The advertising business model is a revenue generation strategy supported by the sale of advertising. In general, a business must first establish an audience by generating content or facilitating interaction and then earn revenue by selling access to that audience. The advertising business model has become popular in the web era, where companies like Google and Facebook have been able to build the largest digital advertising machines on earth.
Understanding the advertising business model
The advertising business model has long been associated with newspapers, magazines, radio, television, and any other medium where advertising revenue is critical to the survival of the business.
Today, the model is a staple of many online businesses, from eCommerce sites such as Amazon to search engines such as Google and everything in between. In most cases, the model is only successful if the business can generate large volumes of targeted traffic. Revenue in this context is generated in three main ways:
- Advertisers pay website owners to display advertising on their site.
- Advertisers pay website owners to refer visitors to the advertiser’s website.
- Advertisers pay website owners to display advertising messages with the ability for the consumer to click through to their website.
As more businesses monetize their content, website owners have tried to counter the rising prevalence of ad-blockers by serving native ads which mimic normal content. This, some suggest, has caused an arms race between consumers using ad-blockers and businesses hiding their content behind paywalls.
Despite recent conjecture that it may become obsolete, the advertising business model will continue to be a significant strategy moving forward. Once established, the model enables businesses to make money without the hassle of selling a product or a service. What’s more, advertisers are often willing to pay more for access to a highly targeted or engaged audience.
Four basic advertising strategies
While there are many ways a business can earn money from advertising, the following four categories cover the vast majority of advertisement models in the digital space:
Most of these are banner ads, which have been declining in popularity as consumers become more averse to them. These ads are small, digital billboards placed around content and can be animated or static. They are commonly used to depict a fast visual story that promotes brand identity, with revenue collected according to the cost-per-impression (CPM) model.
Unsurprisingly, video ads are now the predominant form of advertising because they are entertaining and can tell a brand story in a way that a banner ad never could. They are typically shown pre-roll, mid-roll, or post-roll in a video the consumer is already watching. Since they are relevant and contextual, the viewer is more open to watching them.
These are optimized for mobile content consumption and include video, app, display, search, and social-based ads. Mobile advertising often works under the cost-per-lead model.
Considered the least disruptive ads because they are incorporated into a piece of content. Like many video ads, native ads are relevant and contextual. They may take the form of videos, photos, or blog posts with a simple text link to the product manufacturer’s website. Google Adsense is one example of native advertising where advertisers pay website owners whenever their ads are clicked on by the user.
- The advertising business model is a revenue generation strategy supported by the sale of advertising. The business must first establish an audience by generating content or facilitating interaction and then earn revenue by selling access to that audience.
- The advertising business model is still relevant today as online consumers become more averse to traditional promotional strategies. What’s more, the strategy is attractive to website owners who want to monetize their audiences and earn revenue without the hassle of selling a product or service.
- There are four general advertising types under the advertising business model: display advertising, video advertising, mobile advertising, and native advertising. Many argue display advertising is now redundant as consumers become savvier and spend more of their time watching videos on smartphones.
- Definition and Concept: The advertising business model is centered around generating revenue by selling advertising space to businesses. It involves building an audience through content creation or interactions and then capitalizing on that audience by offering access to advertisers.
- Evolution in the Digital Era: While the advertising model has long been used in traditional media like newspapers and TV, it has gained immense popularity in the digital age. Giants like Google and Facebook have created vast digital advertising platforms.
- Online Application: The advertising model is prevalent in various online businesses, from e-commerce platforms like Amazon to search engines like Google. Success hinges on generating significant amounts of targeted traffic.
- Revenue Generation Methods: Revenue in this model is typically generated through three primary avenues:
- Displaying advertisements on a website for payment.
- Referring visitors to advertisers’ websites for a fee.
- Displaying clickable ads that direct users to the advertiser’s site.
- Ad-Blockers and Native Ads: To counter the rise of ad-blockers, businesses have adopted native ads that blend seamlessly with content. This has sparked a competition between users using ad-blockers and businesses trying to bypass them with native content.
- Future Outlook: Despite speculation about obsolescence, the advertising model will likely remain significant. It allows businesses to profit without selling products or services directly and offers access to targeted audiences that advertisers are willing to pay for.
- Four Major Advertising Strategies:
- Display Advertising: Typically banner ads, displayed around content, but their popularity has declined due to consumer aversion. Revenue is often based on the cost-per-impression (CPM) model.
- Video Advertising: Dominant in the modern landscape due to its storytelling potential. Shown pre-roll, mid-roll, or post-roll in videos. Viewers are more receptive due to relevance and context.
- Mobile Advertising: Optimized for mobile devices, covering video, app, display, search, and social ads. Commonly uses the cost-per-lead model.
- Native Advertising: Less disruptive, as ads are integrated into content. They appear as videos, photos, or blog posts, often with a link to the product’s website. Example: Google Adsense.
Connected Business Model Types And Frameworks
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