Every time you open Facebook or other social media websites, you probably notice a large amount of ads that are displayed. With these small “announcements” Facebook and Google generated more than half of all U.S digital ad revenue in 2017! Reason enough for us to explore the advertising revenue business model in this brain snack.

Photo by Luca Bravo on Unsplash
Photo by Luca Bravo on Unsplash

The logic of advertising is simple: Firms that provide attractive web content (e.g. social media) or valuable online services (e.g. media streaming), create either high user traffic or have access to an attractive customer segment. These firms then sell access to advertisers to display banners, pop-ups or something similar. If a firm attracts a highly valued target audience (e.g. CEOs), advertisers are interested to pay for banners since it is a targeted way to reach their audience. The more valuable the target audience and more difficult to get their attention, the higher are the potential revenues.

How? One of the prime examples of a company creating revenues coming from advertising is Amazon. In 2018 Amazon generated a record $3.4 billion in profits coming from advertising. Compared to other players in the market, Amazon possesses a competitive advantage due to the data they have on purchasing habits. Its deep insights into consumer purchase behavior set it apart from Google and Facebook in the digital ad market, which makes Amazon often more attractive for advertisers.

All in all, advertising is a simple and easy way to generate revenues; one of the most known tools to get ads is Google’s AdSense, creating earnings between 4-10 Euros per 1,000 page views. However, at the same time, it is difficult to generate enough revenues to sustain a business with advertising. This requires millions of viewers/users. What is more, most people find ads annoying, which can result in lower rates of views and clicks, and consequently, lower revenues.

This is the Brain Snack of the week. If you enjoyed this content, please comment, follow us, and share this post! Also, you can explore more ways for innovative business models on www.smartbusinessmodeler.com.

Soper, T. (2019, January). Amazon’s Big New Business: Here’s how much advertising revenue the company generated in 2018. Retrieved from: https://www.geekwire.com/2019/amazons-big-new-business-heres-much-advertising-revenue-company-generated-2018/

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