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Main article: "Compensation methods

Advertisers and publishers use a wide range of payment calculation methods. In 2012, advertisers calculated 32% of online advertising transactions on a cost-per-impression basis, 66% on customer performance (e.g. cost per click or cost per acquisition), and 2% on hybrids of impression and performance methods.[1]:17

CPM (cost per mille)[edit]

Cost per mille, often abbreviated to "CPM, means that advertisers pay for every thousand displays of their message to potential customers (mille is the Latin word for thousand). In the online context, ad displays are usually called "impressions." Definitions of an "impression" vary among publishers,[59] and some impressions may not be charged because they don't represent a new exposure to an actual customer.[60] Advertisers can use technologies such as "web bugs to verify if an impression is actually delivered.[61][62]:59

Publishers use a variety of techniques to increase page views, such as dividing content across multiple pages, repurposing someone else's content, using sensational titles, or publishing tabloid or sexual content.[63]

CPM advertising is susceptible to "impression fraud," and advertisers who want visitors to their sites may not find per-impression payments a good proxy for the results they desire.[64]:1–4

CPC (cost per click)[edit]

"CPC (Cost Per Click) or PPC ("Pay per click) means advertisers pay each time a user clicks on the ad. CPC advertising works well when advertisers want visitors to their sites, but it's a less accurate measurement for advertisers looking to build brand awareness.[65] CPC's market share has grown each year since its introduction, eclipsing CPM to dominate two-thirds of all online advertising compensation methods.[1]:18[64]:1

Like impressions, not all recorded clicks are valuable to advertisers. GoldSpot Media reported that up to 50% of clicks on static mobile banner ads are accidental and resulted in redirected visitors leaving the new site immediately.[66]

CPE (cost per engagement)[edit]

Cost per engagement aims to track not just that an ad unit loaded on the page (i.e., an "impression was served), but also that the viewer actually saw and/or interacted with the ad.[67][68]

CPV (cost per view)[edit]

Cost per view video advertising. Both Google and TubeMogul endorsed this standardized CPV metric to the IAB's ("Interactive Advertising Bureau) Digital Video Committee, and it's garnering a notable amount of industry support.[69] CPV is the primary benchmark used in "YouTube Advertising Campaigns, as part of Google's "AdWords platform.

CPI (cost per install)[edit]

The CPI compensation method is specific to "mobile applications and "mobile advertising. In CPI ad campaigns brands are charged a fixed of bid rate only when the application was installed.

Attribution of ad value[edit]

Attribution (marketing)

In marketing, "attribution" is the measurement of effectiveness of particular ads in a consumer's ultimate decision to purchase. Multiple ad impressions may lead to a consumer "click" or other action. A single action may lead to revenue being paid to multiple ad space sellers.[70]

Other performance-based compensation[edit]

CPA ("Cost Per Action or Cost Per Acquisition) or PPP (Pay Per Performance) advertising means the advertiser pays for the number of users who perform a desired activity, such as completing a purchase or filling out a registration form. Performance-based compensation can also incorporate "revenue sharing, where publishers earn a percentage of the advertiser's profits made as a result of the ad. Performance-based compensation shifts the risk of failed advertising onto publishers.[64]:4, 16

Fixed cost[edit]

Fixed cost compensation means advertisers pay a fixed cost for delivery of ads online, usually over a specified time period, irrespective of the ad's visibility or users' response to it. One examples is CPD (cost per day) where advertisers pay a fixed cost for publishing an ad for a day irrespective of impressions served or clicks.

Benefits of online advertising[edit]

Cost[edit]

The low costs of electronic communication reduce the cost of displaying online advertisements compared to offline ads. Online advertising, and in particular social media, provides a low-cost means for advertisers to engage with large established communities.[55] Advertising online offers better returns than in other media.[64]:1

Measurability[edit]

Online advertisers can collect data on their ads' effectiveness, such as the size of the potential audience or actual audience response,[19]:119 how a visitor reached their advertisement, whether the advertisement resulted in a sale, and whether an ad actually loaded within a visitor's view.[61][62]:59 This helps online advertisers improve their ad campaigns over time.

