Why is online advertising better

Jun 01, 2009 by Mihai

Marketing, PR and advertising firms are struggling to stay afloat of the new wave of challenges, that came along with the global financial crisis. This is true for US, and it's true for almost every developed or emerging economy - which of course includes Eastern Europe, and Romania in particular. Marketing departments are currently "optimizing" their budgets, to deal with the crisis, and a key note of their optimization strategies is "re-focusing on more efficient channels, such as the internet advertising". Why is internet advertising so efficient, and why is it suddenly regarded as a safe and desirable investment?

In my view, internet advertising has always been more efficient and better targeted than many of the classical means of advertising (TV, press, radio, outdoor etc.) - just that it has a certain complexity, and requires a level of technical expertise that is not widely spread at this point in time, and this is why it's still regarded as having a level of "uncertainty". Truth is that, once you know the ins and outs, online advertising is far safer and more traceable than most of the classical channels.

Take TV advertising, for example. It is charged based on the number of seconds the ad is on the air, and the charge per second depends on the audience level by dayparts (prime time being the most expensive period of the day). The audience level is just a way of measuring the number of persons that have viewed that ad, so this is largely equivalent to the CPM (=cost per thousand impressions) metric from the online advertising. The ad is displayed regardless of the viewer's preferences or intentions, and it definitely generates a branding effect, but the purchase effect can not be directly measured (it's just estimated through statistical calculations). Of course, the targeting can be improved by delivering the ad during a TV show on a related subject, or by showing it just on niche TV channels, but ultimately you don't have a precise measurement, just statistics-based assumptions.

With the internet advertising, on the other hand, the most popular metric is currently the CPC (Cost per Click), meaning that the ad is displayed for free, and the charge incurs just when the user clicks on that ad. The user's gesture clearly signifies a certain level of interest for that product or service, so this is already a big saving for the advertiser (who won't pay for displaying to viewers that are not interested in that product, will just pay for interested viewers, who bring a much bigger probability of actually making an acquisition).

Both these metrics (CPM and CPC) are being provided by the mainstream advertising systems, such as Google AdWords. CPM is considered to be more expensive, being used mostly for generating brand awareness, whereas CPC is regarded as a better means of generating sales.

Still, CPC is not the ideal way to go, since it has a few faults of its own - the most notable being the click fraud: users that are not actually interested in that ad are still clicking on it, usually for generating collateral advertising income (and most of the time they're not even real people, just bots simulating clicks on the online ads).

To avoid such problems, the metrics need to go even deeper: charging the ad only when it generates an actual sale. In the online advertising, this is called CPA (Cost per Action, or Cost per Acquisition). Unfortunately this system hasn't gained an established presence in the market yet. eBay has managed to successfully run a CPA system (called AdContext) for the past years, but apart from that, there's just a failed attempt from Google (discontinued a few months ago, in October 2008) and a currently undergoing development from Microsoft, who's planning to include a CPA option in their LiveSearch advertising setup. Arguably, one of the factors that prevented CPA from a true market success (in spite of the huge advantages brought to the advertiser) is that the financial benefits for publishers are drastically limited, as compared to a CPM or CPC approach. Still, the future might lead in this direction, since the advertisers do want it, and the technology is already there, ready to support such a system once the market is prepared.

The CPC approach alone is a clear illustration of the benefits of internet advertising over the classical advertising methods. In a world where multimedia (TV, radio, press and telecommunications) is converging towards a unique delivery channel (the Internet), the online advertising is bound to become the most important advertising vehicle. Inspired from classical advertising metrics and delivery methods (after all, an internet banner is simply the internet version of a press or outdoor ad, and an online video ad is about the same as a TV ad), but bringing far better efficiency metrics, it's not surprising to see that the online advertising is gaining a central spot in the current advertising optimization strategies.

Tags: Business 


alphabeta commented on 11/18/2009 10:38:12 PM

Mihai, online advertising must not be confused with internet marketing; compared to TV e.g., where information is expected by consumers (and so, accepted as given, before actually being shared), online each consumer is having the power to decide every moment his/her next step; thus, online advertising strictly refering to web advertorial info is weaker in strength, and expensive. It is worse.
Web2, P2P, blogging, networking and everthing that provides debate, might stand in your attention, though.


Doina commented on 1/18/2010 2:36:28 PM


Web advertorial info is targeted based on certain keywords, which have led the “users with power” to it (from search engines). As such, online advertisement is much more powerful than TV ads, only on its market segment. Which is, overall, a more decisive tool for marketers to narrow down their desired target audience. I don't see how this might be far worse than TV ads, which reach a very broad audience, among which only 10% might be interested in it.
As you said, over the internet the user has the power to decide, which is not the cause in TV mediums, where they just get what broadcasters transmit all in all.

But you are right about the last part, I am definitely interested in networking, blogging and other web 2.0 areas that are debatable right now, as I intend to talk about these and others such as cloud computing, server virtualization and others, in a series of articles here at SBP Tech Blog. Thank you for your interest.

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