[This is the third installment of a serial article that is being gathered here. -D ]
Advertising is the fuel of the media landscape, so necessarily media outlets need to adjust to the demands of the advertisers as a function of survival. The “new media” players, relying heavily (or solely) on digital advertising revenue to sustain their operations, are in the business of delivering advertisements. The method of delivery is just the cost of goods sold.
As technology advanced and consumer behavior evolved, digital advertising rode the waves, dreaming up more methods for targeting, developing more delivery channels, and cultivating a ravenous but selective appetite for media vehicles for their precious wares. Symbiotic, yes, but it’s clear who is in the driver’s seat.
The evolution of digital advertising can be divided into three distinct phases: early/experimental, the heyday, and the shift. Each phase is characterized by disruptive advancements, unprecedented adoption rates, and relatively rapid cost changes - all of which necessitated adaptations and contortions by the new media businesses to maintain and maximize their own revenue streams.
The Dawn of a New Era: The Early Days of Digital Advertising
In the mid-1990s, a quiet revolution was brewing in the world of advertising. As the internet began to take hold, forward-thinking marketers saw an opportunity to reach audiences in a whole new way. The birth of digital advertising can (arguably) be traced back to 1994, when AT&T ran an online banner ad on HotWired.com, the digital counterpart of Wired Magazine. The ad, which read "Have you ever clicked your mouse right here? You will," achieved a remarkable 44% click-through rate.
As more businesses dipped their toes into the digital waters, a wave of experimentation and innovation followed. Skyscrapers, pop-ups, and interstitials began to dot the online landscape, each vying for the attention of increasingly connected consumers. Slow internet speeds and limited bandwidth made it difficult for advertisers to deliver the rich, engaging experiences they craved.
Targeting capabilities were also rudimentary, with advertisers primarily relying on broad demographic data and website content to reach their desired audience. Advertisers knew they wanted to reach young, tech-savvy consumers, but the tools to do so just weren't available.
These technological limitations made it difficult for advertisers to effectively measure the impact of their campaigns - and thus justify their investments in digital advertising. Many businesses were skeptical about the potential returns, leading to relatively low ad prices compared to traditional media.
(A breathless 1998 article on CNET talked up a billion-dollar year for online advertising; Statista says 2024’s US spend alone on digital ads should be about 300 times that.)
Despite these challenges, some advertisers saw the potential of digital advertising early on. In 1996, Microsoft launched the "Where do you want to go today?" campaign, which featured banner ads across a variety of websites. The campaign generated a 1.5% click-through rate and may have helped establish Microsoft as a leader in the tech industry. Other early adopters included IBM, which ran a series of banner ads promoting its e-business solutions, and General Motors, which experimented with interactive ads that allowed users to customize their dream cars.
As the industry evolved, new media businesses began exploring alternative pricing models to better align with advertisers' goals and maximize revenue potential. In 1997, GoTo.com (later renamed Overture) introduced the concept of pay-per-click advertising, allowing advertisers to bid on keywords and only pay when a user clicked on their ad. This model would later be adopted by Google and become a cornerstone of its AdWords platform.
The early days of digital advertising were a time of experimentation, innovation, and uncertainty. But despite the technological limitations and advertiser hesitation, this phase demonstrated the potential of online advertising to reach targeted audiences and drive business results. As technology advanced and advertiser confidence grew, the digital advertising industry entered its next phase: the heyday. And as Elaine Schultz recalled, "It was an exciting time. We knew we were on the cusp of something big, even if we didn't quite know what it was yet."
The Golden Age of Digital Advertising: Technological Advancements and Soaring Adoption
The mid-2000s to mid-2010s marked a period of unprecedented growth and innovation in the digital advertising industry. During this heyday, significant (and potentially worrying) advancements in ad targeting technologies revolutionized the way advertisers reached their desired audiences.
Behavioral targeting and retargeting allowed advertisers to serve ads to users based on their browsing history and online actions, increasing the relevance and effectiveness of their campaigns. Behavioral targeting was a game-changer. Suddenly, advertisers could reach users with ads that were calculated to be relevant to their interests and needs.
Contextual targeting also gained prominence during this period, enabling advertisers to place ads on websites with content relevant to their products or services. By reaching audiences with higher purchase intent, contextual targeting helped advertisers achieve better returns on their investments. Geolocation targeting further enhanced the personalization of ad experiences, empowering businesses to deliver localized ads to users based on their geographic location. Geolocation targeting was particularly useful for brick-and-mortar businesses.
