Web Advertising Guide:

If you operate a blog, have built a web app or are otherwise are trying to monetize a property on the web, advertising is one of the first paths that you might amble down. Let’s throw the baby in with the bathwater and say that ads will be your primary method of monetizing your idea. In that case you might need to be a little more sophisticated. This guide will step you through the process of finding the right advertisers for your site, and maximizing your revenue potential.

Types of revenue models from advertising

CPA

Cost Per Action (Affiliate) programs are sold through marketplaces like Commission Junction. These advertisements usual marked by high (sometimes very high) payouts, but the downside is that in order to make any money at all — users have to purchase the product or services from the advertising company through your site.

Typically, these types of ads perform best on high volume sites with services that compliment the product that the advertiser is trying to sell. If your site is about concert reviews, a Ticketmaster Affiliate program will perform a lot better than if your site was about Model Trains. If your site has no particular focus, Affiliates are going to be a hard sell.

I would suggest trying them out but realize that many, many times these will make you no money at all.

CPC

Cost Per Click advertisement is the first stop for many entrepreneurs looking for a way to monetize. Google Adsense is the most well known CPC vendor. The benefits of CPC are that these ad blocks are easy to set up, and they can potentially generate revenue even at small levels of traffic.

The downside to CPC advertising is that the revenue it generates is uneven because it strongly depends on ad placement location and niche your service operates in. Certain industries (typically those that sell high ticket products and services) can do really well under this model but many will find themselves with an inventory full of really low paying ads.

Typically, CPC is a good place to start until you get your feet wet; however, unless it’s consistently successful for you it does not scale as well as other options.

CPM

Cost Per Thousand advertising are what networks like Casale Media and Tribal Fusion deal in. You are paid per impression instead of for each click. Typically, for web services with high volume but relatively low engagement, this is a great option for monetization.

Not only do these networks often pay more than CPC advertising, but your payment is directly related to the number of pageviews that you get to your site. This makes it a lot easier to predict your advertising revenue from month to month.

The biggest drawbacks is that many of the good networks are difficult to get into, and the bad networks offer CPMs that are too low to be a viable revenue model. I suggest constantly shop around for better CPMs. As you grow and your audience becomes more engaged, you should be looking for networks that are willing to pay you more for that engagement.

Boutiques

BlogAds, Federated Media, and The Deck are three examples of boutique ad networks. Typically, these companies focus their attention on specific verticals and have extremely high standards in the sites that they let in. As a result, the CPMs that they pay are often substantially higher than similarly positioned networks.

In order to be considered for one of these networks, you will either have to have a service that is high profile, targets a very specific niche or extremely high volume. Since these are premium advertisers, they might also have stricter rules about how their ads can be displayed.

Usually, by the time you are ready to apply for a Boutique ad network your real question will be whether you want to outsource your sales or handle them yourself. If you decide that doing sales internally is not in your best interest, these networks are an excellent source of revenue.

Direct Sales

If you have the team, the time, and the patience the best way to make money off of ads is selling them yourself. Not only do you not have to pay an ad network a portion of what you make, but you also have complete control over how the ads will be presented and what type of advertisers that you choose to take on.

It sounds great but the big thing to remember is that selling advertising is not easy. Everything from identifying potential advertisers, to determining a price point that makes sense for your customers to providing them with the details of how well their ad is doing takes time. When you are a young company, that time might be better spent taking care of more pressing problems.

If you are ready to invest in an ad sales team, the biggest thing to remember is that advertisers pay premiums for strong verticals, high click through rate and exclusivity. When building your package, try to have one or more of these “features” as a part of it.

Understanding key terms

When shopping around for an advertising network, there are three phrases you will hear a lot. Understanding the distinction between them will save you time, effort and lost revenue.

Ad network

Examples: Adsense, Adbrite, Bidvertisers.

An ad network serves ads in a format as determined by their technology. Take a look at the three examples that I gave, you will see that each of them has a particular format of ads that they carry — whether it is Adsense’s contextual model or Adbrite’s marketplace, each network brings to the table both the technology and the creative to serve with it. Typically, ad networks have no problem filling your inventory and they pay out on a cost per click or cost per action basis.

Ad servers

Examples: Doubleclick (DART), Right Media, Atlas

An ad server is a “capsule” that tracks and displays ads. It is neither an ad network nor is it a rep agency, it’s a piece of software. Ad servers allow you to track the number of impressions you are serving, analyze the demographic data surrounding it and control which networks and rep agencies get impressions. The better ad servers let you target your campaigns by a number of psychogaphic and demographic criteria. There are a few good free ad serving solutions available (OpenAds for instance), however, if serving ads will be a serious part of your business (and you have the minimum required pageviews) you should look into purchasing DART or Atlus.

Rep Agency

Examples: Technorati Media, Federated Media, and Gorilla Nation

We often use the words ad network when we mean to say rep agency, there is a significant difference.

A rep agency is a company that acts as a broker between publishers and agencies. In exchange for getting deals with major brand advertisers (Netflix, Fritos, Pepsi etc . . .) they take a portion of the revenue (anywhere between 30-60%). Rep agencies can be extraordinarily beneficial because they have well connected sales teams who can land deals that many small companies cannot. The good ones have an inside track with the major ad agencies, and they control a substantial volume of impressions — which makes it easier for them to get agencies to the table. Most large web properties, even those capable of doing direct sales will sell a portion of their inventory through rep agencies. It simplifies sales cycles and ensures that everyone “gets an ad.” Since every impression served from a rep agency represents a “sale,” these networks typically have a harder time filling inventory than ad networks.

The advertising chain

Setting up a set of campaigns for a large site means understanding the advertising chain. No one provider will be able to fill all of your available advertising inventory with the highest paying ads. How do you solve this? You chain a bunch of different providers together. Applications like the Rubicon Project and Pubmatic exist to make this easier, but you can do it on your own with a little bit of work.

Direct sales

This represents the most expensive ads in your stable. These are ads sold by your sales team. Typically the rate in which these ads are displayed are determined by contract you have with the advertiser. In most cases these will exist near the top of your chain and will take up anywhere from 30 to 60% of your inventory.

Rep Agency sales

Next down the line come your high quality rep agencies. The rule of thumb is to pick the one with the highest CPM and fill rate to exist at the top, and plug in other networks as passbacks. A passback is an additional provider that will be given an opportunity to serve an ad should the provider further up the chain be unable to. At this point you should have taken care of 20 or 30% more of your inventory, enough to finish the chain using . . .

Ad Networks

If you still have unsold inventory, don’t be afraid to throw in an ad network like Adsense. Under the right conditions, these networks can generate a substantial amount of revenue and just as importantly, they rarely ever have a problem with fill. Don’t give up on trying to fill your inventory using providers further up the chain though, typically ad networks provide lower quality, more generic ads than either direct sales or rep agencies.

Here is an example of an advertising chain:

Ad server: DART

Toshiba (Direct Sale)
Netflicks (Direct Sale)
Technorati Media (Rep Agency)

• Tribal Fusion (Passback)
• Blue Lithium (Passback)

Adsense (Ad Network)

Making money from ads on the web is a balancing act. Always, you are trying to maintain the highe,st possible CPM while still filling out your inventory. To do this requires experimentation and a little bit of patience. Never be afraid to keep trying, the more work you are willing to put into it, the more money you are likely to get out of it.

(emailer)