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How Website Advertising Works



How Website Advertising Works

Here is a guide to the three most common types of website adverts, with their advantages and disadvantages, and the way they work.

PPC adverts

The most common type of website advert that everyone knows is the PPC (pay per click) ad. This is the type that Google publish on their own search results pages, and on websites by invitation of the site owner. It's the Adwords / Adsense system that you arrange through Google or one of their agents. There are other channels for these ads.

When a visitor clicks on the ad, they are taken to the website in the advert. The owner of that target website pays a variable amount that might be 20c but can commonly be up to $1 to the owner of the website that published the ad, and Google get a percentage as a fee. The cost varies according to the competition - as with everything. This is how Google get their income, mainly as a cut from ads of this type, and it totals billions of dollars a year.

Some ads are very expensive and can be as much as $3 a click or more. As the cost is determined by the competition, the advertisers in effect bid for a place, and pay whatever they can afford for the top positions on the page, or accept a lower position at a lower cost, or drop out of the bidding.

These ads are a good way to start marketing. As with all ads, the 'ad copy' - the wording - is critical. Get it right and people click on it. Get it wrong, and it's a waste of time as no one will click, though at least there is no (immediate financial) cost.

As an advertiser you will eventually become rated / ranked by the channel, according to how many clickthroughs you get; and if you are the publisher, you will be ranked according to how many clickthroughs you generate. Successful sites get a better deal all round.

Banner adverts

Next in popularity come banner ads. Again, as with 99% of web ads, the visitor clicks on the ad and goes to another site via a link. Banners (or buttons or any other size of display ad of this type) are displayed on sites according to how many 'impressions' an advertiser has bought, for example 10,000 a day, or a month. The cost is commonly $1 to $6 per thousand views of the ad, and this leads to the name for these ads: CPM or cost per mil (thousand).

An impression = a view. In other words, if 2,000 people see a page that has the ad on it once, then the ad has had 2,000 views or impressions. This is a cheap form of advertising in the main. The number of clickthroughs is not relevant to cost, as the cost is based on the number of times seen.

The ads can be very accurately targeted if you have a good system, for example you can show a certain advert only to visitors from Country X, and only if they are new visitors and/or if they are new members, and not if they are long-term members; but another ad can be shown to people from Country B, if they are established members, and so on. In other words the ads can be accurately geotargeted and demographically targeted according to IP and usergroup. This means that the advertiser gets good value for money, as the ads are only seen by persons who are most likely to be a buyer - the ads are not just fired off by the thousand but are targeted at views that are more likely to result in a sale.

In addition, the click-through rate can be recorded, which tells both the advertiser and the publisher (the owner of the website the ads are shown on) how effective that particular ad (or site) is. For example: are the graphics good enough, and/or is the ad copy doing its job? An ad has to 'hook' the buyer and convince them to click on it.

Low click-throughs show there is a problem. The CTR (click-through rate) tells how good the ad is: 1% is very high, 0.25% is common, 0.1% is low. If you are running CPM ads - banner ads - they need to have an offer that makes the prospective buyer click on it. Poor adverts are a waste of money.

Affiliate adverts

This type of ad works in an entirely different way. There is no cost to the advertiser to run the ads, the publisher (the person with the website the ads are displayed on) runs them as much or as little as they want. The ads are linked to the advertiser's website in a completely different way: they pass through an affiliate channel's monitoring equipment first, although this is transparent to the visitor, who just goes to the website linked to as per normal. The biggest of these affiliate channels include Clickbank, Plimus, Neverblue. The advertiser (that is, the person who has the website with the products for sale and who is paying for the ads) pays a commission fee to the publisher (including a small fee to the affiliate channel) for each confirmed sale, and only if there is a sale. These ads are called CPA adverts - cost per action; there is no charge until an action (a purchase) is made by the site visitor.

