In class we explored the mechanics of keyword-based advertising. This market came about when advertisers realized that best way for their ad to be seen was not to post their ads for the entire internet population, but rather just to show them to any user that enters a query for which their ad is based on. These ads would be cost-per-click, which meant that advertisers would then vie for the best or most visible slot for their ads in a generalized second price auction. Although this procedure is ideally the best way for advertisers to maximize their total valuations, according to this NY Times article (http://www.nytimes.com/2008/04/21/business/media/21online.html?ex=1366516800&en=aee220abd02bd289&ei=5088&partner=rssnyt&emc=rss ) with the growing popularity of ad networks, this may not be the case anymore.

What an ad network does is sell display ads across groups of websites through either targeted advertising or focusing on certain subjects. One of the main causes of this switch over in advertising methods is that advertisers want more quality clicks for their dollar than what they were getting with keyword-based advertising. Some advertisers feel that it is better to specifically target customers who would be more inclined into purchasing their product or service. Another reason for the decline in popularity with the old advertising method is the expensive prices of ads on premium sites. The cost of an ad on an ad network can be as low as 4 dollars per thousand ads served, while the same ad on a premium site can go up to 40 dollars per thousand ads served.

But this change in advertising methods can have negative effects on both major portals and on the ad networks themselves. The revenue growth of three major ports, Google, Yahoo, and AOL has already begun to slow down in 2007. A decrease in advertisers’ desires to pay for these slots will only amplify these negative effects. At the same time by drawing more popularity to themselves, ad networks are eliminating their two appealing features: their Cheapness and their simplicity. But although this maybe the case, I feel that the popularity of ad networks will continue to increase. In a way, this is sort of like the next step in web advertising. We moved up showing our ads to internet users who have searched fro them. Now, we can be even more specific with our ads and target our clients with them .