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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

Print and TV Advertisements Earn More revenue Than Digital.

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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