PGP TERM III

MANAGEMENT INFORMATION SYSTEMS

Project Report on

Impact of Internet on Advertising

under the guidance of

Prof. Vivek Gupta

Submitted by: Group 10

Akash Chandna (PGP34002)| Hena Pegu (PGP34017)
Rakesh V (PGP34032) | Syed Mohammed Nadeem (PGP34047)

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 TABLE OF CONTENTS

1 INTRODUCTION ............................................................................................. 3
1.1 THESIS STATEMENT .................................................................................. 3
1.2 EVOLUTION OF ADVERTISING .................................................................. 3
1.2.1 EMAIL MARKETING ............................................................................ 3
1.2.2 BANNERS ............................................................................................ 3
1.2.3 POP UP ............................................................................................... 3
1.2.4 SEARCH ENGINE ADS .......................................................................... 3
1.2.5 SOCIAL MEDIA ADS ............................................................................. 3
2 INDUSTRY IMPACT OF ONLINE ADVERTISING............................................... 4
2.1 GROWTH OPPORTUNITIES FOR BUSINESSES ........................................... 6
2.1.1. EFFICIENCY ....................................................................................... 6
2.1.2 PRODUCT AND MARKET DEVELOPMENT........................................... 6
2.1.3 COMMUNICATIONS ........................................................................... 7
2.2 ADVANTAGES FOR BUSINESSES ............................................................... 7
2.2.1 COST EFFECTIVENESS ......................................................................... 7
2.2.2 CONSUMER FEEDBACK……………………………………………………………………8
2.2.3 RECRUITMENT .................................................................................... 8
3 PROCESS FLOW .............................................................................................. 8
3.1 KEY STAKEHOLDERS ................................................................................. 8
3.2 PROCESS STEPS ........................................................................................ 8
4 COMPENSATION MODELS ............................................................................. 9
4.1 COST PER MILE ......................................................................................... 9
4.2 COST PER CLICK ........................................................................................ 9
4.3 COST PER VIEW......................................................................................... 9
4.4 COST PER ENGAGEMENT.......................................................................... 9
5 EFFECTS OF ONLINE ADVERTISING ................................................................ 10
5.1 BENEFITS OF ONLINE ADVERTISING ......................................................... 10
5.2 DOWNSIDES OF ONLINE ADVERITISING ................................................... 10
6 CONCLUSION ................................................................................................. 11
7 REFERENCES……………………………………………………………………………………………….12

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1. INTRODUCTION
In the 25 years since the first banner advertisement appeared on the internet, advertising has
been transformed. The evolution of technologies that enable advertisers to not only target customers
effectively, but to also track their responses, has created plethora of opportunities for marketers. The
internet’s multidimensional nature helps develop a total marketing environment. It enables seamless
transition of customers from awareness to temptation and finally to a successful transaction.
However, the benefits are not absolute. As one Harvard study suggests, “The use of technologies such
as cookies—programs that unobtrusively keep track of a visitor's previous activities on a site—can
make people leery about the entire Internet advertising industry”[1]. While some people see privacy
as a trade-off, others hold deep suspicion about the same, raising grave concerns regarding personal
data usage.

In this paper, we explore the evolution of advertising, the various compensation models, look
at industry trends, identify growth avenues for businesses through internet as a medium for
advertising, and analyse the associated benefits and downsides.

1.1 Thesis statement

While there is growing concern over collection and usage of data online, the internet has
revolutionized the way in which marketers reach consumers. It has not only aided in streamlining the
flow of information and transactions, it has also helped advertisers meet two of the industry's biggest
challenges: targeting customers who are likely to be interested in what is being sold and measuring
the effectiveness of an ad campaign.

1.2 Evolution of advertising

Since the popularization of internet, it has been used as a tool for advertising and marketing
product and services. Over the last four decades online advertising has evolved from brute force mass
mails to very specific targeted marketing based on user profile and expectations [2]. In this section we
look into how the space for online advertising has evolved over the years:

1.2.1 Email Marketing

In the early days of the internet, the structure of the network was through ARPANET and NSFNet,
the usage policies of which prohibited the use of the network for commercial activities by profit
organizations that included its use for the purpose of advertising. In such a constricted

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 environment, the marketers used Email as the primary source of marketing. The first advertising
email was sent in 1978, the trend for email as the primary medium continued till late 1990s, post
which spam filters have prevented mass emails from marketers to reach the consumer.

Email still remain a popular way to reach out to the customers, but it has evolved into a
subscription based model where users receive marketing emails only if they have agreed to
subscribe to them, this has helped prevent the menace of spam mails and have companies reach
the targeted users only.