The heyday of digital advertising also saw the rise of ad marketplaces and programmatic advertising platforms. Google AdWords (now Google Ads) and AdSense disrupted the way advertisers and publishers bought and sold ad inventory. These platforms allowed advertisers to bid on keywords and automatically place ads on relevant websites, streamlining the ad buying process. Real-time bidding (RTB) and ad exchanges emerged, enabling advertisers to bid on ad impressions in real-time, further optimizing the ad buying process and maximizing the value of each ad placement. In 2012, programmatic advertising accounted for just 13% of total display ad spending in the United States — by 2016, that figure had risen to 73%.
As targeting technologies improved and programmatic platforms matured, advertisers witnessed higher returns on their investments, leading to increased adoption of digital advertising, which led to led to rising ad prices: advertisers were willing to pay more for the ability to reach their desired audiences. In 2010, the average cost per click (CPC) for a Google AdWords ad was $1.24. By 2015, that figure had risen to $2.14, a 72% increase.
The growth of mobile advertising also contributed to the increased adoption and costs, as consumers spent more time on their smartphones and tablets. In 2011, mobile advertising accounted for just 5% of total digital ad spending in the United States. By 2016, that figure had risen to 51%.
New media businesses also adapted their strategies during the heyday to maximize revenue and capitalize on the growing demand for digital advertising. Publishers invested in audience data and targeting capabilities, in order to offer advertisers more sophisticated targeting options. Header bidding, a programmatic technique that allowed publishers to offer ad inventory to multiple ad exchanges simultaneously, gained traction during this period. By increasing competition among ad exchanges, header bidding helped drive up ad prices and maximize revenue for publishers.
Native advertising and sponsored content also emerged as popular formats, providing new media businesses with additional revenue streams and opportunities to collaborate with advertisers on more engaging ad experiences. In 2016, native advertising accounted for 56% of total display ad spending in the United States, up from just 11% in 2013.
The heyday of digital advertising was a period of rapid growth, technological advancement, and soaring adoption - a heady time.But as the industry matured and concerns about privacy and ad fraud grew, digital advertising entered a new phase: the maturation.
Navigating the Shifting Tides: Digital Advertising in the Age of Privacy and Regulation
The late 2010s ushered in a new era for digital advertising, marked by growing privacy concerns and regulatory changes that would fundamentally alter the landscape. The introduction of the General Data Protection Regulation (GDPR) in the European Union in 2018, and the California Consumer Privacy Act (CCPA) in the United States in 2020, placed greater emphasis on user privacy and data protection, forcing advertisers and publishers to rethink their strategies.
GDPR and CCPA were wake-up calls for the industry. Advertisers, publishers, and technology service providers had to start taking user privacy seriously - and find new ways to reach audiences without relying on invasive tracking and targeting.
(Well, that’s not entirely true. Technically what they had to do was not use the specific technologies and methods that were outmoded by these regulations. But that’s a different chapter.)
The decline of third-party cookies, which had been widely used for ad targeting and tracking, further contributed to the shift. Major web browsers like Safari and Firefox started blocking third-party cookies by default, making it harder for advertisers to track users across the web. In 2020, Google announced that it would phase out support for third-party cookies in its Chrome browser by 2022, sending shockwaves through the industry.
In response to the changing landscape, advertisers and publishers have been forced to adapt their technologies and strategies. First-party data collection and targeting have become increasingly important, as businesses focus on building direct relationships with their customers and using data obtained through consensual means. Contextual targeting, which aligns ads with relevant content rather than relying on user data, has experienced a renaissance. In 2020, contextual advertising accounted for 34% of total programmatic ad spending in the United States, up from 26% in 2019.
Native advertising and sponsored content have also continued to grow, offering a more seamless and less intrusive ad experience for users. In 2020, native advertising accounted for 64% of total display ad spending in the United States, up from 56% in 2016. Advertisers have found that these formats can drive higher engagement and better brand recall than traditional (un-targeted) display ads.
The shift in digital advertising has led to potential short-term declines in ad prices, as advertisers and publishers adjust to the new landscape and regulations. In 2019, the average cost per click (CPC) for a Google Ads search ad decreased by 4% year-over-year, while the average cost per thousand impressions (CPM) for a Facebook ad decreased by 2%.
New media businesses are being forced to concentrate on diversifying their revenue streams beyond traditional display ads: first-party data and direct relationships with advertisers; alternative ad formats, such as native advertising and sponsored content; and partnerships with advertisers, like branded content collaborations and affiliate marketing programs (for example, in 2020, The New York Times generated $108 million in revenue from its branded content studio, T Brand, up 12% from 2019).
Make no mistake, advertising isn’t going away - but while the publishers follow the advertisers, the advertisers follow the eyeballs.