MaRS Library Revenue models—Online advertising and website advertising and marketing
An online advertising revenue model depends on high traffic volumes to generate income. The three of the most common forms of the online advertising model occur when:
- Advertisers pay website owners to display an advertising message to visitors on their site
- Advertisers pay website owners to refer visitors to the advertiser’s website
- Advertisers pay website owners to display advertising messages and provide click-through functionality to the advertiser’s site
Media companies and online content aggregators with large user bases make the most effective use of the online advertising model.
The customer relationship may be anonymous and automated (as is the case with Google AdWords), or it may involve a direct interface with an ad agency or individual advertiser. In all cases, the customer relationship is business-to-business.
Marketing issues related to the online advertising model
Marketing efforts must be geared toward generating website traffic, which can be translated into click-through rates, page-view numbers, or time spent browsing the site. While these are the main metrics on which to focus, many others can be used to gauge the effectiveness of online advertising.
Operational implications of the online advertising revenue model
Operationally, the focus of companies employing the online advertising model is on the cost-effective creation and delivery of content to drive high website traffic on an ongoing basis.
Financial and strategic implications
Website-based businesses may be established relatively cheaply, but server capacity and bandwidth may become an issue as traffic increases. It is also important to recognize that in order to yield high site traffic on an ongoing basis, a certain investment in new content will be required over time.
The key metric is website traffic, particularly measurable traffic in a valuable consumer demographic.
Online advertising is often combined with freemium revenue models to subsidize the “free” component of online services or entertainment companies. It may also be used in conjunction with subscription-based revenue models.
Costs and benefits of the online advertising model
Online advertising is attractive to brands wishing to understand consumer responses to ad campaigns because the web enables many response-tracking technologies. As online advertising response measurement and best practices are refined, the proportion of advertising budgets spent online will likely increase. In addition, outsourced website advertising management solutions (such as Google advertising) mean that website owners themselves do not need to manage or sell their own ad space.
The principal drawback of the online advertising revenue model lies in its dependence on high website traffic, and demographic focus. Sites that do not generate sufficient traffic with an observable demographic focus present suboptimal online advertising properties, and face increasing pressure on their advertising rates.