1.2.2 Banners

Banners were the first medium of display advertisement used over the internet. The initial
banners were non-clickable pictures which appeared at the side of a webpage. These banners
were allotted a fixed space in the webpage and did not require the user to interact with them in
any way. Over the years the banners have evolved into more direct and engaging media. The new
generation banners are clickable and can be categorized as floating and expanding type of banners
which can be engaged by the user if he is interested and can be closed from view if required. These
banners are no longer along the side of the page, but might occupy considerable space on the
webpage with an option to close once viewed.

1.2.3 Pop-up

Pop-up ads originated in 1994. A pop-up is a Graphical window that suddenly appears in the
foreground of a webpage. The pop-up window is generally generated through using java script
and sometimes with a secondary payload that uses adobe flash. Pop-ups have been mirrored with
controversies and misuse, the industry has shifted to ad blockers to prevent pop-ups from
interfering with the user interface and experience.

1.2.4 Search Engine Ads

Search engines appeared in the late 1990s and with them came the possibility to market products
by understanding what the user was looking for. GoTo.com was the first search engine that
adopted an ads display policy, which was taken forward by Yahoo!. Google launched it’s
“AdWords” program in 2000 which provided the advertising space based on a bid price and
searchers likeness to click on the ads.

1.2.5 Social Media Ads

Social media marketing started in 2004 with Facebook launching its platform for marketers to
promote their products and services. It has gained considerable popularity for booth practitioners
and researchers due to availability of built-in data analytics tools, which enable promoters to track
the success effectiveness and engagement of their campaigns. Companies are able to reach out
to current and possible customers/employees, journalists and bloggers through social media
which makes it an important tool for marketing in the online space.

2. INDUSTRY IMPACT OF ONLINE ADVERTISING

Leveraging the internet for advertising seems to be a type of business model that keeps on
giving. “Since its birth in the mid-nineties, it has mushroomed, generating more than $230 billion in

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revenues globally in the year 2017”.[2] It is estimated that internet advertising would continue to grow
at a rate of 15-20% globally for a foreseeable future, thereby capturing 50% if advertising budgets by
2022. These trends are illustrated in figure [1].

Figure [1]: Digital Ad Spending

Compared to other media, internet advertising has seen sustained growth in the past two decades.
This can be attributed to the ease with which marketers can reach their desired target audience more
effectively and gain insights into the ad campaigns to further improve upon them. A graph of the
growth trends in the advertising industry as depicted in figure [2] illustrates the above fact.

Figure [2]: Ad growth scenario

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If online advertising continues to grow at this rate, it would dwarf all the other formats [2]. Two of the
industry’s leading ad service providers, Google and Facebook, have reported consistent ad revenue
growth rates as illustrated in figure [3].

Figure [3]: Ad revenue growth for Google and Facebook

These trends clearly illustrate the growing preference of organisations to use internet as a
primary advertising medium.

2.1 Growth opportunities for businesses

Internet marketing has helped a large number of small and big businesses to grow
exponentially in the last two decades. Being fast, cheap, and having an unprecedented reach, it has
brought tremendous gains to businesses across different sectors of the economy [7]. There are
however a number of factors which play a key role in deciding the extent to which a business can
leverage online marketing to expand its reach. Some of these factors include:
1. Technological and financial capabilities of the business
2. Products and services that the organisation deals in
3. Nature of the industry that the business operates in
Before venturing into internet marketing a business must ensure that it has carefully evaluated these
factors an developed a feasible strategy for its online channel. The major opportunity areas can be
categorised into three broad categories: Efficiency, Product & market development, Communication.
2.1.1 Efficiency
Executing transactions online is much faster and cheaper than doing it offline. At the
same time maintaining records of these transactions is quite simple and cost effective. Dealing
with customers can be managed using Customer Relationship Management software and this
can automate responses to customer queries, manage emails etc.
2.1.2 Product and Market Development
Online channels provide businesses the opportunity to expand into new markets
without incurring the huge expense of mass advertising using traditional media such as TV,

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 radio, hoardings etc. A website results in instantaneous reach into multiple geographic areas
and is also capable to generating export sales
2.1.3 Communication
Having an online presence provides both B2B and B2C businesses to present their
products in detail along with significant supporting information which can play a crucial role
in attracting customers. A web site acts as a promotional tool in itself and has the ability to
appeal to the self-image of its target customers. Usually the information displayed on a web
site has some hidden message which has something to do with the desirable lifestyle of the
target audience.

2.2 Advantages for businesses

Online marketing provides small businesses the opportunity to reach a much wider audience
in an interactive environment and be seen as an expert in their field. In the last few years we have
seen a number of small phone makers give tough competition to their large counterparts. For example
Xiaomi which started selling its products only online exclusively on Flipkart recently displaced Samsung
as the largest phone seller in India banking on its creative online advertising and flexibility to launch
products quickly online as and when the customer demands changed. Samsung on the other hand
incurs huge costs on running brick and mortar stores [7].
Social media marketing is providing marketers with true real time intelligence into individuals
interests, wants, opinions and sentiments. A simple search on Google about a product would be
instantly received by online marketplaces such as Amazon, Flipkart etc who in turn leverage this
information in real time to promote their own products on platforms such as YouTube, Facebook etc.
Apart from promotions, businesses gain many advantages by using internet as a medium for
not just advertisements, but brand building as well. These are illustrated as follows.

