How The Internet Web Ad Industry Works

By Trevir Nath

Over the past 10 years, advertising strategies have evolved as a result of technological development. Commercials and print advertisements, which dominated advertising in the 20th century, have lost importance as the internet has provided new channels for advertisers to reach a larger audience. Gannett Company estimated in 2013 that the newspaper industry lost more than $1 billion in advertising, a 5.3 percent decrease from the prior year. The advertising industry has moved largely away from print advertising in favor of digital and web based advertisements.

Online marketing has grown and expanding containing a number of tools to reach consumers via the Internet. Areas of online marketing include, search engine optimization, social media marketing, and mobile advertising to name a few. While various forms of internet advertising exist to optimize sales, it is imperative for companies and advertisers to reach the highest rank on search queries within Google. Google(GOOG

Google AdWords and AdSense

A majority of Google’s revenue is generated from advertising. Google’s online advertising programs, AdWords and AdSense, generated $50 billion of Google’s $57 billion in revenue in 2013. Google AdWords is a marketing strategy for companies and advertisers to reach a larger audience. Appearing higher on a Google search query ultimately bodes well for new and established firms.

AdWords provides companies an opportunity to bid on the placement of an advertisement and keywords within Google’s website. Searches in relation to the business will result in the company’s advertisement and website appearing as a result of a search query. Google only generates revenue when advertisements are clicked. This is defined as cost per click and is a marketing strategy to direct traffic to a company website.

Likewise Google AdSense enhances a company’s opportunities to reach larger audiences through advertisements. Google places the advertisements within other websites to produce clicks rates and website traffic. Largely recognized for its search engine, Google generates a majority of revenue through advertising services for companies in search of enhancing website traffic. (For more, see: How Does Google Make Its Money?)

Search Engine Optimization (SEO)

While Google AdWords and AdSense produce higher search results with a Google search result, there are organic means to similar results without spending money. Search engine optimization is a strategy to naturally increase the visibility and traffic of a website in a search engine.

SEO specialists must consider how search engines operate, keywords in a page's URL, and how consumers search. Incorporating a variety of SEO strategies to support a website can generate higher ranks in popular search engines resulting in increased traffic. Due to Google’s robust market share in search engines, advertisers customize their SEO efforts to Google’s search algorithms.

While optimizing a website for SEO isn't easy, companies may outsource their needs to firms that specialize in SEO. Typically, an SEO firm will analyze and audit features of a website such as keywords, Google Analytics reports and links. In order to optimize a website, an overhaul of coding, link building and a website redesign may be needed to create fresh content. As digital advertising and marketing strategies continue to develop, it has been suggested that search engine optimization may not always work in obtaining the highest search results. (For more, see How To Monetize Your Website.)

Social Media Marketing

Success in internet advertising can be easily measured by the amount of website traffic a company generates. Social media encompasses tools which globally connect individuals to create and share information and experiences; not coincidentally, social media can be a huge driver of website traffic.

Though Facebook (FB) is often thought as the preeminent social media platform, there are many social media companies, both public and private, including Twitter (TWTR) and Instagram to name only the next largest two. (Instagram is owned by Facebook.) Due to the nature of social media, consumers are constantly connected with each other, and as a result advertisers can attract a larger audience with a relatively low-cost tweet, Facebook post or Instagram picture.

Social media marketing can be measured by impressions or engagement. Impressions measure the number of times an advertisement is seen even if it is not clicked. Marketers also measure the level of engagement between consumers and businesses. Engagement is a strategy in which consumers post new content and conversations within social media to drive website traffic and noise. As Millennials are deeply immersed in social media, advertisers believe that social media marketing is the most effective digital channel.

Mobile Advertising

Over the past 10 years, mobile technology has made vast gains in innovation, design and service. It is Pew estimates that 90 percent of American adults own a mobile phone, and 58 percent of them own a smartphone as of 2014. As a result, mobile advertising has rapidly grown to the most effective channel in reaching a large audiences.

Mobile advertising is a form of advertising via smartphones including advertising formats such as display, video, social and search. Display and Video advertisements encompass advertisements located on websites. Display advertisements take the form of banners; whereas video advertisements are pre rolled ads and often reformat TV commercials. It is reported that mobile advertising is growing much faster than all other forms of digital advertisements with search and social media at the forefront of revenue.

The Bottom Line

Ubiquitous internet access has enabled new advertising and marketing strategies to reach consumers. Google AdWords and AdSense create opportunities for companies to increase search rank at a cost. In conjunction with Google’s advertising programs, companies can increase web presence through search engine optimization, social media marketing, mobile advertising, and content marketing. Measuring success of internet advertisements can be done through search and web analytics which quantify a number of features including impressions and engagements. The development and sophistication of online marketing has proven to be quite successful with internet ad revenue exceeding$42.8 billion in 2013, marking a 17 percent increase over the year prior.

