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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.



Once you’ve seen an advertisement, the best-case scenario for the advertiser is that you click on it and then go on to make a purchase. This is called a conversion, and the total value of such sales can be totted up at the end of the campaign to gauge its effectiveness – again thanks to tracking cookies. Such an approach allows the cost of the campaign to be directly compared to the cost of the advertising, which is hard to do with TV or print ads.

Such sales can be attributed not only to the campaign as a whole, but also to the website where the ad was shown. Therefore it could be argued that consumers should support the sites they like by providing them with conversions whenever possible.

Conversions are an ideal situation, but most of us simply don’t make purchases in such a direct manner. We see an ad, go away, think about it, Google the product later and then make a purchase. Even in this situation, though, cookies are used to track your browser activity and give credit to the ads you’ve seen.


Not all adverts will lead directly to online sales; after all, most of us buy our beer in a pub and our petrol from a pump, neither of which can be tracked online. Companies selling such everyday products have been reluctant to take up online advertising because of its obsession with conversions as a measure of success. Try putting ‘washing powder’ into Google, and note the lack of sponsored links from major manufacturers. This is because Google concentrates on great conversion rates, while detergent manufacturers rely on building long-term brand awareness.

This can be hard to quantify. UK Online Measurement (UKOM) was launched in February 2010 with the aim of measuring brand awareness. It has 35,000 participants, and the data gathered makes a useful partner to behavioural targeting. This is because the participants’ identities are known, so their online activities can be studied via classic demographic divisions such as gender, age, location and household income. The results help the industry compare the branding impact of online ads to those on TV or in print.

↑ UKOM uses a test group to measure brand awareness

Branding is a sensitive issue. Placing a brand on the right website can boost its image, but the opposite is also true. You’d expect to see British Airways ads on news and travel sites, for example, but they’d create the wrong impression on a site promoting action on global warming.

The IAB’s Jack Wallington explained that big brands are uncomfortable with the unpredictable nature of sites with user-generated content. In 2007, six major advertisers pulled their adverts from Facebook after they were displayed on a page promoting the far-right British National Party. They included Vodafone, the AA, Halifax and Virgin Media, with the latter stating the requirement to “protect its brand”.


Like all advertising in the UK, online ads are regulated by the Advertising Standards Agency (ASA). It says, “Ads should be legal, decent, honest and truthful. Broadly the rules for advertising are the same across all media.” For example, you won’t see cigarette advertising on UK sites. So there are no sponsored links if you Google ‘cigarettes’. The same goes for guidelines that govern alcohol advertising and food and soft drinks advertising to children.

Despite this, some ads do try to defraud you. Often this type of ad comes in the form of malware posing as anti-virus software. Once installed, the software falsely reports a virus infection until you pay for the professional version of the software. Such ads usually come through ad networks, largely due to their policy of subcontracting other networks to fill ad space.

It’s not just networks that can be at fault, though. Last year the New York Times approved ads that turned out to include anti-virus malware. Diane McNulty, a spokeswoman for the paper, said: “The creator of the malicious ads posed as Vonage, the internet telephone company, and persuaded to run ads that initially appeared as real ads for Vonage. At some point later, the campaign then switched to displaying the virus warnings.”

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