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Online Ads: how they make money, how cookies work and how they affect your privacy

Much of the best content on the internet is funded by advertising. Here we explore how that industry works and how you are its most vital component.


When most of us think of internet advertising, what comes to mind are the adverts we see on web pages. We’ll concentrate on these for now, as they’re the main source of income for online publishers. These ads are often all referred to as banner ads, though in fact they all have different names. The banner runs across the top, on the sides are skyscrapers, while a more recent invention is the mid-page unit (MPU), a square-ish box that’s ideal for video-based ads. Collectively, all these adverts are known as display ads.

The ad industry has standardised the shapes and sizes of all these display ads and, by having to accommodate all of them, many websites end up with very similar-looking layouts. You could argue that creativity in website design is among the first victims of online advertising.

Funding the Web: banner ads
↑ Many popular web pages use ads to help pay for content

The value of a display ad is usually measured in one of two ways. The first is cost-per-click, where the advertiser pays the site only when you click on the ad. Such ad campaigns are designed to directly generate sales. The second is cost-per-impression, where the advertiser pays every time the advert is shown, whether or not you click on it.
A company – let’s take British Airways as an example – decides it wants to advertise its latest deals online. It employs a creative agency to design the campaign, as well as a media buying agency or ad network to serve the ads.

Media buying agencies usually negotiate directly with big websites; hosts would include newspaper sites and portals such as Yahoo! and MSN. Such deals are usually done on a cost-per-impression basis, as such reputable sites help improve brand awareness, which we’ll discuss later. Ad networks, on the other hand, usually act as middlemen between the advertiser and smaller website publishers. Ad networks usually deal in serving ads in low-cost space, and largely measure success using cost-per-click. Both media buying agencies and ad networks track web users and target adverts to maximise the effectiveness of their campaigns.


Big ad networks may have deals with thousands of individual websites, and sites can also employ multiple networks to get the best returns, so the range of possible ads to which you could be exposed is huge. They’re served from the ad network’s servers, where a complex process tries to select the most effective ad possible.

This process is governed by cookies, tiny text files that are stored in your browser by almost every website you visit. Many of the cookies in your browser are likely to be from ad networks; for example, you’ll most probably find a cookie from Sophus, which is used by both the Guardian and the Times, as well as ones from Doubleclick, Google Adwords and many others.

Most cookies simply contain a unique ID number, which refers to an entry in the ad network’s database. The database stores details on other sites in the network where the cookie has been logged. Based on that information, the network tries to predict the kind of products you may be interested in.

For example, if the database has logged the cookie in your browser at numerous travel sites, the ad network is more likely to serve you our theoretical British Airways ad, as this will probably by more effective than an advert for, say, a new sofa. Having done so, it then updates the database entry to show that the ad was served to that ID number.

There are millions of these tracking cookies out there. To get a grip on them, the ad networks place each cookie into one or more of a handful of pots. For example, if you regularly visit The Financial Times’ and Ferrari’s websites, you’ll likely be put in a pot aimed at big-spenders, regardless of whether you’re actually wealthy. Display ad space can then be sold on the basis of how many page views a site gets from a specific pot that the advertiser wishes to reach.


This process is called behavioural targeting, and it’s one of the key advantages of internet advertising over TV and print. The ad networks argue that it’s better for everyone, as the adverts you see should be more relevant to you and so more effective for the advertisers. This in turn should generate more revenue for the website, which can help fund the content you want.

Obviously they would say that, but there is some truth in it. We tried deleting all the cookies in our browser and the results were noticeable. Instead of seeing familiar brands with adverts for products we might consider buying, there was a far wider spread of adverts, which was more distracting when browsing our usual sites.

But is this tracking process an invasion of your privacy? We talked to the UK’s Internet Advertising Bureau (IAB), part of a worldwide group of trade bodies for online advertising, about behavioural targeting. Unsurprisingly, it assured us that its members were trustworthy: “Any data used is done so anonymously. When personal data is used, it’s done so when you register for a website or service and you will be told beforehand.”

The IAB has set up to help deal with concerns about targeted ads. There you can read more about behavioural targeting and even find links to major ad networks letting you opt out of the system. Not all the ad networks are represented, but it’s certainly a step in the right direction.

Funding the Web:IAB
↑ Your online choices can help give you control over targeted advertising

If you’re worried about your privacy you could set your browser to block cookies or accept them only with your permission, but provided that you visit only reputable websites such actions are probably unnecessary.

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