2.2.1 Cost effectiveness

Mass media advertising channels such as Television, Radio etc are too expensive for
most of the small businesses to afford and with the declining popularity of these channels
they no longer remain that desirable for large businesses either. Websites such as Facebook,
YouTube, Instagram etc allow both small and large businesses to reach a much wider audience
at a much lower cost at an exponentially faster pace than the traditional mass media channels.
Chatbots, online tutorials etc help companies to address the issues faced by their
customers at a much lower cost as compared to setting up customer care centres which have
traditionally been used by big businesses. As per the statistics there are over 1 billion Gmail
users and AdWords display ads appear on a little over 2 million websites and 650 thousand
apps so your ad can show up wherever your audience is [8].
Product listing ads, Display network campaign, Gmail ads, AdWords campaigns and
other online advertising platforms created by Google are helping businesses to reach their
customers and spread information about their products at an unprecedented pace and in a
very cost effective manner.

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 2.2.2 Consumer Feedback
A traditional business sometimes may take decades to build credibility. Online
marketing however can help a business achieve this in a matter of weeks if not days. Digital
marketplaces allow customers to write their opinions about the products and rate them as
well which in turn lends credibility to the good products as these reviews are considered highly
important and taken into account by prospective buyers while making a purchase. There
however is a flip side to this as well since a number of negative reviews can potentially wipe
out not only the online but the offline demand for a product as well.
2.2.3 Recruitment
Promoting a business online can also help in attracting the top talent which otherwise
might not be possible. Some start-ups like Uber, Ola etc heavily leverage their online image
and reputation to recruit some of the best candidates [9]. Also since the business does not, at
times, have to pay a recruitment agency or any other middlemen it can lead to significant cost
savings as well

Advertising and selling online breaks down the physical and time constraints faced by a traditional
business. A website is able to promote and sell products 24 hours a day and 7 days a week. A number
of businesses including Banking, Insurance, Education, and Retail benefit significantly from this
characteristic.

3. PROCESS FLOW
The display of an online ad is a complex process with multiple stakeholders and decision-
making points. The entire process has to complete within fraction of a second to avoid delays and
ensure real time transfer of data to the end user. The process flow of an online ad display and the key
stakeholders have been explained below in figure [4].

Figure [4]: Process flow diagram

3.1 Key stakeholders

I. Publisher: The agency responsible for pushing the advertisement on the user
webpage
II. Supply side platform: A integrated platform to compile user data and put it up for sale
at the ad Exchange
III. Ad Exchange: A virtual marketplace where the ad space is sold to the highest bidder
IV. Demand side platform: A platform that analysis the user data and ad space put up for
sale and makes a bidding for the space

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 V. Ad agency: The agency who has to display the ad, once the user clicks on the ad the
agency server interacts with it and does payment to the supply side platform

3.2 Process Steps

I. When the user requests a webpage the publisher’s server sends the page to the browser,
without adds loaded on it, instead links to the publisher’s ad server are present.
II. The ad server request user information in form of cookies, and the content being viewed.
III. The ad server communicates with the service side platform to create a complete profile
of the user in terms of demography, past usage and other information useful to the
advertisement agency to make a decision.
IV. The customer package is put up for sale at the ad exchange where the demand side
platforms bid for the ad space based on the user profile. The highest bidder is awarded
the ad space.
V. The ad exchange passes the link of the advertisement which reaches to the publisher and
is displayed on the user webpage.

4. COMPENSATION MODELS
Compensation models define how, when, and under what conditions the publishing agency of an
advertisement be paid. In 2012, advertisers calculated 32% of online advertising transactions on a
cost-per-impression basis, 66% on customer performance (e.g. cost per click or cost per acquisition),
and 2% on hybrids of impression and performance methods [4][5][6]. The key methods of
compensation have been discussed below:

4.1 Cost per Mile

Also known as the impression model, the payment is made for each 1000 views of the
advertisement. The key focus of this model is to create brand awareness and is employed for
display advertisement. This method is not very effective in estimating the effectiveness of
advertisement and may be subjected to an impression fraud.

4.2 Cost per Click

Pay per click model ensures payment to the publisher for each click made on the advertisement,
the number of views do not matter here. The key focus is to redirect the user to the brand’s
webpage. Pay per click model is mostly used by first tier search engines such as google. The pay
per click model suffers with the disadvantage of accidental clicks where the user goes to the
advertisers webpage and closes it immediately causing a loss to the advertiser.

