Banner Ads

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BANNER ADS

Ever since their debut on the HotWired site in October 1994, banner ads have been the dominant format for online advertising. They also have been a disappointment for advertisers and Web site publishers alike. They have been blamed, perhaps unfairly, for everything from the high rate of failure of content-based Web sites (which are dependent on advertising revenue) to creating a one-inch wasteland on computer screens.

Banner ads come in a variety of sizes and are measured in pixels. The most popular size in 2000 was the 468-by-60 size, which was used more than six times as often as the next most popular size, 125-by-125, according to the 2000 Engage Adknowledge Online Advertising Report. In February 2001 the Interactive Advertising Bureau (IAB) released a new set of recommended guidelines for banner ad sizes, but it remained to be seen whether these would be adopted by the industry. In general, the newly recommended sizes were larger and would require more computer memory.

While banner ads were the dominant online advertising format in 2000, they fell out of favor with advertisers as click-through rates declined. According to a report commissioned by the IAB, banner ads accounted for 47 percent of online ad revenue in 2000, but only 40 percent for the fourth quarter, confirming the decline in revenue from banner advertising. By mid-2000, click-through rates had fallen to.3 percent, with business-to-business advertisers reporting average click-through rates around.5 percent. In other words, only three to five of every 1,000 impressions resulted in a click-through on a banner ad. In an environment where there were too many ad pages and too few advertisers, the cost of advertising online fell dramatically and an estimated 75 percent of the Internet advertising inventory remained unsold.

Some of the potential benefits of banner ads resulted in criticism of the banner ad format. While they had the potential to be the most targeted and most measurable of all advertising media, online advertising in practice often was poorly targeted and not measurable. For example, click-through rates may be used to measure an ad's effectiveness in terms of making a sale or generating some other type of consumer action, but they cannot be used to measure how effectively a banner ad builds brand awareness.

WHAT ARE BANNER ADS SUPPOSED TO DO?

Banner ads serve three basic functions. Their purpose is to build brand awareness, sell something, and drive traffic to an advertiser's Web site. While the latter two functions are measurable and can be tracked, the first is not measurable, leaving proponents of banner advertising some wiggle room when critics point to declining click-through rates. In order for advertisers to make effective use of banner ads, they need to establish goals for their ad campaigns and determine whether they want to build brand awareness, sell something, or drive traffic to their Web sites.

Advertisers may purchase advertising space for their banner ads on individual Web sites, but most advertisers work through an ad agency or network. Networks such as DoubleClick Inc., 24/7 Media, and Engage represent groups of Web sites and sell advertising on them in addition to offering other services to advertisers. Advertisers are charged for banner advertising using one of two models. Under the CPM (cost per thousand impressions) model, rates are based on the number of viewers. Because advertisers demanded a model that was more action-based, the CPA (cost per action) model was developed, whereby advertisers are charged only when a click-through is made on their banner ad.

Another option is to join an affiliate network, such as Commission Junction (www.cj.com) or Link-Share (www.linkshare.com). Through affiliate programs, Web sites select banner ads they believe are appropriate to display on their site. The affiliate network then keeps track of click-throughs and pays the Web site a commission on each click-through instance.

TARGETING AND TRACKING

Banner ads have the potential to offer unlimited targeting, tracking, and measurability. Tracking and measuring the performance of banner ads allow advertisers to analyze and select the best performing ads for each placement. This makes it possible to replace poorly performing ads quickly and efficiently. Targeted banner advertising means serving the appropriate ad to a specific type of user based on a user profile. Targeting is typically based on past behavior, whereby banner ads are served onscreen based on the view-er's previous actions. This may involve knowing what Web pages the viewer has visited recently, as well as whether or not they made a purchase, signed a registration form, or took other similar actions. Tracking such behavior is somewhat controversial and opposed by privacy advocates. Some marketers defend such practices, arguing the information is used in aggregate form only and not revealed on an individual basis.

While banner ads may be targeted based on an overall profile of a Web site's typical visitors, more effective targeting relies on creating a user profile. Using software technology such as the Dynamic Advertising Reporting and Tracking (DART) program, introduced by Internet advertising agency DoubleClick Inc. in 1996, it is possible to quickly determine which banner ad to present to the current user. DART and other proprietary systems used by advertising networks match ads to target audiences through the use of the controversial "cookie" technology.

Cookies obtain information about a user's hardware and software, as well as their Internet connections and are used to create a user profile without obtaining the user's permission. This raises concerns among privacy advocates that the technology will be used to obtain confidential information against the wishes of individual users. Another profiling issue involves combining online and offline information to create even more comprehensive user profiles that might include individual names, addresses, and telephone numbers. Again, marketers attempt to address these concerns by not releasing information on individuals and only using the data in aggregate form. As the technology for creating user profiles improves, it is expected that banner ads will realize their full targeting potential and their performance will improve.