February 13, 2012

Digital Advertising and News

Buying Digital Advertising: A Brief Overview

By Professor Joseph Turow, Ph.D., University of Pennsylvania

Advertising in the digital era functions very differently than in the past. A myriad of new factors weigh in on an advertiser’s decision making process based on the products, goals of the campaigns, nature and location of the target audiences, budgets, and competition. 

One way to parse digital-advertising strategies is to consider whether they involve paid media, owned media or earned media-or some combination. Paid media refers to traditional advertising, in which advertisers purchase specific space or time. Owned media refers to vehicles that the marketers themselves create and populate with materials relating to their products and services-for example, Pampers.com. Earned media involves mention or discussion of brands in public outlets. In the 21st century, both owned- and earned-media opportunities have increased substantially, especially from marketers’ belief that audiences trust editorial matter more than they trust ads. As two Advertising Age reporters put it, earned-media activities include "everything from the reportage of professional journal­ists to the patter of blogs and social networks."[i] 

In this environment, an enormous transformation is taking place regarding the ways marketers and their agencies approach paid media. For those entities-including journalism firms-trying to sell paid ads in the digital realm, understanding the new dynamics is essential. The following paragraphs sketch key avenues through which marketers are now reaching out to current customers and potential new customers: through search-engines, premium publishers, advertising networks, advertising exchanges and social media. All these vehicles are both competitors with journalism firms as well as opportunities for revenue. Even beyond the paid media complexities, marketers have been delving deep into the new opportunities with earned and owned media. Successes here may well lessen marketers’ need for investment in paid media-that is, the advertising that has traditionally been the life blood of news organizations.

Search-engine advertising

The search engine is an important digital-advertising channel that marketers try to use for owned and earned as well as paid approaches to audiences. When most people use the phrase search engine, they are probably referring to organic search results. That is the list of links to website pages (including newspaper site pages) that appears on Google, Bing and smaller competitors when you type keywords into the search box. In response to those terms, the engine’s formulas determine which page links will appear on the list and, depending on a material’s relevance, how near the top. Searches are done both for products like "flat-screen TVs" and for news topics like "Swine flu deaths." For publishers, the organic search can bring them traffic as well as ultimately provide an opportunity for advertisers to reach that publisher’s audience. Publishers may think of organic search as a way for people to come into contact with the publisher’s output. If a link to a newspaper’s article shows up when a searcher types "Swine flu deaths" into the search box and if the searcher clicks on the paper’s link, the paper has an opportunity to earn advertising revenue by serving an ad to the person visiting the page. One of the problems for news publishers, though, is that the words searched don’t often fit with current events, and so there is less opportunity for search-engine advertising. 

Marketers, though, often exploit search directly. They can use two approaches, search-engine optimization (SEO) and paid search. The first aims to utilize the organic results. A firm hires a search-optimization firm-one that specializes in understanding the search-engine’s rules-to reshape the client’s site so as to raise its visibility (and therefore its products’ prominence) on the list that shows up when someone types certain key words into the search box. In addition to direct SEO of a company’s owned media (the website), a marketer also often works to persuade popular product-based websites to carry a link to its site.

These owned and earned strategies carry a good deal of uncertainty. Many marketers consequently also turn to the second approach, paid-search advertising. This process involves an auction. Companies bid on words people type into the search box with the hope that those words indicate intention to purchase, or at least interest in, particular products. The firm winning the auction receives the right to have its ads show up prominently alongside the organic search results. For the television manufacturer Toshiba, for example, the purchased terms might be as generic as "HDTV" and as specific as "Toshiba LED" or "Samsung." Toshiba’s digital-advertising agency would present its bids for the terms to the search engine firm electronically, and the search engine would evaluate the bids in relation to those it receives from other companies. Companies sometimes bid on thousands of words. The search engine’s choice of the winner for each word is based on a complex and changing combination of factors, such as the relevance of the product to the firm’s bidding words, the bid amount, and the degree of success (measured via clicks) that other such ads (for example, other Toshiba ads) have already. Currently Google arrays its auction winners immedi­ately above the organic search findings (usually three ads) as well as to the right (up to eight ads). Google and most search engines use a paid-click revenue model: Every time someone clicks on one of these ads, the advertiser pays Google the agreed-upon amount.

Advertising via Premium Publishers

Although Google makes the largest proportion of its revenues through advertising connected to its search engine, it is also heavily involved in selling advertising as a publisher through its sites such as YouTube and Google Maps. In new-media parlance, a publisher is an organization that produces or distributes news, entertainment, educational or other informational materials. The online advertising world is split between publishers that  advertisers recognize as "premium" and a sea of other publishers with audiences advertisers may want but with much less ability to connect with media buyers directly. The lists of premium and non-premium publishers include those whose brand is built around creating original content (so-called legacy publishers) as well as those that draw most of their material from outsiders.