Formatting[edit]

Advertisers have a wide variety of ways of presenting their promotional messages, including the ability to convey images, video, audio, and links. Unlike many offline ads, online ads also can be interactive.[18] For example, some ads let users input queries[71] or let users follow the advertiser on social media.[72] Online ads can even incorporate games.[73]

Targeting[edit]

Publishers can offer advertisers the ability to reach customizable and narrow market segments for targeted advertising. Online advertising may use geo-targeting to display relevant advertisements to the user's geography. Advertisers can customize each individual ad to a particular user based on the user's previous preferences.[26] Advertisers can also track whether a visitor has already seen a particular ad in order to reduce unwanted repetitious exposures and provide adequate time gaps between exposures.[74]

Coverage[edit]

Online advertising can reach nearly every global market, and online advertising influences offline sales.[75][76][77]

Speed[edit]

Once ad design is complete, online ads can be deployed immediately. The delivery of online ads does not need to be linked to the publisher's publication schedule. Furthermore, online advertisers can modify or replace ad copy more rapidly than their offline counterparts.[78]

Concerns[edit]

Security Concerns[edit]

According to a US Senate investigation, the current state of online advertising endangers the security and privacy of users.[79]

[edit]

Eye-tracking studies have shown that Internet users often ignore web page zones likely to contain display ads (sometimes called ""banner blindness"), and this problem is worse online than in offline media.[80] On the other hand, studies suggest that even those ads "ignored" by the users may influence the user subconsciously.[81]

Fraud on the advertiser[edit]

There are numerous ways that advertisers can be overcharged for their advertising. For example, "click fraud occurs when a publisher or third parties click (manually or through automated means) on a CPC ad with no legitimate buying intent.[82] For example, click fraud can occur when a competitor clicks on ads to deplete its rival's advertising budget, or when publishers attempt to manufacture revenue.[82]

Click fraud is especially associated with pornography sites. In 2011, certain scamming porn websites launched dozens of hidden pages on each visitor's computer, forcing the visitor's computer to click on hundreds of paid links without the visitor's knowledge.[83]

As with offline publications, online impression fraud can occur when publishers overstate the number of ad impressions they have delivered to their advertisers. To combat impression fraud, several publishing and advertising industry associations are developing ways to count online impressions credibly.[84][85]

Technological variations[edit]

Heterogeneous clients[edit]

Because users have different operating systems, web browsers[86] and computer hardware (including mobile devices and different screen sizes), online ads may appear to users differently from how the advertiser intended, or the ads may not display properly at all. A 2012 "comScore study revealed that, on average, 31% of ads were not "in-view" when rendered, meaning they never had an opportunity to be seen.[87] Rich media ads create even greater compatibility problems, as some developers may use competing (and exclusive) software to render the ads (see e.g. "Comparison of HTML 5 and Flash).[88]

Furthermore, advertisers may encounter legal problems if legally required information doesn't actually display to users, even if that failure is due to technological heterogeneity.[89]:i In the United States, the FTC has released a set of guidelines indicating that it's the advertisers' responsibility to ensure the ads display any required disclosures or disclaimers, irrespective of the users' technology.[89]:4–8

Ad-blocking[edit]

Ad-blocking, or "ad filtering, means the ads do not appear to the user because the user uses technology to screen out ads. Many browsers block unsolicited pop-up ads by default.[90] Other software programs or browser add-ons may also block the loading of ads, or block elements on a page with behaviors characteristic of ads (e.g. HTML autoplay of both audio and video). Approximately 9% of all online page views come from browsers with ad-blocking software installed,[91] and some publishers have 40%+ of their visitors using ad-blockers.[4]

Anti-targeting technologies[edit]

Some web browsers offer "privacy modes where users can hide information about themselves from publishers and advertisers. Among other consequences, advertisers can't use cookies to serve targeted ads to private browsers. Most major browsers have incorporated "Do Not Track options into their browser headers, but the regulations currently are only enforced by the "honor system.[92][93][94]

Privacy concerns[edit]

