How online advertising works


The world of online advertising is at the same time a simple and complicated form of advertising. It’s never been easier to start an ad campaign for cheaper (Facebook and Google make it incredibly easy to get started for less than a cup of coffee), and yet there have never been more differentiating factors between them. So today, we’re going to discuss the basics of online advertising.

The basics

The gist of advertising is that you’re paying someone, typically a publisher to get your message in front of their audience. While the terms used may be different, online advertising is essentially the same, save for a few quirks. Just like their analog counterparts, your message can come in many forms such as plain text, still visuals and interactive units. Other than that descriptions usually describe the advertisement format. The IAB has a helpful list of standard advertising units that many websites use. This provides a spec that enables same assets can be used on different channels without the fear that it may break the website or look out of place.

How advertising is priced

There are four main ways of pricing ads and it is critical that you understand them, their respective strengths and weaknesses and who they favor.

Flat fees

The most basic method is to charge a flat fee for an ad that would be run for a specified amount of time. For premium positions on larger websites like YouTube, these run well into five digits/day. This ensures that your ad is served up every single time someone visits a page. However, this shifts the risk onto the buyer as there is no guarantee of how many people actually comes onto a page. This method is sometimes used when a brand is announcing a new product or service and trying to get as many people to know about it in as short a time as possible.

CPM (Cost Per Mille/Impression)

Arguably the most common form of ad pricing, cost per impression charges the buyer a certain fee for each thousand times an ad is served (Mille is Latin for thousand). It is important to note that this is not the same as how many times an ad has been viewed. The ad could be loaded halfway down a page that a viewer doesn’t see, or crawled by a bot and still count. As such, this also advantages the publisher as there is no measure of performance. That is not to say to avoid CPM-buys though. Sometimes all you need is for someone to see your ad and not have to take any further action (other than going to buy your product), CPM could be very effective for those.

CPC (Cost Per Click)

Google AdWords is famous for using this system, where they only charge you each time someone clicks your ad with the intention of going to the landing page. Usually seen as a happy medium for risk sharing, this encourages publishers to give the ad a good placement, and the advertiser an incentive to create an engaging ad as well.

CPA (Cost Per Action/Acquisition)

The last method is called CPA, where the advertiser only pays when the user takes a certain action (watch a video, download an app, buys a product). Obviously, this is the most advantageous to the advertiser – if they know how much each additional download/action is worth to them, they can decide whether an ad buy makes sense for them. Because the risk is all on the publisher, CPA buys tend to be more expensive compared to the rest.

What you should be looking out for

Armed with the above knowledge, there are several more things you should look out for. One of the most important is about how crowded the website is with other ads. Sites usually have a few ads running at the same time, but you’d want placements with fewer ads surrounding it.

Another aspect is the audience profile. When looking for websites to advertise on,  you should do so on websites with an audience similar to what you are after.

Importantly and perhaps critically, is the data surrounding your buy. What sort of data you will get, and how it will be measured is of tantamount importance. The most reliable publishers use a third party such as Comscore or DoubleClick ad server to measure metrics, ensuring the data is neutral and has not been tampered with.

Finally, there are all sorts of value-added bonuses publishers sometimes give. Some of this include creating the actual ad to other support such as microsites and editorial coverage.

While the online ad industry is vast and we’ve just only scratched the surface, understanding all this goes a long way into making sure your money is spent wisely.