Tuesday, November 26, 2013

Brief History Digital Age Advertising and Modern Web Marketing

A Brief History of Advertising in the Digital Age and some Thoughts on Modern Web Marketing

A brilliant post from reddit user & marketing guru over at VOIP startup 2600HzJ2600:

First, there was SPAM. The DEC computer company sent out some SPAM over the ARPAnet back in the day, and thus began the torrent of abuse we all suffer from to this day.

After marketers realized SPAM didn't work (well some of them anyway), the next platform for battle was the web. But how to address this new dynamic audience? The first banner ad was from AT&T and essentially linked folks to museums all over the world (essentially demoing how the internet could narrow space and time). This ad had a whopping 44% click through rate, and for those of you who don't know, that's high, very high.

Originally, ads were sold with a suitcase. Sites had a set of inventory, and like traditional media businesses, that's how they sold. Yahoo, to this day, has an army of account managers gleefully cold calling the fortune 500 daily in an attempt to sell more space. If one had to articulate the difference between Yahoo and Google, it is a cultural difference. Yahoo was, and still is, a sales driven culture, whereas Google is all about the engineers. What do we know about most engineers? They don't like talking to peasants, and thus Yahoo sells with a briefcase and Google distributes through an online portal. If anyone asks you to articulate why Yahoo lost to Google even though Yahoo was first, it was because Google automated where Yahoo brute-forced with more salespeople. The moral is that payroll is always your highest cost.

So we're up to the point of automated ad acquisition on the Internet. People could buy ads, but then double-click came along and said, 'You can buy ads everywhere and control them!', which basically was an admission of the one true fact of online ads: Supply outpaces demand.

In online advertising, there is always a LOT more supply than demand. There are many more people trying to sell adspace than there are people that want to buy it. One might assume, naturally, that this would become a buyers market, but keyword based advertising is actually a seller's market. Adwords, for example, is really Google telling you how much you have to pay for an impression, and that doesn't reflect the underlying reality of our world. Again, supply > demand therefore the buyer should set the price. Even if you could buy based on audience or location and not keyword, you would still be paying for impressions that aren't actually valuable (people who don't have the faintest clue who you are will see your brand and that may or may not be valuable to you.

Well, if all of the search space is owned by Google, you sort of have to play ball right? That was true until the advent of retargeting.

Basically retargeting works like this:
  • User hits your site
  • User gets cookie'd
  • Anywhere they go that is part of the ad network, an auction takes place
  • The auction bidders are advertisers who bid based on the cookies a user has
  • Some people bid on generic cookies like "user is 25-40 years old" or "user likes red sports cars" but retargeting is basically saying "I only want to bid on people that've already been to my website"
  • Generic cookie folks are willing to pay a certain price for an impression if enough characteristics match up, but retargeting is always willing to pay the same price for the people who've been cookie'd
  • So while the page is loading, hundreds (thousands?) of advertisers are bidding on the ad you'll see
  • One the bidding is won, the ad is displayed
Almost all of those steps happen in less than half a second, and it's pretty incredible to conceptualize how complex the infrastructure that supports our advertising addiction has become.

So, let's talk, from a high level, about where to use the basic ad forms:

PPC: Pay per click ads are cool for branding. If you want people to see your brand, they work great, but they're basically spray and pray. If you're just starting out, don't go through the main channels like adwords as you'll burn your budget rather quickly. Consider alternative channels like Reddit or Stumbleupon as sources of relatively cheap traffic. I don't see a lot of value in PPC today.

Banner Ads: Private placement banner ads are still good, but you have to be tactical about purchasing them because they're not usually cheap. You can use an aggregation service if you have the volume, but this should be, IMHO, surgical. For example, at 2600hz, we've considered purchasing banner ad space on multiple Sysadmin blogs through direct relationships with their authors.

Retargeting: In my humble opinion, this is the only form of online advertising still worth a damn. You can follow people around the Internet, but only the people that already know who you are. It's glorious. The downside? Retargeting will eat your budget and fast. Remember the supply and demand problem? Because retargeting only cares that your customer went to your site, the places they display ads are different than say adwords which only displays on google searches. If you use retargeting, your customers will see your logo and they will see it all over the place.

My prescription, for Enterprise SaaS startups is to pour on the Retargeting and leverage a few surgical banner ads. I don't believe you should be using any sort of paid online advertising if your customer lifetime value is less than $50 as you'll be unlikely to ever break even. I believe online advertising can be a profitable channel for your business, but only if you are judicious about its usage. I've seen so many people burn through cash, it's crazy.

Remember also, cost per click is a relative term. If you relate it to your end goal, it's more reasonable. if you customer is worth $50, it's hard to justify paying more than $.50 per click, but if they have a value of $500, a CPC of $1.50 or even $4.00 could be justifiable. It all comes back to the business use case.

Do you have questions and PPC or other ad units? Drop'em in the comments below and I'll do everything I can to answer.

Curious about the history of ads? This is where I got most of my info: http://www.adpushup.com/blog/the-history-of-online-advertising/


Rabbit notes:

I do like the fact that he points out trying to use Adwords without knowing the ins and outs will have you burn through cash quickly, and suggests considering interest-targeted channels like Reddit Ads and StumbleUpon's Paid Discovery

A side note about Reddit ads - while there are a lot of factors that influence the success of Reddit ads, it is worth mentioning that it is one of the few ad networks that are generally whitelisted and may reach users who use Ad-blocking software - something to consider if the audience you want to reach is tech-savvy.

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