This is “Understanding the Increase in Online Ad Spending”, section 14.3 from the book Getting the Most Out of Information Systems: A Manager's Guide (v. 1.1). For details on it (including licensing), click here.

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14.3 Understanding the Increase in Online Ad Spending

Learning Objectives

After studying this section you should be able to do the following:

  1. Understand how media consumption habits are shifting.
  2. Be able to explain the factors behind the growth and appeal of online advertising.

For several years, Internet advertising has been the only major media ad category to show significant growth. There are three factors driving online ad growth trends: (1) increased user time online, (2) improved measurement and accountability, and (3) targeting.

American teenagers (as well as the average British, Australian, and New Zealander Web surfer) now spend more time on the Internet than watching television.“American Teenagers Spend More Time Online Than Watching Television,” MediaWeek, June 19, 2008; A. Hendry, “Connected Aussies Spend More Time Online Than Watching TV,” Computerworld Australia, May 21, 2008; and “Brits Spend More Time Online Than Watching TV,” BigMouthMedia, July 12, 2007. They’re reading fewer print publications, and radio listening among the iPod generation is down 30 percent.M. Tobias, “Newspapers under Siege,” Philstar, May 18, 2009. So advertisers are simply following the market. Online channels also provide advertisers with a way to reach consumers at work—something that was previously much more difficult to do.

Many advertisers have also been frustrated by how difficult it’s been to gauge the effectiveness of traditional ad channels such as TV, print, and radio. This frustration is reflected in the old industry saying, “I know that half of my advertising is working—I just don’t know which half.” Well, with the Internet, now you know. While measurement technologies aren’t perfect, advertisers can now count ad impressionsEach time an ad is served to a user for viewing. (the number of times an ad appears on a Web site), whether a user clicks on an ad, and the product purchases or other Web site activity that comes from those clicks.For a more detailed overview of the limitations in online ad measurement, see L. Rao, “Guess Which Brand Is Now Worth $100 Billion?” TechCrunch, April 30, 2009. And as we’ll see, many online ad payment schemes are directly linked to ad performance.

Various technologies and techniques also make it easier for firms to target users based on how likely a person is to respond to an ad. In theory a firm can use targeting to spend marketing dollars only on those users deemed to be its best prospects. Let’s look at a few of these approaches in action.

Key Takeaways

  • There are three reasons driving online ad growth trends: (1) increasing user time online, (2) improved measurement and accountability, and (3) targeting.
  • Digital media is decreasing time spent through traditional media consumption channels (e.g., radio, TV, newspapers), potentially lowering the audience reach of these old channels and making them less attractive for advertisers.
  • Measurement techniques allow advertisers to track the performance of their ads—indicating things such as how often an ad is displayed, how often an ad is clicked, where an ad was displayed when it was clicked, and more. Measurement metrics can be linked to payment schemes, improving return on investment (ROI) and accountability compared to many types of conventional advertising.
  • Advertising ROI can be improved through targeting. Targeting allows a firm to serve ads to specific categories of users, so firms can send ads to groups it is most interested in reaching, and those that are most likely to respond to an effort.

Questions and Exercises

  1. How does your media time differ from your parents? Does it differ among your older or younger siblings, or other relatives? Which media are you spending more time with? Less time with?
  2. Put yourself in the role of a traditional media firm that is seeing its market decline. What might you do to address decline concerns? Have these techniques been attempted by other firms? Do you think they’ve worked well? Why or why not?
  3. Put yourself in the role of an advertiser for a product or service that you’re interested in. Is the Internet an attractive channel for you? How might you use the Internet to reach customers you are most interested in? Where might you run ads? Who might you target? Who might you avoid? How might the approach you use differ from traditional campaigns you’d run in print, TV, or radio? How might the size (money spent, attempted audience reach) and timing (length of time run, time between campaigns) of ad campaigns online differ from offline campaigns?
  4. List ways in which you or someone you know has been targeted in an Internet ad campaign. Was it successful? How do you feel about targeting?