Online AdvertisingThe PublisherThe UserThe AdvertiserAdvertisingOnline Advertising ModelsCPMCPCCPAThe Early Days of Online AdvertisingBrand AdvertisingPerformance Advertisers and Paid SearchExtensions of Paid SearchSpyware and AdwareThe Future of Online AdvertisingDave FryTommy SanguinettiCSEP 590 Final ProjectOnline AdvertisingAdvertising has long played an important role in media. Traditional media, suchas television, newspapers, magazines and radio, have historically derived a large portionof their revenue from advertising, and in some cases, all of it. Online media is noexception. While there are many possibilities for revenue generation in an interactivemedium such as the World Wide Web (retail, subscription-based services, etc),advertising has been, and continues to be, a simple and well-understood method formonetizing content or services.Why is advertising such a natural fit? To understand that, it helps to understandthe basic wants and needs of the primary players involved in any web interaction. In thiscase, those players are the publisher (or service provider), the user, and, assuming anadvertising-based model, the advertiser.The PublisherPublishers and service providers provide the substance of the internet. Withoutpublishers, there would be no content, no World Wide Web. The definition of a publisherisn’t very specific, the term encompasses everything from somebody hosting a personalweb page, to “destination sites” such as major online news providers, to the providers ofany of a variety of useful tools, as in search engines, photo-hosting sites, online games,and so on.All of these entities share the same problem: developing and maintaining theircontent or service requires time, effort, and capital investment. While many are self-funded (personal web pages, etc), or exist purely to disseminate information (corporateportals, etc), a large number of them are commercial in nature, that exist for the purposeof earning a profit. For these publishers, without some type of payment for their efforts,developing and maintaining their properties is impossible.The UserUsers are the consumers of the internet. Without users, there would be no reasonfor the web to exist. Users desire content and services. In some cases, users are willingto pay a publisher directly; good examples of this are services such as web hosting, andcertain types of premium content. In all cases, it’s a trade-off: the user weighs the valueproposition of what they get in return for what they have to “pay”.The AdvertiserOnline advertisers, just like offline advertisers, are businesses that need tocommunicate a message. Whether the message is intended to increase general brandawareness or to simply inform potential customers that your business provides theproduct or service they need, the basic need is the same.AdvertisingAdvertising is so widely used because it satisfies all of these needs. The publishergets the revenue needed to cover development and maintenance costs. The user getsvalue (they get to view content or use applications) for a reasonable price (they simplyneed to view the advertisements). The advertiser is able to communicate their message tothe intended audience. Assuming each party acts responsibly and holds up their side ofthe implied contract, the system works, and is sustainable.The system does need all three to be successful, though. If any one falls through,the system falls apart. If advertisers don’t purchase advertisements, the publisher can’tsustain development. If publishers don’t make meaningful content available, users haveno reason to visit, and there is no traffic, and thus nothing for advertisers to buy. If usersrefuse to view advertisements, the advertisers get no value in exchange for theirpurchases, and will thus not continue buying.All of these issues apply equally to offline advertisers as well as online. In fact, inmany ways, the world wide web is just a new media channel, providing many of the sameservices as television, radio, and printed media. Assuming the market is there on all sides(publisher, user, advertiser), the system can be just as successful as it is in traditionalmedia.There are, of course, many other methods that publishers can monetize theircontent and services, such as via paid subscriptions, retail, and so on. However, thesemethods are outside the scope of this paper, and thus won’t be discussed in depth. Online Advertising ModelsThere are primarily three different models used in online advertising: CPM (CostPer Mille), CPC (Cost Per Click), and CPA (Cost Per Action). They differ primarily inhow the advertising itself is bought and sold, although there are also more subtledifferences between the three in who is responsible for different aspects of the process.CPMThe simplest model to understand, and the one that directly inherits from mostoffline advertising, is CPM. CPM is an acronym for “Cost Per Mille”, meaning cost per1,000 ad views (impressions). The advertiser and the publisher negotiate a fixed amountthat the advertiser will pay for every 1,000 times an ad is shown. CPM is a very simplepayment scheme, assuming the two parties can agree on a method for countingimpressions. There are often stipulations in the agreement, such that the ad can only beshown on certain pages of the publisher’s site, or can only be shown on pages with alimited number of other ads.CPM advertising is often utilized for so-called “brand” advertising. Brandadvertising is designed to build general awareness of an advertiser’s message, and is notintended to immediately lead to customer action.In a CPM relationship, the publisher is primarily concerned with maintaining ahigh-quality audience that has well defined interests or characteristics. The advertiser isprimarily concerned with creating a message that will be noticed by their target audience,because they pay for the impression whether or not the user actually sees the ad. Ingeneral, the more knowledge a publisher has about a particular audience, the higher theCPM that can be charged, because the advertiser is able to more clearly know who theirmessage is being delivered to.Since CPM is chiefly concerned with buying and selling certain audiences, theonus is on the advertiser to
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