In-Depth

E-Business Opps: Banner Ads: Easy Money or Pandora's Box?

• By Mark Sweiger
• 02/01/2001

This is the fourth in a series of columns that focus on the application of clickstream data warehouse technology to an e-business environment. In this installment, we will examine the surprising nature of the online advertising environment, demonstrating why you need a clickstream data warehouse to measure and guide your e-advertising business strategy.

Most of us are the children of our own marketing-oriented culture, growing up under the constant bombardment of advertising. As a result, there is a tendency to become very blasé about advertising, having already experienced every possible modern marketing ploy, from magazine ads to infomercials. Then, along comes the Web, with its ubiquitous banner ads, and it seems to be more of the same. But, that humdrum veneer is nothing but clever camouflage for an advertising medium that is like no other.

The most basic type of Web advertising model is the banner ad. An e-business is either a producer of banner ads or a displayer of them, often both. The producers (the advertisers) pay money to have their ads placed on displayer sites. But, on the Web, advertisers do not typically contract directly with the displayer sites. Instead, they contract with a Web advertising network intermediary to display ads at sites that have user activity that shows affinity for their particular type of advertising.

Many sites are built with, at least, one spot on every page for a banner ad. These sites shop around for advertising networks that will pay them the highest rates to fill the banner ad holes with their pages. Payment rates generally rise as a function of increasing site traffic. A large percentage of these sites have business models that are almost totally driven by the banner advertising revenue. Take Yahoo! as an example. They use their content to get the users to view their pages, and then advertising networks fill the holes with the appropriate banner ads. Every time an ad network fills one of the banner ad holes on a page, Yahoo! is paid anywhere from a penny to some larger fraction of a dollar. If the ad generates a clickthrough, they are paid even more. With the total number of Yahoo! page views currently pushing toward the billion-a-month mark, Yahoo! makes some serious money from banner ads.

Think of banner ads as billboard space inside your place of business, where the content is constantly changing and you get paid for each billboard repaint. This may seem like easy money, but this is not the whole story. First, you have to ask yourself, "What do site users do when they click on a banner ad?" The answer is, they leave your site and go somewhere else. Yes, you got paid even more for the clickthrough, but the user is now gone. If your site is a store, he was just whisked out of the store, perhaps, before he could buy anything there. This ad-induced "wandering eyeballs" problem may cause more of a site revenue drain than the resulting ad revenue generates, making banner ads a Faustian bargain.

Worse yet, unless you pay for advertising network restrictions by accepting significantly lower banner display rates, the advertising networks will happily display ads for your direct competitors on your Web site. From an advertiser targeting perspective, this makes perfect sense. If I am at Kmart's Bluelight.com site, I am an ideal prospect for a banner ad that takes me to Walmart.com, Target.com or Amazon.com. But, would a brick-and-mortar Kmart store permit eye-catching ads for Wal*Mart within its premises? Absolutely not. Yet, this is exactly what banner ads do in the equivalent Internet environment. You have to ask yourself if this is a revenue strategy that makes business sense, or if it is just a mechanism to drive business to your competitors, or to make user eyeballs just wander away.

Despite these warnings, Internet advertising is cost effective, and it can give you much greater insight into the behavior of customers and non-customers, something no other advertising medium can provide. But, in order to accomplish this, you need a clickstream data warehouse to record and analyze the marketplace behavior, creating an effective Internet advertising process that constantly improves your business performance.

Next time, an outline for an advertising-oriented clickstream data warehouse to support an Internet business.