Digitalwall: New Era of Online Advertising (1) from Media to Channels

For an online advertising model of charging by resulting sales, portals are more like channels than media.

[+] The low click rate of online ads

Since their debut in 1997, online media and portals have experienced 10 years of development and are currently at a stable stage. Yet the charging model of online ads has been a headache throughout the years, resulting in all the evolvement that has taken place.

In the early years, it was generally accepted in the Internet industry that, since the online advertising inherited the business concept of the traditional media, it was indisputable to charge ads by the extent of exposure on web pages (i.e. the number of times that ads are displayed). Then the model turned into "you get exposure X times with the budget of Y dollars".

It was not long before the introduction of the charging model according to the ad space on web pages. Portals began to charge by content channels. For example, the reader characteristics of IT contents were different from that of financial contents, thus ad prices were different too. After that, there appeared more complicated selling models such as channel-bound selling and even exclusive sponsored content channel.

Yet an undeniable fact is: no matter how online ads are sold, their click rates (the number of exposure times divided by that of click times) have been declining all the time. For example, the average click rate on the home page of portals has dropped from 5% 10 years ago to the current level around 0.1%.

10 years ago, it was hard for Dotcom companies to persuade ad clients to pay by exposure times, as the latter preferred paying by clicks. Today, with the same amount of investment, an ad client gets the same exposure times, but a much lower click rate. That's really hard to accept for ad clients.

[+] The call for paying for ads by resulting sales

In the traditional media and advertising industries, there are similar calls from clients to pay in accordance with the selling result. However, as the traditional media is not able to get immediate audience responses and generate accurate reports with computers like the Internet does, their pressure is not as big as the one in the Internet sector.

The wrestle between the Internet community headed by portals and ad clients is driving itself to evolve into channels. The reason is the request of ad clients to pay in accordance with the selling result of ads: no payment for ads that are published, displayed, or clicked, only for ads that have caused increases in sales.

This is the least thing that portals want, for with this model of payment by resulting sales, portals would be more like channels than media. Channels are the only sector that shares profits in accordance with resulting sales. For them, the payment is called sales commission. You are paid only if you achieve sales.

Portals would argue: "we are media, not channels. An ad displayed would increase the market awareness of the brand so long as it is seen by visitors, even if it is not clicked, or it has not resulted in any additional buys. This is the value of media. It is different from channels."

Therefore, in the wake of the 2000 dotcom downslide, many reports pointed out that online ads could do affect the market awareness of brands among Internet users. More or less, such reports were playing the role of defender, holding tight to the last line of the online advertising.

[+] Portals' double identity as the media and also the channels

However, the double identity of portals as the media and the channels has triggered conflicts within portals themselves. One interest example is the case of a large portal which offers both online advertising and shopping services of its own.

After numerous proposals, the online advertising sales department of that portal eventually persuaded a clothing brand to put up ads on it. As a support means, eDM (email direct marketing) would be also conducted to send ad emails directly to the members of the portal. Of course, all of these were paid by that clothing brand.

By coincidence, the online shopping department of the same portal got in contact with the same client, in an effort to persuade the latter to sell its products at its e-stores. The online shopping department offered free advertising and free eDM services to nail down a deal for profit sharing.

If you were the client, which model of cooperation would you choose? The answer is obvious. To cooperate with the advertising department, you will pay and get no guarantee for the result; with the e-stores operated by the portal, however, you will get free advertising service and share profits with them only after your products are sold. Isn't that a magnificent deal?

What this case implies is, with the steady expansion of business scope and increase in roles, portals can no longer be characterized with a simple term of "media". Under the pressure of the external business environment, the model of online advertising is changing rapidly. (
2006/07/16 - By Digitalwall.com - Way to
China Internet/Telecom )