Today Microsoft rules the desktop, but Google and Yahoo!, among others, are invading the software giant’s turf as the role of desktop advertising as a unique vehicle for digital marketers continues to grow. This article surveys the current state of online advertising, explains the key concepts behind it, and offers predictions on its increasing influence and impact upon the Web 2.0 economy.
Overview of the Current State of Online Advertising
Most online advertising can be categorized as either (1) Branding or (2) Direct marketing.
Brand advertisers want maximum reach to get their messages out to as many people as possible. These advertisers gravitate to the most trafficked sites on the web such as Yahoo!, MSN and AOL. But as is the case with advertisers who utilize traditional media, brand advertisers on the Internet find that it’s hard to quantify – digital marketing’s specialty – return on investment (ROI). Another problem is that purchasing ad space on many highly trafficked Web sites is expensive.
Advertisers conducting direct marketing campaigns, on the other hand, want to reach buyers at the moment of purchase. Online advertising’s most successful direct marketing vehicle to date is paid search through Google, Yahoo! and other engines. Online advertisers have also traditionally turned to Web sites that focus on specific subjects such as health or finance to reach a target audience potentially interested in their product or service.
Direct marketing still works for many advertisers on non-contextual sites because the Web site has to drop the price and their return is very small. This means that the direct market must work with a large quantity of these sites to obtain any scale which increases overhead and administrative burden. Desktop advertising, which was singled out as “the next step in advertising” by PayPal co-founder Max Levchin, in a September 10, 2006 article in the San Jose Mercury News, not only provides an excellent ROI, but it also allows for a significant scale that allows the direct marketer to focus on.
Desktop advertising has emerged as a highly-effective online advertising vehicle, and is proving to be a strong direct response tactic, but also one with significant and scalable branding opportunities. The earliest concept of desktop advertising was to provide a consumer with some goods or services and then show them a steady stream of ads in exchange for their “eyeballs.” Many of the earliest desktop advertising companies were started at the height of the Internet bubble (late 1990s). Companies such as Free PC and Freei gave away personal computers and Internet connectivity to anyone who promised to view ads.
But there were problems with these early desktop advertising models. First, there was the promise of tracking, but very little was available, so advertisers had no idea if their ads were working or not. Second, the ads were random, not keyword-based, contextual or behavioral. As a result, viewers tended to tune them out. From an economic perspective, this business model simply didn’t work.
After the Internet bubble burst, a few desktop advertising companies turned to software economics. They realized that by purchasing a computer game or utility tool for $50,000, they could maintain a fixed cost structure, whether the software was downloaded one million times or 10 million times. In the desktop advertising instance, the business could leverage an investment in content that consumers want and then give it to them in exchange for ad views.
This new strategy has enabled some desktop advertising companies to survive and position themselves to thrive in the Web 2.0 economy. Today the most successful desktop advertising companies focus on delivering the right message to the right consumer at the right time. In other words, they seek to influence the buyer at the exact moment of potential purchase. This approach is driven by five key concepts:
Concept #1 – Give People What They Want: Valuable Content for Free
Of the accidentialy released web-search data from 650,000 of AOL’s customers last year, researchers found that the most commonly used word in 17.15 million separate searches was “free.” For example, as a Wall Street Journal article stated, people most often search for free pictures and music.
Desktop advertising is built on the simple concept that people want free content. By providing sought-after content for free, desktop advertising can deliver as much value to ad viewers as it provides to advertisers – if it is done correctly. Users love this model because they don’t have to pay for high-quality content. This model also generates a high rate of ROI for advertisers, which allows desktop advertising companies to return more value to the consumer by investing in better content. It’s a win-win for everyone.
Concept #2 – Time Shifted Advertising
In the first generation of desktop advertising, ads were shown at the same time that the consumer viewed or downloaded the content. The new emerging model of desktop advertising has adopted the concept of time-shifting.
With time-shifted advertising, the consumer does not watch ads at the time of download or even when they are playing a game or viewing content. Instead, a small software program is downloaded to their computer after full-disclosed notice and consumer consent. The program waits until the user is in shopping mode and either initiates a search query or browses a Web site with a contextual tie to a relevant keyword.
Then the program displays ads that are relevant to the search or Web site. The biggest advantage of this approach is that the user doesn’t get interrupted while playing their game, viewing a video or downloading a new tool. The advertising doesn’t interrupt the flow of their activities, but rather enhances another activity sometime in the future.
Concept #3 – Deep Linking for Contextual Relevancy
Another problem with the old model of desktop advertising is that it focused on randomly generated banner or pop-up ads that are disconnected from the consumer’s interests. One minute you’re playing a game, and the next minute you’re looking at a message for home mortgages.
