Online Advertising: What the Young Entrepreneur can do to Maximi$e it

I was having a phone conversation with a close friend of mine last night and she asks me…

”Ok this might be a dumb question but how do websites make money?”

This was an opportunity to sound halfway intelligent for once so I pounced right on it with an answer that a casual internet user would hopefully understand. Casual indicates that you don’t check your email, Myspace, or blog 20 times a day and you also don’t know what CPM stands for or what a 728x90 is. Knowing this makes you a Web Addict. I smugly replied…

“Well there are essentially 3 ways. One way is that a business has a website to promote their main brick and mortar entity by having a presence on the Web. The second way is that the main source of revenue for a website is by offering an e-commerce solution where buyers and sellers can do some type of business with each other (remember casual user). And finally, the third way is when a website, otherwise known as a publisher, creates interesting content that attract users to their site. The site is then monetized by advertising revenue is the way of banner ads, text ads, pop up ads, or even video ads.

She happens to be very industrious, so I pretty sure that she got the idea.

But it led me to believe that the majority of people don’t quite grasp the concept of online advertising. Since the “majority” of people are starting their own websites, their own blogs or even their own profile or channel on some type of a social community platform where ad revenue is split between the publisher and user (Like Blogger or a future client of mine, Blip.tv.) It is crucial that these people understand that there is money to be made. Of course, most of the people reading this blog on MindPetals understand that there is always money to be made!

Here is a small portion of how it works. Typically, Publishers make money by selling the “inventory” on their site. Inventory is based on impressions or “eyeballs” that a site receives. Almost like a page view except an impression is the amount of times an ad is viewed by someone. If there are 5 ads on a page then for every page view there are five impressions. Publishers will then sell impressions to advertisers on a CPM level (Cost Per Thousand, M standing for the Latin symbol of one thousand). For every one thousand times your eyeballs view an ad, the publishers can charge anything from 1 to 50 dollars. Obviously, the size of the ad and where it is on the site influences the price. A site like ESPN or CNN will charge about 30-50 dollars while my blog could charge about negative 30 to negative 50 cents, if I’m lucky.

While traditional advertising will always be effective way to reach the desired consumer, interactive marketing methods are quickly becoming a more cost efficient way to specifically target a certain audience. It is no secret that there are more choices today then there were 5 years ago in terms of how media is consumed and how advertisers can reach them. The advent of online video, audio, news, and user generated content sites have allowed users to find exactly what there looking for and in turn this allows advertisers to find their desired niche or demographic. With online ad spend increasing each year, then that only leaves more money to be had by Internet entrepreneurs and pioneers.

SOOOOO where does a young entrepreneur fit in with all of this?

With the internet providing an avenue for us young people to provide some type of service to the world, then we will have an opportunity to maximize the amount of money we get. It is a low cost, low risk way to start a business with minimal overhead and a potential for a high reward. Online advertising is also a low cost way to promote a non-interactive product or service. The specificity of the targeting capabilities in certain ad technologies allows entrepreneurs to reach the exact audience they want to reach without breaking the bank.