Online Advertising Becomes More Targeted, Takes 36.8% Share of U.S. Advertising Market, Business and Industry Trends Analysis

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.  eMarketer projected $72.09 billion in U.S. online ad spending for 2016 (including mobile platforms), up from $58.6 billion in 2015.  Growth to $113.18 billion in U.S. online advertising is expected by 2020. Digital ad spending in 2016 (including mobile ads) was forecasted to be 36.8% of all U.S. advertising.  The big news in 2016 was that digital ad spending was expected to surpass TV ad spending for the first time (which was forecast to be 36.4% of total ad spending or $71.29 billion).

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 with 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 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.

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.  The practice was pioneered by Overture Services, Inc., which is now owned by Yahoo!. Yahoo!’s competitor Google has been selling the AdWords paid search results service since 2000.

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 be 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.

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 geographic 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 133 million 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. Yahoo! offers its Audience Ads, Search Ads, Mobile Solutions and Smart TV Ads programs which mine this kind of data and provide retailers with the targeted ads.  Even little-used sites can charge high premiums for these ads because the targeting can be very effective.

These are controversial marketing practices that have created a great deal of concern about the protection of consumer privacy.  Consequently, well-managed web sites offer a link to a “privacy” page where they disclose their policies about gathering, utilizing and sharing a consumer’s information.

For example, 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.  Google further states, “To serve ads in applications and other clients where cookie technology is not available, we have engineered an anonymous ID by associating your device ID with a random, anonymous string of characters.”

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 browses for dog beds on a pet related site. When that user moves to an unrelated site, and ad showing the very dog beds previously viewed appears in an ad. A study by BCG found that advertisers increase their return on investment with behavioral targeting by 30%-50%.

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.

Targeted advertising may suffer a significant blow due to a privacy initiative called Do Not Track.  Google, Yahoo!, AOL, Time Warner and NBCUniversal agreed to place a Do Not Track mechanism on their web sites which limit how data compiled by tracking consumer behavior is used.  When a consumer selects Do Not Track, participating sites may not use data to customize ads nor provide data to be used for employment, credit, health care or insurance purposes.  Mozilla’s Firefox web browser was an early proponent of a do not track option, as was Microsoft’s Internet Explorer.  Another threat to online advertising is ad-blocking software.  For example, AdBlock Plus is a banner, pop-up and video ad blocker used by a large number of consumers.  Devices equipped with AdBlock Plus rose from 60 million in April 2014 to 100 million in April 2016.  PageFair, a publisher of adblock-fighting software, recently published a report that found about 11% of internet users (which amounts to more than 600 million devices including smartphones and traditional computers) on a global basis used ad blockers in 2016.