secure quality advertisers at good rates.

3. Publisher Networks
Publisher Networks (eg. www.soush.com.au) act as a conduit between advertisers with budgets to spend and sites with traffic volume. This is often the only way that you can get access to the good advertisers as a publisher, or conversely to the good publishers as an advertiser.

Definitions:

Display Advertising: CPM

This is the traditional mode of online advertising and includes everything from the humble 468 x 60 banner ad to skyscrapers and those annoying noisy rich media browser crashers that the pony tail brigade still inflict on unsuspecting visitors. (Don’t get me started on why sound on web ads drives away business!)

The key to Display Advertising is the metric. You are paid based upon a measure called CPM or “Cost Per Thousand”. Therefore you don’t earn a cent until you display the ad at least one thousand times and then it will generally be a few cents at best once agency commissions have been subtracted. The other thing to realise is that even the smallest agency will have a payment threshold meaning that you will probably have to wait until the ad accumulates hundreds or even thousands of dollars before you get paid. No problem if your site is generating hundreds of thousands of page impressions per month, but if not then it should not be relied upon as a primary revenue stream. With any advertising campaign there can be quite a lag time between running the ads and payment. The more agencies involved the longer the wait for cash.

Contextual Advertising: CPC

Contextual advertising works using much the same technology as search engines use to index web pages. Not surprisingly the main source of this type of advertising are search engine companies. It works by supplying ads to match the specific content of a page and as such tends to have greater response rates than non contextually matched advertising. Each ad only appears against specific page content that contextually matches that defined by the advertiser. In this way finance pages display bank ads, travel sites display airline ads etc.

As with search the two main flavours for contextual advertising feeds are Google and Yahoo. Currently Google provides the most dynamic contextual ads as it actually crawls page content to determine context and adjusts the ad feed accordingly. The current Yahoo ads require a publisher to define context via submitted keywords (and as such less responsive and flexible), although the new Yahoo Panama system on the horizon for launch into Australia will provide a true contextual product.

The metric for this type of advertising is the click. A publisher gets paid for each click on an ad. The ad could be seen one million times but if no-one clicks on it then you don’t get a cent. Of course all ad agencies and suppliers (especially Google) want to make money so generally there are redundancies built into the system to weed out underperforming ads and replace them with better ones, in a similar manner to the way Google AdWords bumps dud ads from the paid search results regardless of their nominated bid prices.

According to Josh Edis Chief Operating Officer of Ansearch Ltd.
“Contextual search advertising is estimated today to represent over 50% of Google’s global revenues, and its popularity among advertisers and publishers continues to grow rapidly.”

Performance Based Advertising: CPA

CPA stands for “Cost Per Action” and is effectively a commission paid by an advertiser for a desired outcome and this can include everything from making a purchase, completing a survey, joining a mailing list or even clicking on another link. The catch is that you don’t receive any revenue just for displaying the ad or for generating a click through. The revenue model is based upon the visitor being willing to perform the desired off-site outcome and its success will depend upon the closeness of the advertised product or service to what a visitor is looking for. Therefore its successful application often requires a “horses for courses” approach.

Hybrids:

Whilst it is convenient sometimes to split on site advertising into the above groupings in application there is often some cross over between types. Display ads for example can often be contextually matched to the pages on which they appear (Ford banner ads in the car classifieds section of a newspaper site etc), there is also technology that can determine the potential relative ad revenue of different types of ads in the mix and deliver the most effective ad for the given page content or even geographic location of the visitor. Such comparisons are done using a rough common denominator called eCPM.

ECPM stands for “Effective Cost Per Thousand” and basically lets a publisher know how much revenue they are earning from contextual ads per 1000 displays of the ad on a page. In this way it is possible to toggle which ad is used depending upon which has the highest potential return for the publisher.

Page Impressions & Page Views

The number of times a single page is loaded in a browser. These terms are used interchangeably and together with unique users form the baseline statistics for website and ad performance.

Unique Visitors

An important statistic in measuring website and advertising performance. A unique visitor is counted as being each distinct individual visitor (as tracked via their IP address) that accesses a website at least once in a given time frame.

