How Web Advertising Works

1.Introduction to How Web Advertising Works

You have probably noticed that across the Web, two different things are happening right now:

1. More and more sites are asking you to pay a fee to subscribe to all or part of the Web site.
2. Advertising is becoming more and more "in your face." There are now pop-up ads, ads that play music and sound tracks, ads that swim across the screen, and so on.

The second trend is true of nearly all commercial Web sites. There are many new forms of Web advertising, and they are more and more obvious. Many Web users have questions about all of these new ad types. For example:

• Why do Web sites have so many ads now?
• Why do Web sites allow pop-up ads that open new windows? (Many people hate closing them all.)
• Why do Web sites allow these floating ads that cover the content so I cannot read it?
• How can I make all these ads go away?

In this article, we will look at all the different forms of Web advertising in use today, as well as the economics that are driving them, so that you can have a much better understanding of how Web advertising works. Whether you are a casual surfer or someone running your own Web site, you will find this article to be a real eye-opener.

2. In the Beginning: Banner Ads

When the Web first started being a "commercial endeavor" around 1997 or so, thousands of new sites were born and billions of dollars in venture capital flowed into them. The sites divided into two broad categories:

• E-commerce sites - E-commerce sites sell things. E-commerce sites make their money from the products they sell, just like a brick-and-mortar store does.

• Content sites - Content sites create or collect content (words, pictures, video, etc.) for readers to look at. Content Web sites make their money primarily from advertising, like TV stations, radio stations and newspapers.

In the beginning, "advertising" on the Internet meant "banner ads" -- the 728x90-pixel ads you see at the top of almost all Web pages today (including this one). In 1998 or so, banner advertising was a lucrative business. Popular sites like Yahoo could charge $30, $50, even $100 per thousand impressions to run banner ads on their pages. These advertising rates provided fuel for much of the venture capital boom on the Web. The idea was that sites could start up and increase their page impressions to make easy money from banner ads. If a site could generate 100 million page impressions per month, it could make $3 million per month with banner ad rates at $30 per thousand impressions.

Where did numbers like $30 or $50 per thousand impressions come from? That's what magazines typically charge for full-page color ads. The Internet took the same payment model and applied it to banner ads.

At some point, advertisers came to the conclusion that banner ads were not as effective as full-page magazine ads or 30-second TV commercials. At the same time, there was an incredible glut of advertising space -- thousands of sites had a million or more page impressions available per month, and companies like DoubleClick began collecting these sites into massive pools of banner-ad inventory. The economic principle of "supply and demand" works the same way on the Web as it does everywhere else, so the rates paid for banner advertising began to plummet.

Sidebar Ads

A sidebar ad (also known as a skyscraper ad) is similar to a banner ad, but it is vertically oriented rather than horizontally. Because it is vertical, the height of a sidebar ad can often reach 600 pixels or more, and sidebars are generally 120 pixels wide.

A sidebar ad has more impact than a banner ad for at least two reasons:

• A tall sidebar ad is two to three times larger than a banner ad.
• You cannot scroll a sidebar ad off the screen like you can a banner ad. With a banner ad, you can scroll just 60 pixels down and the ad is gone. With a sidebar ad, the ad is with you much longer.

Because of this increased impact, sidebar ads have higher branding power and a higher click-through rate. A typical sidebar ad has a click-through rate of 1 percent (10 clicks per 1,000 impressions), or about two to three times that of a banner ad. Advertisers will typically pay $1.00 to $1.50 per 1,000 run-of-site impressions for sidebar ad placement. Advertisers pay more for targeted sidebar ads, just like they do with targeted banner ads.

Pop-Up and Pop-Under

A pop-up ad is an ad that "pops up" in its own window when you go to a page. It obscures the Web page that you are trying to read, so you have to close the window or move it out of the way. Pop-under ads are similar, but place themselves under the content you are trying to read and are therefore less intrusive.

A typical pop-up ad

A typical site with two pop-up ads that appear on top of the home page

Pop-up and pop-under ads annoy many users because they clutter up the desktop and take time to close. However, they are much more effective than banner ads. Whereas a banner ad might get two to five clicks per 1,000 impressions, a pop-up ad might average 30 clicks. Therefore, advertisers are willing to pay more for pop-up and pop-under ads. Typically, a pop-up ad will pay the Web site four to 10 times more than a banner ad. That is why you see so many pop-up ads on the Web today.