The collection of user information by publishers and advertisers has raised consumer concerns about their privacy.[27][62] Sixty percent of Internet users would use Do Not Track technology to block all collection of information if given an opportunity.[95][96] Over half of all Google and Facebook users are concerned about their privacy when using Google and Facebook, according to Gallup.[97]

Many consumers have reservations about online "behavioral targeting. By tracking users' online activities, advertisers are able to understand consumers quite well. Advertisers often use technology, such as web bugs and respawning cookies, to maximizing their abilities to track consumers.[62]:60[98][99] According to a 2011 survey conducted by Harris Interactive, over half of Internet users had a negative impression of online behavioral advertising, and forty percent feared that their personally-identifiable information had been shared with advertisers without their consent.[100][101] Consumers can be especially troubled by advertisers targeting them based on sensitive information, such as financial or health status.[98]

Trustworthiness of advertisers[edit]

Scammers can take advantage of consumers' difficulties verifying an online persona's identity,[102]:1 leading to artifices like "phishing (where scam emails look identical to those from a well-known brand owner)[103] and confidence schemes like the "Nigerian "419" scam.[104][105][106] The Internet Crime Complaint Center received 289,874 complaints in 2012, totaling over half a billion dollars in losses, most of which originated with scam ads.[107][108]

Consumers also face malware risks, i.e. "malvertising, when interacting with online advertising. "Cisco's 2013 Annual Security Report revealed that clicking on ads was 182 times more likely to install a virus on a user's computer than surfing the Internet for porn.[109][110] For example, in August 2014 Yahoo's advertising network reportedly saw cases of infection of a variant of "Cryptolocker "ransomware.[111]

Spam[edit]

The Internet's low cost of disseminating advertising contributes to spam, especially by large-scale "spammers. Numerous efforts have been undertaken to combat spam, ranging from blacklists to regulatorily-required labeling to content filters, but most of those efforts have adverse collateral effects, such as mistaken filtering.[6]

Regulation[edit]

In general, consumer protection laws apply equally to online and offline activities.[89]:i However, there are questions over which jurisdiction's laws apply and which regulatory agencies have enforcement authority over transborder activity.[112]

As with offline advertising, industry participants have undertaken numerous efforts to self-regulate and develop industry standards or codes of conduct. Several United States advertising industry organizations jointly published Self-Regulatory Principles for Online Behavioral Advertising based on standards proposed by the FTC in 2009.[113] European ad associations published a similar document in 2011.[114] Primary tenets of both documents include consumer control of data transfer to third parties, data security, and consent for collection of certain health and financial data.[113]:2–4 Neither framework, however, penalizes violators of the codes of conduct.[115]

Privacy and data collection[edit]

Privacy regulation can require users' consent before an advertiser can track the user or communicate with the user. However, affirmative consent ("opt in") can be difficult and expensive to obtain.[62]:60 Industry participants often prefer other regulatory schemes.

Different jurisdictions have taken different approaches to privacy issues with advertising. The United States has specific restrictions on online tracking of children in the "Children's Online Privacy Protection Act (COPPA),[113]:16–17 and the FTC has recently expanded its interpretation of COPPA to include requiring ad networks to obtain parental consent before knowingly tracking kids.[116] Otherwise, the U.S. "Federal Trade Commission frequently supports industry self-regulation, although increasingly it has been undertaking enforcement actions related to online privacy and security.[117] The FTC has also been pushing for industry consensus about possible "Do Not Track legislation.

In contrast, the European Union's "Privacy and Electronic Communications Directive" restricts websites' ability to use consumer data much more comprehensively. The EU limitations restrict targeting by online advertisers; researchers have estimated online advertising effectiveness decreases on average by around 65% in Europe relative to the rest of the world.[62]:58

Delivery methods[edit]

Many laws specifically regulate the ways online ads are delivered. For example, online advertising delivered via email is more regulated than the same ad content delivered via banner ads. Among other restrictions, the U.S. "CAN-SPAM Act of 2003 requires that any commercial email provide an opt-out mechanism.[112] Similarly, mobile advertising is governed by the "Telephone Consumer Protection Act of 1991 (TCPA), which (among other restrictions) requires user opt-in before sending advertising via text messaging.

See also[edit]

References[edit]

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