Online Advertising: Battle is ON between Google & Facebook


In our Technology of the Week, we explore the facets of Online Advertising where companies such as Google & Facebook have devised innovative ways for advertisers to reach wider base of target customers.

The Basics

The online advertising domain offers cost effectiveness, better outreach, reduced resources, informed modification by performance measurement and Targeted advertising, a new form in which ads are placed in such a way that it suits consumers’ traits such as demographics and buying behavior (Ghose, et al., 2012).

Google: AdWords & AdSense

Google offers online advertising platform in two ways. One, it offers advertising space on its search results page through AdWords using an Auction mechanism where advertisers bid for specific keyword(s). Based upon this bid and the quality of the ad, Google assigns Ad Ranks that decides the ad position and Cost-per-click (Varian, 2010). Two, it acts as a distributor of advertising space available through a Display Network of 2 million websites through AdSense where advertisers can place online banners on relevant websites to attract customers (Google, 2014).

Google has changed the dynamics of advertising market by taking 4 out of 5 roles in the electronic market which are of a supplier, distributor, financial services and IT vendor. It has reduced coordination costs and advertisers’ production costs and market structure has been changed to an unbiased market with personalized targeting (Malone, et al., 1987).

Facebook Ads

Advertisements on Facebook are placed either in the news feed or in the right sidebar on homepage or on fan/profile pages with a Sponsored header. Facebook takes targeted advertising to another level by displaying ad according to users’ Demographic, Social and Personal information. Advertisers can choose from Cost per Click, Cost per Mille impressions or Cost per Action. Facebook also provides suggested bid range in which advertisers can pick a competitive bid to show their ad to the same audience set as other advertisers (Socialadstool, 2014).

Facebook brought advertising from mass media to targeted personal connections based on information available to them via their social network platform (Davis, J. 2014). Production and coordination costs have come down significantly since it is very easy to make ads and target specific audience.

Google vs Facebook

  • For Facebook, the display CTR is estimated to be 0.11% (Chaffey, 2013) and the average CTR for newsfeed ads can be as high as 7% while Google’s CTR on AdWords paid search ads is on average 2.36% but for the top 25 accounts can be as high as 5.36% (Kim, 2014).
  • Google takes into account both the bid amount and the Quality Score to determine the ad rank of a particular ad. However, on Facebook the advertiser can decide to raise their max bid in order to become more competitive, even though this is not the only dimension they take into account (e.g. user experience).
  • On Facebook users tend to go on a “hike”, whilst on Google they go on a “hunt” (Gallaugher 2013). By targeting via keywords, users are already interested in your product or service, whilst advertising on Facebook might be more appropriate for brand or product awareness, since you cannot target immediate needs or wants.
  • The usage of Google AdWords requires more expertise, experience, and experimentation, which makes it slightly more difficult to create effective ads quickly.

Conclusion

The two web giants have shaken the advertising industry, changed market dynamics, and aggregated new roles. While the market became significantly more competitive, unbiased and personalized, the two firm’s market powers have increased dramatically with a high competition for keywords in Google AdWords and Facebook launching FB Exchange where advertisers can target people based on their online activity. Yet, Facebook newsfeed CTR, and excellent market share growth on the mobile segment suggest that Google’s domination might decrease in certain niche segments.

 

Sources:

Ghose, A., Goldfarb, A. & Han, S. P., 2012. How Is the Mobile Internet Different? Search Costs and Local Activities. Information Systems Research, 24(3), pp. 616 – 631.

Varian, H., 2010. Search Advertising With Google: Quality Score Explanation by Google Chief Economist. Mountain View: Google.

Malone, T. W., Yates, J. & Benjamin, R. I., 1987. Electronic markets and electronic hierarchies. Communications of the ACM, 30(6), pp. 484-497.

Google. (2014). Adsense: Success Stories. Available: (http://www.google.com/adsense/start/success-stories.html. Last accessed 26th Sep 2014

Social Adstool. (2014). Facebook Ads Guide. Available: http://www.socialadstool.com/facebook-ads-guide/http://www.socialadstool.com/facebook-ads-guide/. Last accessed 26th Sep 2014

Davis, J. (2014). Facebook: Changing Advertising Forever. Available: http://www.capturecommerce.com/facebook-advertising.php Last accessed: 26th Sep 2014

Kim, L. (2014). Everything You Know About Conversion Rate Optimization Is Wrong. Available: http://www.wordstream.com/blog/ws/2014/03/17/what-is-a-good-conversion-rate. Last accessed 25th Sep 2014

Chaffey, D. (2013). Display advertising clickthrough rates. Available: http://www.smartinsights.com/internet-advertising/internet-advertising-analytics/display-advertising-clickthrough-rates/. Last accessed 25th Sep 2014

Gallaugher J. (2013). Information Systems: A management Guide to Harnessing Technology. Version 2.0 Flat World Knowledge

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