Publishers that score high on Web-ratings charts parlay their numbers into revenue by selling advertisements in guaranteed page positions. Some publishers offer positions to advertisers on a cost-per-click (CPC) or cost-per-action (CPA) basis. That is, the sponsor pays only if a visitor clicks on the ad or (in cost per action) performs a subsequent deed, such as phoning the company or buying the product. Most publishers, though, sell adver­tising space on a cost-per-thousand-impressions (CPM) basis. The interactive industry defines an impression as a basic advertising unit that is delivered to a computer. Every time an advertisement loads onto a user’s screen, it is counted as one impres­sion. When publishers adopt the cost-per-thousand-impressions system they get paid whether or not the individuals click on the ads. They use this approach because even though the raw CPC and CPA prices are far higher than CPM costs, the percentage of visitors who actually click on ads is typically less than 1%.  

Publishers believe they can charge higher CPMs if they offer advertisers specific, desirable audience segments. They therefore often take a host of steps, including incentives, to find out about their visitors. Even a thin amount of personal information such as a name, email address and ZIP code can enable the site to begin a personal file that the publisher can build over time. Some publishers purchase data about their registrants from information vendors such as Experian and Acxiom and append them to their files. The data may directly involve the individual (profession, credit status, number of airline flights) as well as the individual’s household (number of kids, age ranges, home value). Information purchased from other companies may help the site make life­style inferences about a person. Then there is the all-important behavioral data that websites create by making inferences about visitors’ interests and even their personalities based on the links they click and the topics they view. A person who tends to read articles about health might be tagged as having specific health interests; a sports reader might be placed in that bailiwick.

Publishers and marketers typically define and repeatedly identify an "individual" in the audience through data connected to a text file called a cookie. The cookie is stored on the individual’s computer and linked to the browser so that the firm placing the files on the machine can access it when the individual revisits the site with the same browser.[1] In many cases, the publisher might know an audience member’s name and email address but keeps such personally identifiable information from the advertiser. The aim is to help advertisers reach certain types of individuals anonymously. Sites hire analytics firms such as AudienceScience to perform exhaustive analyses of their audience data with an eye toward showing why advertisers should find their visitors particularly interesting and consequently pay a lot to reach them. They analyze which pages and sections they have visited, what content they have read, what they say about themselves in registration data, which search terms they use, where they are located, and more.  AudienceScience notes that it uses the data to place people into targetable audience segments related to finance, lifestyle, health and more that "empower publishers…to meet advertiser demands."[ii]

But even major sites with millions of individual visitors per month have found that they can’t sell all their advertising positions by themselves. Some in the industry call the unsold space "remnant ads." Because of this oversupply, virtually all sites link up with at least a few of the hundreds of advertising networks that have emerged to profit from the need for such intermediaries. 

Advertising via Networks and Exchanges

Advertising networks connect many of the millions of small, and most of the big, sites on the Web so that they can make money from advertisers. The networks typically sell their affiliate sites’ ad space on a CPM basis, though CPC and CPA opportunities exist. Google, Yahoo, Microsoft and AOL have networks that include their own properties and millions of other sites; ValueClick and AdBrite are other major networks. Many publishers allow more than one network to place ads on their sites in order to generate revenue from multiple sources. 

Ad networks can offer audiences in different ways. The AudienceScience Network (which often is an extension of the work AudienceScience conducts for individual websites) says it has access to demographics and geographic locations of "386 million unique internet users." AudienceScience says it asks questions such as "What are they reading? What sites and pages are they looking at? What are they shopping for? Which search terms are they using? What behaviors are they exhibiting that represent intent?" The aim: to give marketers "the data intelligence to reach the right person, at the right time, in the right place."[iii]

Despite such promised benefits, both marketers tend to have a love-hate rela­tionship with advertising networks. For marketers, one reason is that, with just a few exceptions, ad networks do not guarantee the placement of ads on particular sites or in particular positions on sites. Still, marketers and their media-buying agencies like networks because they are extremely inexpensive on a cost-per-thousand-impressions basis-typically between fifty cents and a dollar compared with several dollars or more for premium space sold by the publishers directly. News publishers need the ad networks to help sell the oversupply of digital space, but then must give the networks a portion of the revenue.

