Online Ads: how they make money, how cookies work and how they affect your privacy
Posted on 25 Feb 2011 at 16:31, by Seth Barton
The internet is an incredibly rich source of information, yet the vast majority of it is provided for free. We fire up our browsers, search for whatever we need, and never pay a penny for the privilege. We all pay ISPs for internet connections, but none of that cash goes to those who create or host the content we all enjoy.
Think of all the full-time staff required to keep all those sites up and running: journalists, editors, web designers and network managers, to name just a few. Even services such as Facebook and YouTube, which largely consist of user-generated content, employ staff to update their software, not to mention all the servers required to keep such complex services online. So just how are these costs met?
At present, advertising is the key method for funding most of what you enjoy via your browser. Large numbers of sites are funded solely by advertising income. We all understand that to watch a programme on ITV we'll have to sit through the ad breaks, but the sacrifices we make for internet advertising are far more complex. As well as the annoyance of flashy animated adverts, there are both security and privacy issues to consider.
Despite its apparent success to date, there's some debate as to whether a purely ad-funded internet is sustainable in the long run. News is the key battleground, as sales of newspapers still massively supplement the costs of researching the stories we read online. Falling newspaper print revenues aren't being met by the rising online revenue, leaving a gap in the finances.
The Times and Sunday Times have introduced online subscription fees to cover this gap. News Corporation head Rupert Murdoch said: "Quality journalism is not cheap, and an industry that gives away its content is simply cannibalising its ability to produce good reporting."
The issue affects more than just news, though. The rising bandwidth costs of multimedia sites such as YouTube must be met by greater advertising revenues, something even Google appears to be struggling with - with so-called pre-roll advertising appearing. Mobile devices will also require new approaches by advertisers if they are to maintain free access.
Will advertising rise to the challenge of funding everything online? And will we have to compromise our internet experience to achieve this? Will websites ever be able successfully to charge for content, when we've become so used to having it for free? In short, is our current 'free-for-all' internet simply unsustainable?
PAY AND DISPLAY
Internet advertising is now big business, worth around £3.5 billion annually in the UK. It has also proved to be remarkably recession-proof, with 2009 being the first year when more money was spent on online ads than on TV commercials. Let's start by looking at how it works.
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