Online advertising business Models

16Business Models Based on Advertising

Chris Kelly

My presentation will focus on the business models for advertising and commerce on the Internet, still viable despite the general pessimism about the way things are going on the Internet these days. All of the big players have had problems. But there will be a workable business model; the question is how to figure out what it will look like, and how those models can be put to use in protecting kids online.

16.1 COMPARISON OF ADVERTISING MODELS

Advertising will continue to be a significant part of Internet business models, despite what you may hear. There are four basic models for the sale of advertising. The most common models are cost per impression and revenue share, although cost-per-click and cost-per-acquisition deals are gaining in popularity.

Cost-per-impression (CPM) deals are usually experienced as banner ads while you surf the Web. You go to a site such as Excite, and the banner ad is presented to you as part of the page. This is still the bread and butter of the industry, the way most sites generate their major revenues, but it is in serious trouble. Every major Internet portal has seen a serious decline in revenue coming from advertising, and offline businesses dependent on advertising revenues have seen similar thinning.

When banner ads first came out on the Internet, people clicked on them 15 to 20 percent of the time, because nobody knew what they were and everyone was trying to bounce around and figure out this exciting new medium. Things have stabilized now to below half a percent in terms

"16 Business Models Based on Advertising." National Research Council. Technical, Business, and Legal Dimensions of Protecting Children from Pornography on the Internet: Proceedings of a Workshop. Washington, DC: The National Academies Press, 2002. doi:10.4.

of click rates for a basic banner ad. This has been a disaster in terms of convincing offline advertisers to move some of their budgets online—an effect that everyone has seen on the Nasdaq. In talking about these low clickthrough rates, I am referring to run-of-the-mill ads; I will discuss targeting later.

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