Online Advertising Become More Targeted, Takes 36.8% Share of U.S. Advertising Market

After a surge in online advertising during the Coronavirus era, ads had slipped by early 2023, returning to massive but more normal levels. Recent changes in consumer privacy protection rules have also slowed online advertising. Both the online audience and the level of sophistication in online advertising continue to increase dramatically. Advertisers large and small have made the internet a significant part of their advertising strategies. Digital advertising in the U.S. during 2023 was a projected $263.89 billion, compared to $244.78 billion in 2022 according to eMarketer.

Digital marketing technologies, and the vast volume of personal data gathered on consumers and utilized in such advertising, has sparked deep concern about consumer privacy throughout much of the world. An enhanced degree of government regulation has resulted, particularly in the EU. This will be an evolving process in governments worldwide.

Online advertising includes paid search, display ads, video ads and other categories. To take advantage of the growing base of online consumers, as well as the increases in connection and computing speeds, advertisers have developed rich media techniques such as very catchy ads and video content.

The digital advertising market has expanded to include social media such as Facebook and LinkedIn, where advertising has been growing at a fast clip. Advertisers, including national firms, are taking social media very seriously. Consumers are spending a significant amount of time each day on Facebook and similar pages, and these sites offer tremendous tools that enable advertisers to reach specific, niche markets. Sophisticated tracking technology that is now commonplace on the internet allows advertisers to see how online ads are performing in real-time. Meanwhile, Amazon.com has become one of the most successful online advertising platforms, generating billions of dollars yearly in fees for display ads on its shopping sites. Google remains the dominant player in online shopping searches. People who are shopping for a specific product often tend to go straight to Amazon to search, rather than going first to a platform like Google. This has had the interesting effect of making Amazon’s own paid placement and display advertising revenues surge, as many companies are willing to pay Amazon to make their items more prominent.

Advertising Via Paid Search Results: Search engines such as Google provide targeted search result placement, also known as “paid search results,” in the form of prominent links to a client’s site. Ads on Google’s search results pages appear near the “natural” search results. What is vital about these ads is that they are generated by the key words a user enters in his or her search. Advertisers pay search engines to have their links appear whenever certain words or collections of words are part of a search. For example, a paid search result for a light fixture company might appear whenever “lighting” or “lamp” is entered as part of a search. Advertisers pay for each user click on their ads. Google and other search engine sites generally sell keyword placements to the highest bidders.

Another popular online method is “pay-per-click” advertising. For example, Google’s extremely successful AdSense program enables an advertiser to upload a text- or image-based ad into Google’s system. Google’s sophisticated technology places the ads on third-party sites that contain content related to the advertisement inserted there. Every time a consumer clicks on the ad, he or she is taken to the advertiser’s own web site, which results in a small pay-per-click fee being charged to the advertiser. This fee is shared between Google and the owner of the third-party site where the click originated.

Yet another method of online advertising is “textual” or “in-text.” Advertisers pay for certain words in news or general interest articles to by hyperlinked on third-party sites. When users click the underlined word, a related ad pops up, complete with a link to the advertiser’s web site. Online advertising company Vibrant Media, Inc., (www.vibrantmedia.com) for example, offers in-text ad products that can include text, flash media and video.

SPOTLIGHT: Nielsen and Partners Track Mobile Video Viewing

In partnership with Facebook, Google and other sites, Nielsen is tracking video viewers on smartphones, tablets and laptops. Video player manufacturers now include code that send pings to Nielsen servers with information about the device used to watch a video. Nielsen’s servers communicate with Facebook about those device addresses, and the social media site matches the addresses with member information. Facebook sends Nielsen data such as age and sex of the associated viewers. Experian, another partner, adds buying patter information related to those viewers. Nielsen sells this information to advertisers, enabling these advertisers to best tailor their ads to reach specific audiences on specific devices.

Behavioral Targeting: A concept sometimes called “behavioral targeting” uses technology to analyze an individual internet user’s tastes, habits, interests and concerns. A primary method of such targeting has long been the placement of cookies on users’ computers. Cookies track a user’s actions, such as web sites visited, and relay data on these actions to marketing analysis databases. (Cookies are also used to enable a web site to recognize a user when he or she returns to a web page.) Over a period of time, a pattern of web site visits will show a user’s unique interests, enabling targeting of ads. Data may also be gathered every time a user clicks on an ad.

An enhancement to this idea is technology that tracks all page visits of all internet subscribers within a given geographical area. This site visit history can be analyzed at the individual level, enabling an internet service provider to offer highly targeted ads based on a subscriber’s internet use history and apparent interests. Acxiom Corp. (www.acxiom.com) is a major player in targeted online ads, maintaining a database of households with information taken from a wide variety of sources, including public real estate and motor vehicle records, warranty cards that customers complete and return to manufacturers and travel histories.

Google uses extremely sophisticated technology to gauge the interests of online consumers and to place relevant ads in their view. Google’s effort to target ads in this manner vastly improves its ability to deliver relevant ads to consumers and serve advertisers’ interests, all while increasing Google’s ability to generate revenues.

Privacy: Google and Apple Alter the Rules

Consumers’ online activity is generally tracked at the individual user’s level by cookies and other means. This is extremely useful to advertisers who want to a) serve up their ads to viewers who are most likely to have an interest in their content, and b) better understand what types of people are viewing their ads. However, it runs counter to growing consumer and regulatory backlash about consumers’ lack of privacy and control over their own online activities. During 2020, Google announced that it would remove support for third-party cookies from its popular Chrome internet browser. In the spring of 2021, it announced that it will not create alternative digital identifiers to track individuals as they browse across the internet, nor will it use such identifiers in Google products.

Rather than track individuals’ viewing habits, one alternate trend within the digital advertising realm is to create groups or cohorts of non-identifiable users according to their apparent interests. One goal is to give users more control over their identities and to give them more trust in both internet use and in the ads that are presented to them.

In another important development, Apple announced in early 2021 that apps used by the hundreds of millions of iPhones worldwide must ask users for permission to track them individually for advertising purposes. The query occurs at the time that an app is downloaded.

The net effect of these trends has been higher advertising costs for many advertisers, with lower results. Some advertisers are reporting very substantial increases in their ad costs. For example, a tooth whitening products company in the UK called smirk (getsmirk.com), saw its Facebook ad prices soar due to Apple’s privacy policy change.

Another company, Get Stix, Inc. which makes and markets pregnancy and fertility tests (getstix.co), is sharply cutting its monthly ad spending on Facebook after costs ballooned. This is an evolving situation in which the leading technology companies are attempting to better protect consumer privacy and online safety in a more proactive manner. Part of their strategy is to attempt to show the government that the industry can self-regulate without additional government control. However, there is broad interest in government in the EU to protect consumers, as well as strong feelings about better protection from members in both parties in the U.S. Congress.

Another practice is “retargeting,” which displays ads for items that were viewed on an advertiser’s web site but were not yet purchased. For example, a user might browse for dog beds on a pet-related site. When that user moves to an unrelated site, perhaps a news site, an ad showing the very dog beds previously viewed appears on the news page.

To some extent, internet companies make it possible for consumers to opt-out of these practices, when consumers are willing to take the time to manage their user profiles. In addition, web browser options and security settings within Apple, Microsoft and other popular software enable consumers, who are willing to take the time and trouble, to restrict the use of cookies and other tracking technology.

The EU has enacted a “General Data Protection Regulation (GDPR)” that requires websites to alert consumers to the use of cookies. Many other aspects of a site’s use of consumer information are also tightly controlled by GDPR, with companies of all types required to take significant steps to protect consumers’ privacy and data security.

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