Click Through Rate (CTR)

The percentage of viewers of an ad (or link) that then take action and click on it. Basically clicks divided by page views.

Click Yield

For an online advertising company to market its services successfully it must demonstrate that its network has a high click yield. This can be defined as the number of ad impressions multiplied by the ad price multiplied by the CTR.

Vertical Shopping Directories and Niche Search Engines

A common method to monetise near miss traffic is to guide them towards areas where they can refine their search and where you continue to receive value from their actions rather than having them just hit the “back” button to Google. This is where onsite search engines and vertical directories are often utalised. The most obvious use of this type of strategy is on the big portal and content directories like NineMSN and Yahoo however smaller niche applications are becoming more common. An example might be a travel news publisher that incorporates a custom search engine relating to the vertical categories relevant to travel. Visitors therefore are encouraged to search for products and services related to the content such as hotels and flights on site where they can still deliver an incremental return to the publisher. The art is in excluding competitors and extending listings to as many complimentary services and products within the vertical category as possible. This sort of technology is available through many niche search technology providers such as Ansearch (www.ansearch.com).

Domain Parking:

Attempts to monetise idle domain names with relevant associated advertising is nothing new. Google is starting to take a dim view of these set ups as it can tend to pollute their search results. Many of these are now evolving into niche content pages and sub sites to avoid being penalised in the listings.

Arbitrage:

Arbitrage describes a process of buying traffic from one source at a certain rate and then passing it through pages containing higher yielding exists.

The Future:

It is likely that there will continue to be a further hybridisation of ad formats as publishers and ad networks look to maximise yield. One technology on the near horizon is called Google Gadget Ads. This ad format uses rich media formats to deliver ads with functional rather than just display capacity. With Gadget Ads an advertiser can incorporate dynamic forms enabling queries to be done directly from the ad on the publisher page rather than requiring a click through. This new technology may breathe new life back into display advertising and provide alternate vehicles for PPC and CPA campaigns.

Home Truth number two: Different types of content may require different types of advertising.

All content is not equal nor are certain formats of its display as appropriate and effective in creating revenue streams from advertising as others. Broadly speaking the most effective ad systems operate by matching the context of a page’s content against a pool of advertisers specifically wanting to target these broad themes. Someone browsing a holiday site may very well be interested in checking out travel insurance, flights and hotels. Contextual matching in these circumstances can be highly effective.

Often, however this is easier said than done. There are certain formats and structures that make such tight matching difficult. For many news sites the context of the articles may be less relevant than the demographic of their readership. It would be more effective to perhaps run lifestyle focused ads relating to the medium readership demographic of a news publisher than perhaps hope for meaningful Google ad suggestions relating to Kevin Rudd and John Howard. The same also applies to sites containing mostly user generated content, often in these cases the better advertising match is against the stated users/visitors preferences rather than the content of their blogs. This is the way that sites such as My Space operate so you don’t see ads for Brittney on a metal heads page.

In summary web advertising of any type requires volume to return meaningful returns. A web site would need to be generating around 100,000 page impressions per month or have a large unique user base to attract the interest of a publisher network. If you are not doing these sorts of numbers don’t despair as there are self service opportunities through Google and other suppliers, however earning real money will require a boost in visitors.

Contextual advertising requires pages that can be accurately indexed and categorised in a similar way to that used by search engines. Therefore if the pages of a website cannot be indexed properly by Google then they will struggle to display accurate contextually mapped ads. Search Engine Optimisation (SEO) does not only help with free search engine listings it also assists delivery of accurate contextual ads. The best results I have seen from publishers with regards to boosting the yield of their advertising feeds is from those that recognise the large role that the page the ads sit on plays in the process.

Similarly to the comment above regarding page structure and SEO, the positioning of the ads on a page is also vitally important. Advertising that is closely associated with the content matter delivers the best results, if the ad looks bolted on to the site then it will fail to deliver as well as one closely aligned to the content. There is money to be made from web advertising but to a large degree the success or otherwise will depend upon the contribution of the site it sits upon. How does yours stack up?