Scrolling through my Instagram, past elegantly posed travel photos and indulgent feasts, I was stopped in my tracks by an ad: a hoodie that incorporated a reverse mini hoodie for a baby being worn in a carrier. Entranced, I watched the demonstration, thinking about my daily 12-block-each-way walk with my infant to pick up my toddler. I needed it. Without even pausing to think about it, I purchased it.

For a generation that grew up mocking infomercials and fast-forwarding through television ads, Instagram ads strike a strange balance: effective enough to drive purchasing, but just a little bit embarrassing to fall victim to so easily. They are the "As Seen on TV” (ASOTV) products of a new generation: hyper-targeted, fitting a need you didn’t even realize you had but now need to fill immediately. In this new generation of big data, there’s no sitting through Shamwow to get to your Snuggie: ads feed straight into your photo stream for leggings with pockets, new-fangled travel pillows, and socks with your dog’s face on them.

"Every Instagram ad is something I make fun of until I eventually buy it.”

"Every Instagram ad is something I make fun of until I eventually buy it,” tweeted Amanda Hess, a New York Times writer focused on online culture, in a statement equally descriptive of the strange psychology of ASOTV ads. Infomercials were born out of the cheap ad time available in the late-night hours when television stations weren’t broadcasting. The low barrier to entry meant that any idea, no matter how wacky, had a chance to succeed. The affordable pricing meant that the ads had plenty of time to use every psychological tool in the book to capture sales, rather than squeezing a message into a costly 15-second prime-time spot. They introduced unknown products, then demonstrated the need for them, and closed the deal by urging the customer to take the next step immediately (usually by calling).

Priceonomics broke down the anatomy of an ASOTV ad, starting with the first step: "The first few minutes of an infomercial are all about creating a ‘frame’ for the viewer: showing the product, showing it in use, and establishing a relatable context for that use.” For Jackie De Jesu, the founder and CEO of Shhhowercap and a former creative director, introducing her product via impeccable branding came naturally, and the photos used by the brand’s Instagram combine artistic, vintage styling with moody models and modern settings. It silently communicates that the brand knows shower caps have been around forever, while showing that this is not your grandmother’s plastic cap from the pharmacy.

Just by appearing on Instagram, brands have the beginnings of a frame, though. "Millennials grew up cynical, suspicious of the world,” says Julie Smith, retail principal at Point B. "The people who came of age during Columbine, 9/11, and Enron, and who entered the work force during the Great Recession, don’t want to be messaged at.” They are wary of people telling them who they are or what they want. So whom do they trust? A photo app — after all, 83 percent of millennials sleep with their phones. And De Jesu knows it: "Trust is built into the platform.”

"The Instagram customer is really comfortable seeing product on Instagram and purchasing immediately.”

Lisa Pastor, Shhhowercap’s vice president of operations and "ad guru,” says their company got that innately, as they are part of their own target audience. "The Instagram customer is really comfortable seeing product on Instagram and purchasing immediately,” she says. "They’re used to it; it feels organic.” Compared to other web advertising (including Facebook), Instagram has had better success converting customers immediately, according to Pastor.

"Having established a baseline familiarity with his product, the pitchman works quickly to establish a need,” continues Priceonomics. Nobody thought they needed socks with their dog’s face on them, but the minute I passed the ad around a dinner table, people commented about buying them for friends and family. "No one needs a luxury shower cap,” says Caryn Hill on a blogpost for Threadless, "but they created that need by maximizing the item’s visual appeal. … Their photos sell a story that says, ‘If you buy a Shhhowercap, then you will live the luxury life, look as amazing as these models, and feel like you’re at a high-end spa every day.’” The sweatshirt I bought had done the same thing: It showed me the life I could have if I owned that product, one where I could wear both a hoodie and my baby at once.

The final step to the infomercial is to show urgency, traditionally done with immediate discounts ("Call now for free shipping”) or implied scarcity ("Supplies are limited”). A Kissmetrics blog on the psychology of selling explains why: "Urgent situations cause us to suspend deliberate thought and to act quickly.” Whether it’s a discount for clicking straight through or simply the threat that you won’t see that exact product again, in millennials’ world, urgency translates to "Avoid FOMO, buy now.” I bought the sweatshirt because I had never seen it before and wasn’t sure if I’d see it again.

But while the psychology of Instagram ads might have been the same as ASOTV, the platform holds distinct advantages. After buying a shirt she first saw there, Man Repeller founder Leandra Cohen wrote of the algorithm, "It is really good at showing you shit it thinks you will like.” Later in the same piece, she demonstrates another reason why the platform appeals so well to millennials: "There are so many great things to be discovered in so many different places that the value in committing to the centralized space that is a singular specialty retailer or department store doesn’t quite hold as much weight as it used to.”