A relatively new ad-selling environment, the advertising exchange, has entered as a competitor to ad networks. The biggest ad exchanges are owned, not surprisingly, by Google, Yahoo and Microsoft. Advertising exchanges are centralized markets for buying and selling audience impressions. Instead of turning to multiple ad networks for each different layer of desired audience, all on anonymous sites, ad exchanges provide digital marketplaces where many buyers and sellers can come together in the same place. Moreover, unlike most ad networks, ad exchanges often let media buyers know the site on which the impression will be served. But the real benefit of the most advanced ad exchanges in the eyes of their propo­nents is the ability to make a decision to reach certain types of individuals on the fly, wherever they are. A growing number of exchanges offer this "real time bidding" (RTB) on individuals, at virtually the moment they load the page of the site they are visiting. Real time bidding still represents a small percentage of buys. Its bright future, though, is signaled in the comment of an industry observer who called "capturing the individual consumer" through RTB in exchanges "the holy grail of targeting."[iv]

Social Media as Marketing Platforms

Targeting consumers with commercial messages increasingly means using social media for owned, paid and earned activities. Social media are Web-based and mobile technologies that encourage interactions among the parties that use them. Although social media takes many forms-think Facebook, Twitter and Foursquare-their common hallmark is that users generate the content and pass along content from others that they find valuable or products they like. Recognizing this fact, marketers themselves have become heavy users with the aim of interacting with current and potential customers. Commercial messaging via Twitter has become a preoccupation for many firms. It is a way to try to earn viral interest in their activities as well as to listen and respond to discontent among present and potential customers.

The largest social network, Facebook, is both a boon and frustration to advertisers. It is a boon because of its huge global population of more than half a billion and its ever-growing cache of data about its members. It is a frustration because its tight control over its environment allows it to husband much of the audience information advertisers get access to when they advertise on standard websites. Nevertheless, Facebook is a marketing hub. Marketers treat the platform as an owned, earned and paid medium. For example, a national restaurant chain might set up its Facebook "fan page" (owned) where it displays menus and gives out coupons. To get a coupon, the restaurant might require a visitor to join and "like" the fan page, an action that captures data about the visitor and generates a message to the visitor’s Facebook friends that the person has kind feelings toward the restaurant. In the wake of this activity, the marketer might pay for a Facebook ad-a "sponsored story"-targeted at the visitor’s friends with a message that underscores the interest he or she has in the restaurant. The sponsor hopes the ads will encourage earned actions: that the friends will visit and "like" the fan page, and that they will message one another about the restaurant, its menu and its discount.

Like marketers, news publishers have moved heavily into Facebook as a way to distribute their content and reach new audiences. But the possibility of earning revenue from paid advertising sales is non-existent. Facebook fully controls the ad space within the network-including the margins surrounding individual Facebook pages like those of the Des Moines Register or CNN.com.  

The Local Publishing Market

During the past few years, social media, ad networks, exchanges and publishers’ websites have increasingly paid attention to the audience’s location. The ability to target specific neighborhoods via the Web, as well as to reach individuals on their mobile devices as they move in and around specific places, has led in the past few years to an uptick in competition for small businesses operating within territories local newspapers have long called home. Digital-media firms as diverse as Facebook, Google, Coupons.com, Groupon and the Indianapolis Star (owned by Gannett) consequently vie for local advertisers. Small and mid-sized papers can sell various print and digital packages that allow for discounts in both domains. The papers typically offer digital rate cards that vary their CPM based on the size of the ad, its location (e.g., homepage, main news, sports) the length of the contract and a small number of targeting variables such as ZIP code, age and gender.

One way these publishers can offer more targeting choices is if they affiliate with the Yahoo Newspaper Consortium. Yahoo may designate a newspaper its sales arm in a particular region. The paper’s sales force can sell their local businesses ads on Yahoo using the wide variety of data Yahoo has about individuals in that area; Yahoo and the paper share the proceeds.

Despite a local digital newspaper’s relatively narrow geographic focus, search engines do sometimes point faraway audiences to its site. One marketing executive for a mid-sized paper owned by a chain noted that when a local advertiser buys a run-of-site position, that advertiser will be charged for an impression even when the visitor is from another city and enters the site through a search-engine link. The overriding aim, though, is to bring local audiences to its digital advertisers-"the small woman’s dress shop," in the words of the marketing executive. Sometimes, the resources of a parent firm can help local targeting. Sites affiliated with Gannett, for example, can sell local employment ads on CareerBuilder.com, which Gannett partly owns.

