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Thoughts on Revenues from Online Advertising

These days, a lot of content on the internet as well as other media is being provided for free with the belief/understanding that revenues from advertising will cover the cost for producing and disseminating the content. That led me to wonder about how much money is really in advertising to sustain the media industry. As usual, I did a quick search on "advertising cost" and "advertising GDP" ... etc and came up with a wealth of information.

Let me start by answering question "how much money is there in online advertising?" According to the all-knowing Wikipedia, advertising as a % of GDP is about 2.2% (~$250-$300 billion) in 2007. The number we are most interested in is online advertising revenue which was about $21 billion in 2007, according to a TD Pricewaterhouse report.

Google by itself claims to have generated $10.5 billion from advertising in 2006. So, does the other $11-15 billion pay for producing and distributing much of the free content on the web? I don't think it can.

It appears the cost of online advertising is pretty cheap compared to other more traditional media because of its impact and/or reach (or the lack thereof). My hunch is that lots of the advertising money still goes to more traditional print media and TV, as reflected by the $21 billion the internet gets which is less than 10% of the money spent on advertising ($250-$300 billion).

I am sure the numbers ultimately add up, there must be some information I am missing or some concept I am misunderstanding/overlooking. Well, so much for my random thoughts ...

Here is a little info about the cost of different ad media.

Average Costs for Advertising (Prices reflected are negotiated prices for a 12-week campaign):

  • Newspapers – $1,300 per week for 2” x 2” ad
  • Television – $200,000 for one 30-second commercial (during prime-time)
  • Direct Mail - $1,500 for 1,000 4x6 postcards (includes postage)
  • Radio - $90 to $120 per week on a rotator (prices higher if time slots for ad are selective)
  • Magazines - $1,200 to $5,000 per month or per issue (depends on ad size and demographics)
  • Outdoor (billboard) - $3,000 to do artwork and install media on billboard; rates depend on impress level, ranges from $5,000 to $500,000 (the higher the qualify of the artwork and the larger the demographic group, the higher the price); minimum contract is 16 weeks
  • Online - $0.60 pay-per-click or $1,200 - $1,800 a month for aggressive campaigns (does not include search engine optimization) or $200 to $1,200 per year per banner ad on websites

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