First off, I rarely click online display ads. That said, I am interested in finding ways to make them more relevant. In principle, I would be willing to click on ads if they exceeded a certain relevance threshold. For the mass market, there is clearly an economy for these ads such and their price is theoretically governed in part by the revenue they generate inconjuction with supply and demand. In the last couple of years inventory has dramatically increased while click-through rates have fallen which has caused prices to fall precipitously. There are many reasons for this including desensitization to ads, stale page layouts, poor creative, poor content, and more ads overall. It’s also worth mentioning that  I believe that the nature of the online ad market is not always rational and that many advertisers do not in fact generate revenue equal to their ad spend. But the purpose with this post is not to talk about how online ads are used for brand building or about irrational markets, but rather to shine a light on the different ways that ads are targeted and served to people online.

Before I jump into that, I’m also running a quick poll to get your take on how online display ads can improve.

How Online Display Ads Are Served

There are four main ways that online display advertisements are served, including context based, behavioral based, search/intent based, and social based. I’ll outline each of these below.

• CONTEXT BASED: Contextual ads are placed based on information that the placement system gleans from the text of the website, and the keywords it contains, where the ad will be placed. Thus, the ad server  places advertisements based on what the user is viewing. Following this, if you’re on a blog site that talks about educating children, the server might return ads for educational toys for children.
• BEHAVIORAL BASED: Behavioral targeting uses information collected on an individual’s web-browsing behavior, such as the pages they have visited or the searches they have made, to select which advertisements to display to that individual. Most platforms identify visitors by assigning a unique id cookie to each and every visitor to the site thereby allowing them to be tracked throughout their web journey. Following this, if you visit an auto-insurance website then a site that makes car seats for children, the system might serve up ads for station wagons and SUVs.
• SEARCH / INTENT BASED: Search/Intent targeting works by serving advertisements that are related to search terms or keywords. Following this, search engines can serve up ads that relate to your search query alongside the organic search engine results.
• SOCIAL BASED: Social based ads are based on information found in your social graph. Following this, the ad server system will serve ads based on information found within the profiles of people within your network. In order for social ads to work, the ad server has to be serving ads within the social network or they must have permission to access this information from the outside.

The four serving approaches above can be combined to serve more relevant ads to people browsing online. It’s also important to note that these approaches are about serving ads, not about the kinds of ads (i.e. text, video, interactive). I mention this because there is a larger trend in the online display ad space around making ads more interactive and engaging. As the pendulum continues to swing in this direction we’ll see more “app-vertisements”, or branded experiences that are much more engaging that traditional ad units. I’ll talk about the evolution of online display ads in another post shortly.