Let's take an example: a visitor clicks an interesting-looking ad for a lawnmower on a gardening products site. The visitor has seen that advert because it was targeted at their country and their user group. They go to a website that is linked to from the ad, and land on a page dedicated to the model that they were interested in. That journey was monitored by the Affiliate channel who organised the ad and put the two parties together, the advertiser and the publisher. The visitor decides to buy the item, goes to the checkout, and completes the purchase. This action is recorded by the affiliate channel (channel = the affiliate management company). The vendor makes a sale, and pays for example 16% to the publisher and channel. The channel take their cut from that.

Affiliate ads are an extremely popular system for many reasons:

  • The seller only pays on actual sales made
  • The publisher can run as many or as few ads as they like
  • The publisher and seller can work together to make the ads more efficient
  • The percentage may seem high, but in a market where the products are digital or where they are physical but with high mark-ups, there is still plenty of margin
  • The seller knows exactly what their costs will be, there is no gamble involved
  • No sales = no cost to the advertiser
  • For sellers, it is one of the best ways to improve sales, because the risk is all with the publisher
  • Publishers can give priority to the best moneymaking ads, and maximise return on their inventory (their available advertising space)
  • Sellers improve their sales by improving the advert, giving a better offer, improving their website sales page, or raising the commission they pay in order to get the publisher to run the ads more than a competitor's
  • The (total) commissions paid vary between as high as 60% on software (but averaging 40 to 50%), through an average of 25% for most products, down to 15% for very high value items with a low profit margin
  • Digital products are very profitable (for both parties)
  • Physical products in a price range of $30 to $100 are good sellers and can be profitable for both parties
  • The whole process is transparent (invisible) to the buyer
  • There is no downside for the buyer, all is exactly as for a normal sale

That completes a brief description of the three main kinds of adverts seen on websites. It may be hard (or impossible) to tell CPM and CPA ads apart, as there may be no visible difference between standard banners and affiliate adverts.

How to sell with affiliate ads

Sign up with an affiliate channel, or install your own on-server software. Unless you know what you are doing, and have a dedicated server, it be best to go to an affiliate channel such as Shareasale. Create an account as an Advertiser, and set up your products. Give them some creatives or have them build them. Wait till your offer is visible in the relevant section of their site, then tell other website owners your offering is now available.

How to publish affiliate ads

Sign up with a channel, as a Publisher, and create an account. Look at their lists of products. Choose one, and grab the creative/s. Place the banners on your site. Check your account regularly to see what you have earned.

Website advertising terminology

This is Google's publisher offering, which allows site owners to publish PPC adverts and earn a fee for each clickthrough.

The website that provides an advert, to be used to advertise products for sale (for example) on the website.

The Google advertiser's option, which allows site owners with a product or service to sell a channel to create ads and have them shown on other sites.

People who generate sales for another and are paid on commission. There are two basic types of affiliates: those who own a website and those who don't. Affiliate site owners either (1) publish affiliate ads on their site, and take commission on sales through the ads; or (2) sell directly on the site and take commissions on their own sales. Non site owning affiliates create adverts for products that are then published to other's sites, or in the SERPs, and take commissions without either owning a site or a product.

Affiliate channels
These are companies who put publishers together with advertisers who will pay the publisher a commission on sales. The big names are Clickbank, Neverblue, Plimus. As these channels will not handle some types of business, other channels such as Shareasale are coming up fast.

The fee payable on a CPA advert (aka an affiliate ad) when a sale occurs.

Cost per action - affiliate ads that pay commission when a sale is made. There is no charge to the advertiser (the owner of the website with the item for sale) until a sale goes through from the publisher's site.

Cost per mil, cost per thousand impressions. This is the standard web banner ad, paid per thousand impressions.

The actual advert artwork, the banner itself. You can build your own creatives, get a graphic artist to make them, or have an agency do it - some affiliate channels can do this for you.

