The Digital Advertising Revolution

Untangling the Revenue Machine

The Digital Advertising Revolution: Untangling the Revenue Machine
The Digital Advertising Revolution: Untangling the Revenue Machine2019-01-15T17:14:10+00:00

A Brief History of Advertising

Advertising has become more sophisticated. What used to be a model whereby a single message was broadcast to the masses (whether through TV, print, or radio) has changed to a model of ultra-personalized messaging for individual consumers. We live in a different world, today.

Karla Cook, editor of the marketing blog at Hubspot, provides a whirlwind yet insightful synopsis of the history of digital advertising.

According to Cook, banner ads were the first foray into internet and digital advertising. The first banner ads appeared in 1994 and were used in the same way that space is used in paper publications such as magazines – for revenue-generating ads. For example, AT&T paid Hotwired $30,000 to place the first banner ad on their internet site, and the result was a click-through rate of over 40 percent. Today, consumers have grown weary of banner ads, and the average click-through rates are closer to 0.06 percent.

By 1995, advertisers were targeting specific demographics rather than grabbing space on random web pages. The ad agency WebConnect helped clients target websites frequented by their desired consumers. WebConnect also tried to avoid annoying consumers with repetitive ads, and their software limited the number of times a visitor would see the same ad.

ROI tracking tools first emerged in 1996. Companies could now track how many times an ad was viewed and clicked on across websites. This solution meant that advertisers no longer had to wait until the end of a campaign to change it; they could see the results and change strategy in real time. It was at this time that pricing models changed from flat fee to cost per impression (CPM), an ROI-based model.

The much-maligned pop-up ads emerged in 1997, designed to save on online advertising and capture the attention of users who were increasingly becoming ad-blind. ROI tools showed no significant returns using this strategy, and pop-up ads died a quick death by the early 2000s.

Paid search and pay-per-click were the next stage for advertisers in the early 2000s. Unsurprisingly, consumer search results increasingly became determined by how much companies were willing to pay, so Google introduced AdWords in 2000 to provide a search that was profitable for advertisers and did not compromise the quality and relevance of the search. AdWords used a Quality Score model, which considers an ad’s clickthrough rate when determining its placement on the search results page. If an ad had a lower bid, it would still appear above other, less relevant, paid ads.

By the mid-2000s, advertisers were targeting younger internet users who were spending their time on social networks. Facebook entered the world of advertising in 2006 with small display ads and sponsored links. The company targeted consumers with relevant ads based on their demographics and interests, the information for which is captured from Facebook profiles.

Since then, advertisers have seized opportunities to reach audiences with native advertising – paid ads that match the form and content of the host content so that the marketing message is disguised. And today, Google and Facebook dominate today’s marketing and advertising sectors. Statistics clearly show that these two behemoths have the majority claim on the $209 billion world-wide digital advertising industry. Their influence now extends from buying decisions at the local grocery store to local and national elections, which is changing societal and global norms.

To summarize the state of the advertising industry now compared to 40 years ago, consider these insights.

  • Advertising has become much more economically viable.
  • Instead of having limited channels with broad appeal, advertisers now have many channels with specific appeal.
  • Where advertisers once had limited exposure to customers, the customer is now constantly engaged with digital platforms and continually providing information and data.
  • Where advertisers once had limited data on consumers, the public’s most intimate details are now collected, centralized, analyzed, and leveraged by machine learning and artificial intelligence algorithms.
  • These algorithms mimic consumer behavior, anticipate their needs, and communicate in ways that influence consumer decisions and behaviors, often subliminally.
  • It used to be extremely difficult for advertisers to send a specific message to a precise demographic. Now, the opposite is the case.

Topics Covered:

In this series of articles, we explain why consumers and corporate actors need to understand how the advertising industry works, how quickly it has evolved (and often without ethical checks and balances), and how commerce and consumers are responding to such rapid change.

The State of Modern Advertising: Media Consumption, Mobile Devices and Platform Strategies →

Our first article in this series follows the money. This article examines the transformation that has occurred in advertising, shows how advertising has evolved since the advent of digitization, describes how the major platforms track and influence consumers, and investigates where investor interests lie.

Google and Facebook: Platform Dominance and Societal Implications →

The second article in this series explains how Google and Facebook have managed to dominate advertising by growing their platforms through strategic acquisition. This article also discusses the emotional link between social media and advertising, the dynamics of paid content and native advertising, and how advertising is influencing society now and how it will do the same in the future.