Supply & Demand
In recent years, internet advertising has taken the advertising industry by storm, as it continues to experience huge, incremental growth. Companies are moving away from the dark-ages of print ads and radio spots and entering the digital age of online advertising. In the United States, internet advertising revenues soared to $10.7 billion in the third quarter of 2013, representing a 15% increase over the $9.3 billion in the third quarter of 2012(IAB, 2013). The graph below was retrieved from the Interactive Advertising Bureau website and depicts quarterly internet ad revenue since 1996. The graph portrays the remarkable gains seen by the online advertising industry over ...view middle of the document...
Recently, advertisers are following users as they continually shift their attention away from desktops and toward mobile devices and tablets. According to the Interactive Advertising Bureau, “mobile ad revenue reached $3 billion in the first six months of 2013, a whopping 145 percent increase from the previous year” (IAB, 2013)
Any website that attracts viewers is a potential supplier of advertising “inventory”. Some of the largest suppliers of advertising inventory in the United States are Google, Yahoo!, AOL, and Facebook. Each of these sites acts as a “publisher”, integrating ads into its online content, and a “distributor” of ad space by selling its advertising inventory to advertisers(Evans, 2009). One common source of supply of online advertising includes search engines. Google, for example, controls nearly 72% of the search engine market share. However, its business is not search, but advertising. Google makes more from advertising than all the nation’s newspapers combined. In 2010, more than 96% of its $29 billion revenue came directly from advertising (Gleick, 2011). Websites that provide display advertising represent another source of supply of online advertising. Banner ads, skyscraper ads, and pop-ups can be purchased by advertisers and positioned on a company’s webpage. A final key source of supply of internet advertising is social media sites. The popularity of social media continues to grow and websites such as Facebook, Twitter, and Pinterest are experiencing the revenues gained by providing online advertising. According to Forbes, during the third quarter of 2013, Facebook’s ad revenues jumped 66% due to a 16% increase in the number of ad impressions and 42% growth in ad pricing (Facebook Earnings Preview, 2014).
Suppliers of online advertising generally charge advertisers on a “cost per thousand impressions” basis or a “cost per click” basis. An impression is the display of an ad on a publisher’s webpage. Much like print advertising, the advertiser pays for the number of people served by the ad. This model is known as CPM (cost per mille), meaning cost per thousand impressions. The advertiser pays for ad placement in increments of 1,000 readers. CPM prices can vary greatly depending on the popularity of the website.(Online Advertising Pricing Models, 2000). In a “cost per click” model (CPC), the advertiser pays for only the number of people who click on the ad. Google AdWords, for example, allows advertisers to bid for keywords against one another in fast online auctions. Some advertisers are willing to bid as much as $50 for a single click on a popular keyword, such as “mesothelioma” (Gleick, 2011).
As consumers spend more of their time online, the demand for internet advertising continues to rise. Traditional advertising methods such as television, radio, newspapers, magazines, billboards, and directories are being abandoned by companies who desire to shift their marketing strategies to the web....