The Product

The ad space itself is the product. Whether it is a banner, a text link, a simple message, or a popup browser, it is not the physical ad itself that is bought and sold, but the space, placement, or right to display it. An advertiser pays for his ad to appear in a certain location in this market, not the ad itself. Sure, he may pay a firm to develop the ad, but that is a creative development service and a distinctly separate market from the one discussed here. Some examples of products may be a search engine ranking (i.e. were in the list of results an advertisers page shows up when a related keyword or phrase is entered into Google) or text ad space along the side of a web page.

Pricing

Pricing can vary greatly depending on the type of product. A web page may charge a fixed monthly fee to an advertiser to allow them to place a banner or

text ad along the top of a given page. Advertisers can also place bids on keywords for search results. For example, if I am selling monkey turtles I would like my website to be at the top of the search results or in a text ad along side the search results when someone uses a search engine to look up "green turtles." I would then bid on the keyword "green turtles" and hope I am not outbid by my competitor who is also selling green turtles. If my competitor outbids me, her web page link will appear before mine in the search results. The advertiser is usually charged the bid amount when the Internet searchers click on the link. The higher the demand for a keyword, the higher the bidding war will go. Clicks may be $.01 or $20.00 as an example of the more extreme prices. Another example is a mix of the first two where a website owner may charge a "per click" rate for a banner ad to be displayed at the top of the page. We will venture deeper into the mechanics, examples, and specific services of this topic when discussing marginal revenue and expense streams later on.

Demand

The demand in the online ad market is represented by any company or individual that has a message they want to get out and is willing to pay to get it out. In most cases the message is meant to sell a product or service. The Green Turtle Cafe may want to tempt web surfers to visit their website and eventually the cafe by placing a banner ad showing menu samples on a locally-oriented website (i.e. www.your-city.com). A software publisher wanting to sell her anti-spyware

software may bid on the keyword "remove spyware" in hopes to capture a spot at the top of the first page of search results when a web surfer searches for "remove spyware."

Supply

The supply side of the online advertising is comprised of website publishers. It doesn’t matter whether the site is a search engine, an online store, a hobby site, or any plain old specific topic website. Think of a website as a piece of real estate frequented by many people, like a mall or town square. The owner of that real estate can sell space for a business to place ads like a billboard or a sign. The people visited the mall to shop, or to feed the pigeons in the town square, but while they were there they read a message about a product or service and may end up purchasing that product or service. The real estate owner supplied the space; the space has value because people visit it. We will get a bit deeper into the idea the space having value, why it has value, and who it has value to when we get into traffic and the analytic portions of the book.

To review the basic components of this market, we have a product which is the advertising space and the corresponding right to occupy such space. The price for the space will vary depending on the ad product (banner, text, etc) and the size of the demand for the product or service being offered in the ad. A fixed fee or variable bidding price structure can be used, and many charges are based on

a per click basis: when a web surfer clicks an ad, the advertiser pays the website for the click. The demand side is the company or individual trying to sell something. The supply side is the website owner, like a real estate owner selling space on a billboard. It is very important not to confuse this market with the products being sold in the ads. The product discussed here is the ad space and is completely independent of any service or product actually being advertised. We have wrapped up the basics of the online adverting market and it’s now time to dive in to a bit more detail about adverting arbitrage and extracting profits from this developing market, creating net positive cash flow for your website.

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