4.3 Cost per View

Cost per view model is used by video streaming websites such as YouTube, which charge
marketers for each view of their video content.

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 4.4 Cost per Engagement

Cost per engagement model, does not only track if the ad was displayed on the webpage but also
if the user actually saw or interacted with the ad. This model gives the highest payment per
engagement and gives a good idea of how effective the marketing campaign has been.

5. EFFECTS OF ONLINE ADVERTISING

The world is heavily dependent digital content and technology. For any business or brand to
get noticed, online advertising has become a must for consideration. Online advertising can have both
short-term and long-term effects and is quickly becoming the primary method of attracting customers
to drag their attention to the services that are being offered. It is important to evaluate the benefits
and downsides of online advertising so that an accurate view of whether to invest or not in such type
of advertising.

5.1 Benefits of online advertising

5.1.1 Cost Efficient- This is the most significant advantage of online advertising. It is much
more efficient than using traditional methods like in television, radio, banner ads, ads in
newspapers, etc. It does not require large capital investment. Also, it is much more affordable,
time-saving, and environment-friendly than any traditional method of advertising. Sending
multiple mail or printing brochures includes several steps, at first getting them printed on
paper then sending the printed papers out through distribution team for delivery and then
ensuring that they are delivered on time. On the other hand, while in online marketing, we
can share the same on any of the social media platforms, thereby saving both printing, paper,
and time.

5.1.2 Large Information Capacity- Capacity to provide information is unlimited in online

advertising. The companies can provide thousands of pages of information regarding the
company without worrying about the cost incurred.

5.1.3 Accurate Delivery- Online advertising deliver accurate information to their target group.
When the customers browse through the sites then they will select the advertising site they
are really interested in so that to reach the targeted customers and deliver the accurate goal.

5.1.4 Adaptable- It is lot more easier to change in online advertising be it its design or content
than something that is been printed out and put on a billboard or sent in the mail. One can
adapt online advertising whether it’s to change any details or to try some different methods.

5.1.5 Extensive Coverage- It is a large global network throughout the world. Regardless of
geographical or time constraints wide range of information can be released in the internet.
The wider the scope of information dissemination, the more effective is the advertising and
will come in contact with their relative customers.

5.2 Downsides of online advertising

5.2.1 Privacy Concerns- This is perhaps the greatest threat to online advertising. Amidst growing
privacy concerns and regulatory pressures regarding usage of data, organisations are bound by

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 constraints for data usage. There have been instances of organizations wrongfully using consumer
data without prior permissions. This has led to growing concern in the consumer community.

5.2.2 Mistakes Can Be Costly- Since online advertising is complicated, it is not common to
everyone who uses it so making mistakes is very common in this type of advertising. Choose the
wrong keywords, neglect a bidding cap, target ineffectively, or leave a campaign running when
you thought it was off, and you can spend a fortune without turning a single lead into a sale.

5.2.3 Customers Ignores Ads- Customers are used to seeing advertising on television, hearing
radio commercials and flipping pages through advertisements in magazines, they've developed an
aversion to all forms of advertising. The case with online advertising is also same like traditional
advertising, where customers can avoid clicking advertisements, ignore ads in online videos they
watch and close pop-up advertisements as soon as they come up on their screens. Customers are
in control of which advertising messages they want to click and respond to.

6. CONCLUSION
The internet has revolutionised the way marketers reach consumers. In line with our thesis
statement, apart from growing privacy concerns, the internet can be leveraged by organisations to
gain sustainable competitive advantage. The benefits of using internet as a medium far outweigh the
downsides. This is supported by the analysis of the impact of internet on advertising in the previous
sections.

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BIBLIOGRAPHY
1. https://hbswk.hbs.edu/item/getting-the-message-how-the-internet-is-changing-advertising

2. https://ark-invest.com/research/internet-advertising-growth

3. How an Ad is Served with Real Time Bidding (RTB) - IAB Digital Simplified
|https://www.youtube.com/watch?v=-Glgi9RRuJs

4. Boerman, Sophie; Kruikemeier, Sanne; Online Behavioural Advertising: A Literature Review and
Research Agenda.

5. https://en.wikipedia.org/wiki/Online_advertising

6. Paulson, Courtney; Luo, Lan; James, Gareth M; Efficient Large-Scale Internet Media Selection
Optimization for Online Display Advertising ; Journal of Marketing Research (JMR). Aug2018, Vol. 55
Issue 4

7. https://www.business2community.com/online-marketing/10-proven-online-marketing-
opportunities-for-making-your-small-business-successful-02167966

8. https://www.emeraldinsight.com/doi/full/10.1108/10662249810211656

9. https://swsu.ru/sbornik-statey/pdf/internet-market-454.pdf

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