The Future: Digital Television

The advertiser-media ecosystem just sketched is by no means exhaustive or stable. Circumstances change by the week as new technologies emerge and power struggles continue between key players. This short essay doesn’t, for example, delve into the mobile realm, which brings with it a whole new layer of complexities.  A major upending of the current pattern of marketing activities in the digital environment will occur when the targeting of advertisements to households and individuals on their home television sets resembles the growing segmentation and personalization taking place on the Web and increasingly on mobile devices. "TV matters in a way that nothing else does," James McQuivey of Forrester Research wrote in 2010. "Each year in the US alone, the TV drives roughly $70 billion in advertising. . . . Plus, viewers spend as many as 4.5 hours a day with TV."[v]

The transformation of the living-room television set into an outlet for the new media-planning-and-buying system will amplify what advertisers, their agencies and their data providers are already doing in Web and mobile spaces. Consider, then, that the online advertising developments as they unfolded through 2011 represented a kind of Spanish Civil War-that is, an armament testing ground-for marketers. It was the place where funda­mental components for future engagements across new territories were intro­duced, tested, altered, honed and put into regular use on the Web. Now a variety of technology firms are trying to ensure that marketers will be able to apply to the home television screen the strategies, tactics and technologies used to reach audiences on the Web and mobile devices. When they succeed there will be little difference between the "internet" and "televi­sion" in terms of advertisers’ approach to people and their data. The impact on the current digital publishers-including those from newspaper firms-is likely to be profound. 

Professor Joseph Turow

Joseph Turow is Robert Lewis Shayon Professor of Communication at the University of Pennsylvania’s Annenberg School for Communication.

Professor Turow is an elected Fellow of the International Communication Association and was presented with a Distinguished Scholar Award by the National Communication Assn.  A 2005 New York Times Magazine article referred to Professor Turow as  "probably the reigning academic expert on media fragmentation." 

He has authored nine books, edited five books, and written more than 100 articles on mass media industries. Yale University Press has just released his new book, The Daily You: How the New Advertising Industry is Defining Your Identity and Your Worth. In 2010 the University of Michigan Press published Playing Doctor: Television, Storytelling and Medical Power, which is a history of prime time TV and the sociopolitics of medicine.  Routledge recently published the fourth edition of his text Media Today: An Introduction to Mass Communication.  Other books reflecting current interests are Niche Envy: Marketing Discrimination in the Digital Age (MIT Press, 2006). Breaking Up America: Advertisers and the New Media World (University of Chicago Press, 1997; paperback, 1999; Chinese edition 2004); and The Hyperlinked Society: Questioning Connections in the Digital Age (edited with Lokman Tsui, University of Michigan Press, 2008). He has authored eight books, edited five books, and written more than 100 articles on mass media industries. 

Professor Turow’s continuing national surveys of the American public on issues relating to marketing, new media, and society have received a great deal of attention in the popular press as well as in the research community.  He has written about media and advertising for the popular press, including American Demographics magazine, The Washington Post, Boston Globe and The Los Angeles Times.  His research has received financial support from the John D. and Catherine T. MacArthur Foundation, the Kaiser Family Foundation, the Robert Wood Johnson Foundation, the Federal Communications Commission and the National Endowment for the Humanities, among others.

Professor Turow was awarded a Lady Astor Lectureship by Oxford University. He has received a number of conference paper and book awards, has lectured widely and been invited to give the Pockrass Distinguished lecture at Penn State University and to be a Chancellor’s Distinguished Lecturer at LSU.  He has served as the elected chair of the Mass Communication Division of the International Communication Association.  Professor Turow currently serves on the editorial boards of the Journal of Broadcasting and Electronic Media, Poetics, and New Media & Society.


Footnotes

[1]Industry practitioners realize that what they consider one person connected to a cookie might well be several people using the same browser in the same computer.

[i] Matthew Creamer and Pupal Parekh, "Ideas of the Decade," Advertising Age, December 14, 2010, p. 8.

[ii]  http://www.audiencescience.com/media/publishers (accessed November 29, 2011).

[iii] http://www.audiencescience.com/media/publishers/audiencescience-network (accessed November 29, 2011).

[iv] Quoted in Jeff Chester, Ed Mierzwinski, and Pam Dixon, "Complaint, Request for Investigation, Injunction, and Other Relief," presentation to the Federal Trade Commission, April 8, 2010, http://www.uspirg.org/uploads/eb/6c/eb6c038a1fb­114be75ecabab05b4b90b/FTCfiling_Apr7_10.pdf, p. 8 (accessed April 26, 2011).

[v] James L. McQuivey, "Why Google TV Is Bigger Than You Think", June 7, 2010, p. 3, Forrester Research, www.forrester.com.