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Digital Advertisements
Users are able to use products for free because they give their time and attention which is then monetized through advertisements.
The customer’s perspective
Companies invest in advertising for:
- Brand Development: Brands advertise to maximum folks should know about your product (Owned Identity) to drop their Customer Acquisition Cost. All print and TV advertisements were for brand development. In such campaigns, the focus is on CPM while maintaining a basic CTR.
- Performance marketing: In this brands get Paid or Acquired Traffic for a specific business objective, for example, app installs, lead generation, or conversions. Agnostic to the method you use, what matters is the outcome that you promised and hence such advertisements are paid in the form of CPC, CPL, CPA, and CPT.
Companies will pay a premium for:
- Reach
- Performance
- If you can prove that the audience that comes to your platform is their target audience. Alternatively, if you can use artificial intelligence to target advertisements.
- If you can prove that your platform is a premium space.
Limitations of the ad-funded model
Indirect programmatic advertisement is bad for business and users. Yet, most companies adopt it because it is a relatively easy plug and play revenue channel.
Bad for business
- Bottom feeding. Most companies have not been able to monetize advertisements as efficiently as Google, Facebook, Amazon, and Apple. Hence, even when large organizations do direct sales of advertisements, they are fighting for the peanuts left behind.
- Downturns can hit hard. Companies spend on advertisement from their marketing budget which tends to be a variable expense. Hence, during a downturn or recession, ad-funded businesses are hit hard as companies stop spending this variable expense.
- Lack of consistency. Revenue from advertisements is seasonal.
- Converts your business into a commodity.
Bad for users
- Ideally, you must under-optimize. Adopting ads as a revenue model is all about managing tradeoffs: How to serve the needs of advertisers while retaining user delight.
- Eventually most will compromises on the product. Ad-funded economy has fused with acquisition through SEO. Hence, organizations tend to prioritize quantity over quality, i.e., create many low-quality articles to game the algorithm. Additionally, each story is valued by the page views it gets. Given that, a well-researched article and a funny cat video are measured by the same metric. Finally, the UX is extremely cluttered. It is this bad UX that has led to the creation of ad blockers.
Historical context
Ad networks solve a tangible problem:
- Without ad networks, it isn’t feasible for companies to individually buy advertisements from each website.
- Without ad networks, standardization of ad sizes and prices isn’t feasible.
Print and TV advertisements v/s Digital advertisements
TBD
What’s next
The pivot to privacy brings in new opportunities!
- The Internet is sunsetting the third-party cookie. Various governments are enforcing stricter privacy rules. Finally, platforms like Apple are by default disabling tracking.
- Companies that have implemented their own DMP that tracks First Party Data will be able to target advertisements better. For example, Vox’s Chorus.
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Advertisements in print and TV give much more revenue than digital.
| Print and TV | Digital | |
|---|---|---|
| How is it sold? | Advertisements in print and TV are sold directly by the news company. Given that, 100% of the revenue belongs to them. | Online, most quantity of advertisements is sold indirectly by ad networks. Given that, the publisher loses out 30-40% of ad revenue to the ad network. |
| How is reach measured? | In print and TV, it is assumed that the entire circulation (MAU) is reading. | Online, one can precisely calculate the DAU, which for most news websites turns out to be only 3-8% of MAU. |
| Brand Premium | There’s is a prestige to advertise with big news brands. | It isn’t feasible for brands to select that they want to advertise with a specific publisher. |
| Bid up or down | Sometimes companies will bid up to block out competitors from advertising on specific print and TV channels. | Ad engines force publishers to bid down, i.e., whoever has the lowest price will get the ad. |
| Implication on content | Premium content is valued. | All content is measured against page view. Hence, a detailed investigation is measured against a cat video. |
Advertisements in print and TV get much more revenue than digital.
Jul 26, 2023
It is always advisable to have one major source of revenue and then diversify by having multiple minor streams of revenue that de-risk you from that major source of revenue. For example, YouTube’s revenue split is 1:3 between subscriptions and advertisements.
Why it matters:
- It protects against risk of ruin.
- It protects against ups and downs. For example, revenue from advertisements is seasonal.
How
There are different forms of revenue models:
- Digital Advertisements, where revenue is Sessions Per User x Users x Pages Per Session x Ad Impressions Per Pageview.
- Subscription, where revenue is Average Revenue Per User (ARPU) x Active Subscribers (i.e., Existing Subscriber Base + New Conversions + Renewal)
- Affiliate and deals
- Events
- Sell playbooks, courses, trainings, etc. using micro-transactions
- E-commerce: For example, launch branded products
- Offer services like Job Boards
Downside
Some of these revenue models can be in opposition to each other and make commoditized businesses complicated. This in turn mandates the need for propensity models.
Jul 23, 2023
Dictionary
CPA
Jul 8, 2023
Dictionary
CPC
Jul 8, 2023
Cost Per Mille: Businesses book a fixed number of impressions within a date range. Once the order is accepted, publishers must honor the impressions while maintaining reach and view-ability% within acceptable limits.
Dictionary
Jul 8, 2023
Advertisements sold via an intermediary ad networks like Google Ads, Taboola, etc.
Dictionary
Jul 8, 2023
Dictionary
CPT
Jul 8, 2023
Businesses pay top dollar for advertising on Print and TV. However, the same isn’t the case for digital.
- Reach: In TV and Print, the DAU/MAU is assumed 100%. The same isn’t true for digital.
- Targeting: Targeting is assumed in newspaper and TV. Most digital publishers have not enforced login struggle to build First Party Data. This makes it impossible to know socio-economic and demographic information about these Anonymous Audience. Hence, businesses pay lesser ad rates if one cannot Target advertisements.
- In TV and Print, all sales is Direct-sold. However, in digital a substantial portion is Indirect-sold.
- Bid down: In Digital, ad networks operate as bidding engines, i.e., the publisher that bids the lowest gets the Digital Advertisements. In contrast, in TV and Print, the businesses bid (up) to get space in a relatively scarce property.
- Cut: These ad networks can take up to ~45% of the revenue.
- Can’t monetize premiumness of platform: All businesses want to advertise on a premium Owned Identity, for example, a premium platform like The Times of India newspaper instead of an ad hoc billboard. Hence, Print and TV command premium rate. However, when advertising via ad networks, a business cannot say that it wants its advertisement to appear on a specific website. It could go to anyone who bids the lowest.
Ad rates on digital are significantly lower than on print and TV.
Jul 8, 2023
In-house sales team directly sell Digital Advertisements solutions to brands without any intermediary. They look for giving brands more solutions to help them build their business.
Dictionary
Jul 8, 2023
There’s seasonality in digital advertisements sales.
- During the months of April to June, advertising spends tend to be relatively low as advertisers are in the process of strategizing how to allocate their budgets for the entire year.
- On the flip side, from October to March, ad spends skyrocket, accounting for a substantial portion, typically around 60-65%, of the total annual revenue. This period coincides with festive occasions like Diwali and Christmas, as well as significant sales events like Annual Republic Day Sales.
- Additionally, March End becomes a crucial timeframe as marketers aim to utilize the remaining budget before the start of the new year.
Jul 8, 2023
Dictionary
CPL
Jul 8, 2023
An Owned Identity is something for someone and not everything for everyone. Given that, it is imperative that companies prefer to target advertisements. Hence, Ad-rates are higher for identified audiences compared to anonymous audiences.
Dictionary
Jul 8, 2023
Dictionary
CPD
Jul 8, 2023