A Practical Guide to Online Advertising

Online advertising looks different at the end of 2001 than it did two years ago. Industry-wide ad spending has fallen for the first time since the web became a mainstream advertising channel, a string of well-funded dot-com advertisers have shut down entirely, and the businesses still spending money online are asking much harder questions before they commit a budget. This guide is for the business owner trying to decide where their own dollars should go.

Start with what you’re trying to achieve

Online advertising isn’t one thing anymore. It covers banner and display placements bought through networks, keyword bidding on search engines and affiliate arrangements that only pay on a completed sale. Each does a different job, and the mistake we see most often is picking a format because it’s familiar rather than because it fits the goal.

• Building recognition for a brand people will buy from later: display advertising on relevant sites still does this reasonably well.
• Getting an immediate sale from a limited budget: keyword bidding, where you pay for a click from someone already searching for what you sell, is usually the more efficient starting point.
• Growing sales without upfront risk: affiliate arrangements, where partners only get paid when they produce a sale, shift the risk away from your budget entirely.

Why the calculus has changed this year

A lot of 2000’s online ad spending came from venture-funded companies burning cash to build awareness fast, without much concern for whether the spend paid for itself. Most of those advertisers are gone now, and the businesses left buying ad space are, almost without exception, ones that need the spend to produce a measurable return. That shift has pushed the whole market toward accountability: publishers and networks are under more pressure to prove performance, and advertisers are under more pressure to prove it internally before renewing a budget.

What to check before committing spend

• Is there a way to track what a click produces, not just how many clicks you got, but what happened after.
• Does the format let you start small and scale, rather than requiring a large upfront commitment before you know if it works.
• Can you kill what isn’t working quickly, without being locked into a placement or a rate for months.

Formats that fail these three tests are harder to justify in the current environment, regardless of how well they may have performed when budgets were looser.

A reasonable way to allocate a modest budget

If you’re starting with a limited budget and no existing data to work from, put the largest share into keyword bidding on a handful of specific, high-intent search terms, where results are fast to see and easy to measure. Use a smaller portion for a narrowly targeted display buy on one or two sites your actual customers read. Hold the rest until you have a month of real numbers telling you which of the two is earning its keep, then reallocate accordingly.

The larger point

The last two years have been a useful, if expensive, lesson for the whole industry: spending online is not automatically effective just because it’s online. What separates the businesses still growing through this downturn from the ones that have pulled back entirely is a willingness to measure honestly and follow what the numbers say, rather than what worked, or seemed to work, when money was easier to raise.

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