The newest generation of desktop advertising not only links ads to user activities, but it also brings up the most “beneficial” page for any given search term or Web site. For example, if a consumer searches on “Bahamas cruise,” they will be brought to the advertiser’s specific Web page with Bahamas cruise offers instead of a general travel home page.
This way the consumer doesn’t have to click through multiple pages to buy or browse for what they want. The web page comes up as a full browser window, so there’s no disruption to the original search screen. This kind of “deep linking” to pages that specifically match a consumer’s interests will lead to a significant increase in sales.
Concept #4 – Discovery and Filtering
Many users want to be able to find unique and interesting information (hence the popularity of search engines), but according to JupiterResearch, less than 25 percent of users are interested in providing personalized information. As such, using usage data to customize and help increase relevant content and advertising’s discovery is critical as the scale of content reaches the massive scale of the Internet.
The key is using technology to filter through the options. Many users prefer to have some amount of anonymous behavioral and usage data tracked (such as a past history of purchases and downloads) so that their future experience is more customized. Consider the Amazon.com strategy of recording a consumer’s past purchases. Amazon.com founder Jeff Bezos said in Wired Magazine, January 2005, “We not only help readers find books, we also help books find readers, with personalized recommendations based on the patterns we see.” Smart desktop advertising software may be able to determine the particular likes and dislikes of a given consumer. By filtering on these preferences and then targeting ads to them for similar products, services, content, etc., desktop advertising can offer consumers a new level of personalization on the Internet, while cross-selling for advertisers.
In this way, users will allow companies to use their actual historical behavior. This will be of far more value then the current way advertisers utilize Internet cookies.
Concept #5 – Clear Consent and Notice
Today, many consumers are confused about the privacy implications of desktop advertising, just as they viewed browser cookies with suspicion a few years ago. Desktop advertising is fully noticed and consented and it offers users a legitimate trade-off in value – valuable, focused content in exchange for highly relevant keyword, contextual and behavioral ad views. In many ways, the model is similar to network television before the advent of cable and digital video recorders. People agreed to watch TV advertising because they didn’t have to pay for high-quality content. The truth is that people are becoming more sophisticated about the consent issue on the Internet, and they recognize the value they can get out of giving their consent to legitimate advertising. The bottom line: clear notice and consent processes are paramount to the success of a desktop advertising business.
In contrast to desktop advertising is adware and spyware. Adware is fully noticed and consented, but it delivers non-contextual ads in the form of pop-ups or banners. Spyware is an illegitimate and illegal activity that is not consented to by the user.
Over the next 12 to 24 months, desktop advertising will have an increasing influence on the recent flood of Web 2.0 businesses. Many of these businesses have attracted millions of users without any clear plans on how to make money. Most Web 2.0 businesses allow users to create, tag, rank, modify, upload and in many other ways effect online content, but few if any have created a model that unifies the interests of advertisers, publishers, content creators and consumers into a true Content Economy. This increasing diversity of content on the Internet will allow desktop advertising companies to sponsor a near unlimited amount of content, increasing consumer access to unique and cool online material.
A second near term prediction is that international advertising on the Internet is going to become more significant. Desktop advertising is well positioned to serve this cross-border market since it offers the ability to serve contextual ads for different languages and products using a single technology infrastructure.
Looking ahead to the next 3-5 years, we can easily imagine a time when people won’t be using traditional search engines or Web browsers anymore. As we spend more of our lives online and as the Internet merges into the computer, the artificial lines between the network and the desktop will be erased. A user will simply type or speak a word or phrase and their computer will automatically search for whatever it is they want. Similarly, desktop advertising will simply become part of the ever-present backdrop of being online.
But to support the development of high-quality software and other content, desktop advertising needs to be valuable, which means maximizing ad-to-purchase conversion opportunity. This leads to my next prediction, which is greater acceptance of privacy-friendly, anonymous tracking of user behavior. Desktop advertising will also layer in new ad formats to increase revenues over time.
Finally, it is easy to see that consumers will have a greater understanding of desktop advertising in the not-so-distant future. The popular media has had a huge influence on this industry segment by scaring people about spyware and other illegitimate models. Let’s not forget that Overture, now Yahoo! Search Marketing, the pioneer of paid search, was condemned in 1998 and 1999 as being bad for consumers and privacy. But just a few short years later, Google capitalized on the eventual consumer acceptance of paid search advertising, and now has market capitalization of more than $100 billion.
Today paid search makes up around 41 percent of all online advertising revenues. Those revenues are derived from less than five percent of overall page views that are in the low single digits. If desktop advertising can bring relevant paid search capabilities and economics to the other 90+ percent of page views, it’s a huge opportunity for advertisers and will increase consumer access to new and unique content. Look for developments in desktop advertising that will accelerate the shift toward the new business model of exchanging high-quality content in return for ad views.