Online advertising is growing by leaps and bounds, but are there opportunities for smaller players?
It is said that during any economic downturn, the first sector to get impacted is advertising as it is the first place where companies like to cut back. However, thanks in part to a small base, the Indian online advertising and marketing sector is growing at a fast pace, offering many opportunities for different classes of people.
From around Rs 150-200 crore in the financial year 2007, online ad spends targeting Indians are expected to have jumped to around Rs 500 crore in FY 2008, according to industry estimates. “In 2008-09, we expect it to hit Rs 900 crore,” says Mahesh Murthy, whose firm Pinstorm alone would have bought Rs 115 crore worth of ads by the end of this year.
In other words, Pinstorm, which claims a market share of around 15% in India, will alone oversee ad sales almost 50% higher than the total industry turnover of Rs 80 crore during 2006.
While still accounting for just around 5% of the estimated Rs 15,000 crore spent on advertising in India, online promotions account for between 15 to 20% in places like the US and parts of Europe. Recently, a new media specialist research firm eMarketer, revised down its estimate for online promotion expenditure by US companies due to the economic recession. Yet, the new estimate for 2008 for US companies alone stood at US$ 25.9 billion (Rs 111,000 crore), up 23% from its estimate for 2007.
To understand the opportunities thrown up by the new medium, it is important to understand the ‘food chain’ of the online ad market.
As in traditional mass media advertising, online marketing has also started throwing up different strata of service providers. Between the advertiser on one end and the website owner or publisher on the other, there are many layers of service providers.
The Network or The Media Agency
The most important intermediary is the ad or affiliate network. This is in effect, what brings the advertiser and the publisher together and is the closest equivalent to the media agency of traditional advertising. The simplest model of the online advertising chain can be formed with just these three participants, with the ad network helping the advertiser and the publisher discover each other. In this respect, an ad network is like the traditional media buying agency, helping big companies buy ad space on TV and newspapers.
However, the analogy cannot be taken very far due to the fact that unlike in the traditional media world, there are no big networks or websites that attract most of the online eyeballs. Each of the billions of pages of web content is a potential vehicle for advertisement, and the number of website owners would be in millions, rather than the tens of TV and print publications that a traditional media buying agent has to deal with.
The huge number of ‘publishers’ creates two problems. One, that it is not possible to manually manage the placement of ads across billions of pages of web content. The second is that it is also difficult to determine the ‘ad rates’ to be applied to each of these pages.
While the first problem resulted in the automation of ad placements, the second led to the evolution of alternate standards for measuring the impact and reach of a publication or webpage. Thus, most of the ads today are placed by algorithms that ‘read’ the content of a webpage and gauge the potential interests of its readers from the content itself.
As for the second difficulty, as it is not possible to keep track of how many visitors each page of a website has, unlike tracking popularity of the 9 O’ Clock news, ad networks have evolved the concept of pay-per-click. Under this system, the publisher is paid according to the number of relevant visitors to his or her page as measured by the number of people clicking on the ads.
The shift to a pay-per-click model also simplifies the first problem of intelligent ad placements, as the publisher now has the incentive to make sure that the most relevant ads from the network are displayed on his pages. Many older networks, especially those that pay on the basis of sales or leads instead of clicks, still rely on the publisher to choose the best ads from their networks.
However, their success has been eclipsed by the emergence of Google’s automated ad placement mechanism called Adsense Adwords. While preventing the network from being overwhelmed by the sheer scale of manually choosing the right ads for the right page, the automated system has the additional advantage of being able to periodically refresh the ads displayed on pages frequented by the same group of viewers, further increasing the chances of clicks.
The automated, and therefore low cost, ad selection system has brought in even relatively low-traffic websites within the reach of ad networks, and therefore, extra ad revenue. The success of Google’s Adwords Adsense can be seen in the huge growth that the revenues generated from the program have shown. From just around US$ 100 million (Rs 430 crore) in 2002, the program single-handedly generated revenues of US$ 5.8 billion (Rs 24,500 crore) in 2007, around 17.5% of the total global online ads and promotions business. With the US$ 2.4 billion that the number two ad network—Yahoo—generated for its publishers, the two networks together accounted for a quarter of all online advertising and marketing revenues for 2007.
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The business of ad networks, therefore, is restricted in its scope for new entrants. However, there are some smaller networks, that still rely on the publisher or the website owner choosing the links he or she wants to display. Such networks have survived by specializing in verticals and having a different business model. Unlike the two big networks, which calculate the impact of the ads based on the number of people clicking on them, the specialized networks such as Commission Junction offer much higher commissions to the publisher, but only for getting their readers to fill out forms or purchase online. While each click on the big networks may get you as little as five cents (Rs 2.30), in these networks, typically called referral networks or cost per action (CPA) or cost per sale (CPS) networks, publishers can expect to make between US$ 10 to US$ 30 (Rs 430 to Rs 1,290) per lead.
Unlike the automated click-based networks such as those of Google and Yahoo, CPS or affiliate or referral networks are areas that are yet to see much traction in India. Typical ‘actions’ on the basis of which publishers get paid include filling up a loan request form or a car enquiry form.
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written by marketing strategy, May 23, 2010
written by charlie, June 23, 2009
written by Brian, June 18, 2009
written by Jonathan, June 15, 2009
If your interested in web optimization for your site, there is a free site for uploading video ads for your business, they also have image uploads if you are not yet up to videos. The more sites you can link to the greater your market will be. They have a free link exchange as well.
http://adwido.com
written by Jonathan, June 11, 2009
If your interested in web optimization for your site, there is a free site for uploading video ads for your business, they also have image uploads if you are not yet up to videos. The more sites you can link to the greater your market will be. They have a free link exchange as well.
http://adwido.com
written by Shankar, October 27, 2008
The posting is very insightful & interesting
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