Beefing Up Banner Ads

In October 1994, Hot Wired ran the first Web banner, an ad placement for AT&T carrying the promise of a new era with the message, “Have you ever clicked your mouse right here? You will.” In the ensuing time period, the banner has generated billions of dollars in revenue but has also come to be seen as a symbol of failure. Its place as the pre-eminent form of Web advertising was eclipsed in 2000 when Google borrowed the paid search advertising system pioneered by Overture and turned it into a moneymaking machine. Since then, the display advertising business has played second fiddle to search, despite the fact that search pages make up only a fraction of Web traffic.

That situation is slowly changing. A new Web ad architecture is developing that promises to remake how advertising is bought and sold, borrowing the best of paid search auction systems while going beyond their targeting to allow advertisers to show each ad only to the audience they want. The automated exchanges, fueled by vast amounts of Internet user data, provide promise and potentially peril to all parts of the industry, from clients to agencies to publishers. “It’s going to facilitate a lot of brand dollars coming online because they’ll be able to buy audience — and right now it’s really hard for them to do it at scale outside of a few portals,” says William Morrison, an analyst with ThinkEquity.

The promise of digital display advertising has always been that it would allow marketers to put the right message in front of the right customers at the right moment. For the most part, it’s fallen short. Display is hampered by the fact that it doesn’t have a clear intent signal like search. Instead, display advertising has looked for signals elsewhere, with mixed results. Content is still the top proxy used for finding the right audience. The clear drawbacks to this are that site audiences are far from monoliths. What’s more, a travel advertiser might want to reach not just male sports enthusiasts, but male sports enthusiasts who are interested in traveling to Las Vegas.

Contextual ads, which key off specific content, have also come up short with their relevance. The same goes for behavioral ad systems, which were thought to be the next big thing in helping display close the effectiveness gap with search.

Instead, advertisers want to directly target audiences. Publishers and networks have long promised this but generally failed to deliver, at least at scale. Now, thanks to advances made in advertising exchanges like Google’s DoubleClick unit, the promise is becoming reality. Advertisers can hook into a half dozen or more exchanges with a set price they are willing to pay for a particular audience — i.e., that male 18-35 who is interested in traveling to Las Vegas. In the snap of a finger, when a user arrives at a page, an exchange makes a critical decision based on the data available about a user. It trolls through the bids to find the best match for the user. These computations are done on a banner-by-banner basis, in real time. The user on the page might not fit the profile of a Las Vegas traveler, but other data could indicate a female looking at SUVs, triggering a bid from an automaker.

“What’s happening is that you as a buyer will have the opportunity to make a decision about which ad impressions are most valuable across a gigantic swath of impressions,” explains Nathan Woodman, svp of corporate development at Havas Digital.

For now, only a small portion of Web advertising goes through such systems. Forrester Research, however, forecasts that 30 percent of online advertising will flow through such marketplaces by the end of 2010.

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