Online display advertising started out as a very limited experiment back in the 1980s and has grown into a multi-billion dollar industry that continues to grow. There are five major players that have experimented with several ad pricing models and these top five account for more than half of the revenue generated by all online display ads. As the major players continue to battle for market share, smart marketers are jumping on the display ad bandwagon to get their share of the benefits these ads offer.
The Early Days – Banner Ads
A joint venture between IBM and Sears, known as Prodigy, was the first company to experiment with online advertising. Prodigy started in the 1980s, and although the company initially used ads to promote Sears products, it eventually took on other customers. Prodigy’s pioneering efforts in online ads were followed by a company called Global Network Navigator (GNN) in the 1990s, and shortly thereafter by Hotwired, the first website to sell large volumes of banner ads to big businesses. Some of the first big companies to buy these online ads from Hotwired included AT&T and Coors.
Setting the Foundation
Hotwired is credited with coining the term, “Banner ad,” and was the first company to develop reports that showed clients their click through rates. Prior to this, ads were sold based on impressions, not click throughs.
A Growing Medium
The Size of the Market
To put the size of the online advertising market in perspective, a comparison with offline advertising media is useful. According to the Internet Advertising Bureau (“IAB”), internet advertising is now second, only to Broadcast Television advertising, in the dollars spent in the medium, surpassing even cable television advertising.
IAB figures reveal display ad revenues in 2011 topped $11.1 billion, which represented about 35% of the $35 billion total ad revenue for all categories of online advertising. This was an increase of about 15% over 2010 display ad revenue of $9.6 billion. Display ad revenue also accounted for a larger percentage of total online ad revenue in 2011, 47%, compared to 45% for 2010.
There are three main pricing models for online display advertising; they are:
- CPC (cost-per-click) – this model prices based on the number of times the ad is clicked.
- CPA (cost-per-action, or cost-per-acquisition), also called performance-based pricing – this pricing model charges the client based on the number of specific actions (a purchase, entering information into a form, etc.) directly linked to the advertisement. It is different from CPC in that the actions are not just clicking the ad, but actions that are more closely associated with purchasing behaviors.
- CPM (cost-per-thousand: the acronym CPM comes from cost-per-mille, which means cost per thousand) – this model uses views as the measure to establish price, so the number of people who view the ad establish the price.
There are pros and cons to each pricing model. Many ad buyers like CPM pricing because it allows them to compare their online ad buying with their offline marketing efforts using the same measures, since CPM is a commonly used measurement in television, radio, newspaper, and many other offline media advertising.
The Major Players
Online display advertising is dominated by the top five biggest players in the industry: Google,
AOL, Microsoft, Yahoo! and Facebook. Collectively these five companies accounted for 53.8% of total display ad revenue in 2011.
While the dominant players are all household names, the size of each of their piece of the pie has changed in the past few years and it is expected to change even more. The following graph illustrates the trend of each of the top five’s share over the past several years:
Emarketer.com projections indicate Google is expected to displace Facebook as the biggest seller of online ads in 2013, and they are expected to grow their lead in the future. Whether these predictions come true or not remains to be seen, but what is sure is that the current top five stand to control a huge share of the online advertising dollars for a long time to come.
With online advertising taking such a dominant role in overall advertising, and with display advertising growing as a percentage of all online advertising, savvy marketers are flocking more and more to allocate larger portions of their ad budgets for online display advertising. With varied choices in the pricing models ad buyers can use for their campaigns, internet marketers are in a unique position to capitalize on the favorable trends in online display advertising if they plan their strategy carefully.
To learn more, browse the Vantage Local website, or give us a call at 1-855-77-LOCAL (1-855-775-6225). Our experienced team of online advertising enthusiasts is always delighted to answer any and all of your questions.