In the 1870s a devoutly Christian merchant John Wanamaker from Philadelphia, in the US was credited with starting the first departmental stores and price tags. This, he claimed, was to eliminate hassles and haggling about the price because he held that everyone should be equal before God and price. He also became the first advertiser in the modern era by buying space to display ads in local newspapers. Here again, he remained a true Christian by not advertising on Sundays. His precise business acumen coined a witty phrase that leaned more towards the economics of business; his phrase ‘half the money spent on advertising is wasted’ holds true even in the internet era when advertising techniques have been turned on their head.
The global advertising industry crossed the $500 billion mark some years ago; an estimated $200 billion is lost as ‘wasteful advertising’ i.e. expenses towards advertising material that don’t reach audiences and reach the wrong audience. In his witticism, Wanamaker was quite on target.
However, the coming of the Internet Age has perhaps slowed down the trend of this wasteful advertising. Many entrepreneurial firms are selling new tools to businesses to reduce the waste in advertising. Such tools come in various forms but with one common purpose which is to replace the old formulae of advertising with real actions for consumers and measurable values for business advertisers – sharing videos, purchasing a product, clicking a web link etc.
Estimates by independent firms such as Nielsen figure that in the television media, advertisers may pay up to $20,000 for a 30-second spot at a pre-fixed rate, say, cost per thousand or cost per million (casual estimates for the population of an average city). It cannot be said exactly how many television sets will be tuned in to a particular channel at a given time and so the price may really be astronomical, the proverbial ‘atom bomb’.
In contrast, newer advertising models based online or internet advertising are innovative and compared to ‘spearheads’ that people get impaled on. The idea of online advertising is to allow consumers themselves to take the initiative and voluntarily interact online with what they find.
Here the consumer’s “action” is of more intrinsic value to the advertiser than his “exposure” to advertising material.
The credit for the modern PPC (pay per click) advertising insight goes to Bill Gross, an internet entrepreneur who founded Idealab in 1996, a kind of invention factory.
One of the inventive ideas to emerge from this was GoTo.com (later called Overture) that pioneered the concept of ‘paid search’ advertising. A few years later, Gross met the young co-founders of Google, Sergey Brin and Larry Page to whom he put across the idea and the offer of a partnership. Google was an upcoming search engine that had not yet mastered the concept of making revenues online and hence the idea may not have appealed; however in less than a year, Google came up with AdWords loosely based on Overture’s concept of advertising links charged for clicks. This was followed by AdSense, a system that went beyond search results and placed sponsored links on the web pages of publishers, online magazines and newspapers that signed up as part of the network of Google. These “contextual” advertising strategies that find relevance to the content on a webpage are paid for by the advertiser only when a prospective customer clicks on the ad links. Google’s revenues from such contextual advertisements nets revenues in the billions of dollars.