History of Online Advertising
Online advertising began in 1994 when HotWire sold the first banner ads to several advertisers. Revenue in the United States grew to an estimated $7.1 billion in 2001 or about 3.1 percent of overall advertising spending. The dot-com bust destroyed or weakened many of the early online advertising industry players and reduced the demand for online advertising and related services.
The industry regained momentum by 2004 as the business model for “Web 2.0” came together. A number of businesses emerged that facilitated the buying and selling of advertising space on web pages. Entities that operated web portals settled on the traditional “free-tv” model: generate traffic by giving away the content and sell that traffic to advertisers. Most web sites, with the exception of transaction ones such as eBay, generate the preponderance of their revenues from the sale of advertising inventory—the eyeballs that view space allocated for promotions—to advertisers. In the first half of 2007 alone, advertisers in the US spent more than $10 billion advertising on websites. That was about 14 percent of all advertising spending.
The portion of advertising that is done online will increase significantly over time as more devices such as mobile telephones and televisions are connected to the Internet and people spend more time on these devices. The valuations that the capital markets are placing on businesses related to online advertising are consistent with this prediction. Google has had a seven-fold increase in its market value from August 2004 when it was valued at $29 billion to $215 billion in December 2007. During 2007 several companies in the online advertising market were purchased at multiples of 10-15 times annual revenues.
The online advertising industry burst into the public eye in 2007. Google’s sky-rocketing stock price and its forays into industries such as word processing software, online payments, and mobile telephones drew significant attention. More than 500 articles on Google appeared in the New York Times, Wall St. Journal and the Financial Times during the year. The U.S. Federal Trade Commission and the European Commission launched in-depth antitrust investigations into Google’s acquisition of DoubleClick, which provides software technology and services to online advertisers and publishers. Privacy concerns also came to the fore in 2007 as consumers, government agencies and the media started focusing on the massive amount of personal data that online advertising companies were storing and using.
Businesses began to move their advertising efforts into areas by making wide use of social media from 2009. The social media includes social networking tools such as Facebook, Twitter, Hi-5, social news tools such as Reddit, Digg Propeller, social photo & video sharing tools such as Photobucket, Flickr, YouTube and social bookmarking tools such as Del.icio.us, Simpy. One of the advantages of social media advertising is proper targeting of market through the use of the users’ demographic information provided. The disadvantage is measuring effectivity of social media advertising, whether or not the number of ‘likes’, ‘friends’ or ‘follows’ could convert to actual sales.
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