Clickthrough rate - the percentage of ads that got clicked. The higher the better. Anything over 0.75% is high.

hosted software
A server app that is hosted on someone else's server. It could be for your analytics or advert display. You normally add JS tags to your pages to make this work.

hosted analytics
Analytics are one of the website owner's most important tools. They tell you exactly what is happening, where, and by deduction: why. A hosted analytics service runs the software for you on the provider's servers. You must add JavaScript (JS) code to your pages, which tells your server to contact the hosted service and give them the pageview information. Today, this will usually mean that you have to make additions to your site templates, in the correct place. Google Analytics is the best-known example. It is cheap (or free in the case of GA, as they are paid by getting all your data) and puts little load on your server. Hosted analytics cannot give you all the information available as some is not transmitted by your server - detailed error analysis for example.

hosted advertising channel
This is the normal advert system: someone else runs the servers that hold the adverts, the parameters for display, and then sorts out the payment details. You add JS pagetags in the right place/s on your template/s. Google PPC ads are the best example. There are hundreds of such channels that a site owner can contract with.

The number of displays, or views of the advert. If there are 4,000 pageviews and your ad was on that page every time, then you have 4,000 impressions.

The number of spaces a publisher has for advert impressions. If there are 10,000 pageviews a day, and there are two ad spaces on a page, then the inventory is 20,000 impressions.

on-server software
Software that you own and is installed on your server to perform additional functions. Analytics and advert display are examples.

on-server analytics
This is where you own and operate the software, and it is installed to your own server (or site if you prefer - this way of thinking about it is appropriate to site owners on shared hosting). On-server analytics is always the preferred option because you will get more data, and you don't give a third party your commercial data. However, the downside is that the server load to run it is so high that high-traffic sites need another separate server to run it. This is not normally a problem because the funds should be available, and it just means adding another box to the group of dedicated servers.

on-server advertising software
This is where you control all aspects of your advertising operation: the clients, adverts, display parameters, and accounts. The most popular app is OpenX. It can also be set to pull in PPC ads from another channel when there is no banner ad display parameter set for a given visitor - for example if a visitor comes from the Bahamas (identified by their IP) but you have no advert for such a user, a PPC ad can be shown instead, which might get a click.

The number of times a day or month that pages are displayed to visitors. If a site has 100,000 pageviews a month, it means that its visitors saw a total of 100,000 pages during the month. This number is critical to advertising because it is fundamental to the inventory: how many ad impressions can be generated.

Pay per click - the standard Google system for example, where adverts are displayed on their SERPs (search results pages).This is the Adwords / Adsense system. You pay them to publish your ad when a certain keyword is triggered in a search. They get paid per click-through. PPC ads can also be published on other websites by agreement between the site owner and Google or another channel (there are several).

PPC fraud
A common method of defrauding the PPC channel by having distributed teams click on the ads on your own website, thus earning you fees fraudulently. Site owners found to be engaged in this will be banned by the channel concerned. Unfortunately, large-scale fraud sometimes goes undetected, while completely innocent site owners are often banned for very minor sums incorrectly identified as illegally-obtained. Unfortunately this advertising system has innate issues that are very hard to resolve.

The website that displays an advert. The publisher is paid per thousand impressions (CPM ads), or by an affiliate commission (CPA ads), or by clickthroughs (PPC).

Search engine. The SEs are one of the core web functionality providers because without them a lot of the web wouldn't work. They are a double-edged sword as they provide huge benefits but at a cost: they control a percentage of how the web works, and it is a very high percentage. On the other hand the system is proven to work and the market would find something better if it didn't.

The search engine results pages are the pages displayed to a person searching for something on a search engine's website. These pages are displayed in the hundreds of billions as they are a core component of web functionality.They are where PPC ads are displayed by the search engines, which then provides them with the bulk of their income. Almost everything an SE does is calculated in one way or another to provide greater exposure for their PPC adverts, because this is their main income stream.

A web process is said to be 'transparent' to the user when it is invisible. Examples are the DNS service and affiliate channels. They work so fast, and with no visible component, that in effect they appear not to be there.




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