Exploring the Online Advertising Value Chain

http://www.atkearney.com/documents/10192/178350/internet-value-chain-economics.pdf/bd910b2c-bdae-4d6f-8903-f5edad6784eb

According to the article “Internet Value Chain Economics” published in 2010 by ATKearney, online advertising industry is part of a general category considered part of the enabling technology services, which is one of the five main segments in the internet value chain. Within this large segment, there are 4 different but related industry players. These players consist of Advertising Agencies, Dedicated Online Advertising Networks and Exchanges, 3^rd Party Ad Serving Providers, and Ratings and Analytics Service Providers. These providers are fundamental to revenue generation for most online service providers.

Advertising Agencies provide a wide range of marketing services including media campaign planning, ad inventory acquisition for online ad campaigns, and creative design services for online ad production. These agencies charge commissions based on the total volume of advertising spend. Agencies can service online advertising exclusively, or are sometimes part of larger multi-service companies that offer online advertising services as part of their portfolio.

Dedicated Online Advertising Networks and Exchanges are technical and payment clearing houses for online advertising space. Examples include Doubleclick (owned by Google), and Advertising.com (owned by AOL). Such companies purchase online advertising space on behalf of advertisers and sell advertising inventory on behalf of content providers and websites. They typically provide the technical platforms that facilitate the placement of display ads such as banners and sidebars on websites. These companies typically acquire inventory and resell them with a mark-up.

3^rd Party Ad Serving Providers are entities that host and distribute online ads. Oftentimes, ad agencies that provide creative design services will also provide the hosting and distribution services.

Ratings and Analytics Service Providers aggregate and sell web traffic, click-stream data, and usage metrics. Players include Google Analytics and Alexa.

It is interesting to note that according to this 2010 estimate, as a percentage of total advertising spend, online advertising in Germany increased from 5% in 2000 to 29% by 2010, and is forecast to increase to 42% by 2015. This study noted that this trend is expected to be observed in other western European countries.