Consumer's Guide to Online Advertising

The internet is a wonderful place that allows us to connect with our loved ones, book a vacation, pay our bills, do our shopping, and look up information on the fly. In most cases, we never ever have to pay a dime to send a photo to our grandchildren or to see what the weather will be like tomorrow.

However, even though we are able to do all of this free, that doesn't mean that these websites aren't making money. In fact, most of them do thanks to online advertising. If you've been using the internet for a while now, you've probably noticed three things on the majority of websites you visit:

  • Many websites show a warning that they use cookies to store information about you in order to personalize the website and to gather analytics.
  • Almost every website includes ads - whether they sit to the side, at the top of the website, or load before you can see the content of the website you're visiting.
  • Sometimes, you might look for a specific product in search engines and then notice an ad for the same product appears on every other website you visit afterward.

So, how does online advertising work? How can a website store information about you, and more importantly, why do you see a particular ad on multiple websites? In this article, we'll answer these questions.

What Is Online Advertising?

Online advertising is also known as online marketing. It's a form of marketing in which companies use the internet to deliver promotional messages to consumers.

Most websites on the internet can be classified as either ecommerce websites, which sell items like brick and mortar stores, and content websites, which create and collect various articles, photos, and videos. Content websites make their money primarily from online advertising. This came about in the early 1990s when content websites began looking for additional revenue streams to support the act of content creation.

Different Types of Online Advertising

Online advertising comes in many shapes and forms. The most common types of ads that you'll encounter on the web include display ads thatuse text, logos, animations, videos, photographs, or other graphics to convey their message. They include:

  • Banner Ads: these usually occupy the top of the website and are graphical ads in nature. They are displayed within a web page and use rich media to feature video, audio, animations, buttons, forms, or other interactive elements.
  • Sidebar Ads: these are similar to banner ads but are usually placed to the side of the website and are displayed vertically rather than horizontally. They are more effective because a sidebar is usually always visible, unlike the top banner which disappears when you scroll further down the page.
  • Pop-ups and pop-unders: these usually appear as soon as you land on a website and you can't see the content until you close the box that holds the pop-up ad. Pop-unders usually open in the background and you don't even realize it until you close your browser window. Even though most users find them annoying, they have proven to be quite effective.
  • Floating Ads: similar to pop-up ads, they appear when you first visit a website and stay on your screen for a short period of time (usually no longer than 30 seconds) before disappearing completely or placing themselves on a certain part of the page.
  • Expanding Ad: these are less obtrusive as they are placed on a web page and become bigger either after you have spent a preset amount of time on that website or if you mouse over or click on them.
  • News Feed Ads: those are usually displayed under an article you just read, often preceded by a heading "Sponsored Stories" or "Sponsored Content". They also appear on social media sites like Facebook or Twitter, i.e. "Promoted Tweets" or "Promoted Stories".
  • Trick Banners: these are often misleading because they are made to look as an element of the website or even your operating system and have no mention of the advertiser that's using the ad. Because of that, they lead to high click-through rates but many consumers feel slighted after clicking on them.

Other forms of online advertising include social media marketing, where you see ads for various products and websites on social media sites like Facebook; search engine marketing where you search for a particular term and the first few results are marked with the word "Ads"; email marketing which means you will receive an email with a promotional offer, usually after you have given a consent; affiliate marketing where some people are paid to promote certain products; and mobile advertising where advertisers serve ads through text messages, multimedia messages, and apps you use.

How Online Advertising Works

Advertisers usually target consumers with particular qualities to increase the effectiveness of the ads. They typically use cookies to decide which ads to serve to a particular user. Let's take a look at how cookies work.

What Are Cookies?

A cookie is a piece of text that a Web server stores on your computer's hard disk. It allows a website to store information on your machine and later retrieve it. The pieces of information are stored as name-value pairs. The most simple version is a unique ID that a website assigns you when you first visit it. Some more complex examples include a session ID, which includes information on the time you visited the website in question or how long you stayed on the website.

Cookies are not programs and they cannot do anything on their own. They cannot retrieve information from other cookie files, nor any other information from your machine. The website that placed a cookie on your computer can only retrieve the information it originally stored.

The way cookies work is like this: when you visit any website, your browser will send a request to the server that's hosting the website. At the same time, the browser will look on your machine for a cookie file to see if that particular website placed a cookie on your computer. If it finds the corresponding cookie, your browser will send the information stored in the file to the server. If no cookie file was found, then the website's server will know you've never visited this website before, generate a new unique ID, and store it on your computer.

How Websites and Companies Use Cookies

Thanks to cookies, webmasters can accurately determine how many people visit their sites. Cookies also enable websites to store user preferences to personalize the site content more for each visitor, like showing stories similar to the ones you've read before, storing your location to show you a personalized weather forecast, and so forth.

Online shopping websites like Amazon use cookies to store information on items you viewed as well as your shopping cart for quick checkout options. Since each item is stored in the site's database with your unique ID, it knows what's in your shopping cart and it can retrieve the items even if you decide to make a purchase a few days later.

When it comes to online advertising, companies collect data about your online activity across multiple unrelated websites. They can create a detailed picture of your interests and use it to tailor the ads to you. They can also use that data to continually display a particular ad, even when you leave the website where the ad originally displayed.

Security and Privacy Issues

There's long been hot debate on the internet regarding online advertising and the use of cookies. Some argue that using cookies to store information about you is an invasion of privacy or that your data might be sold to others who might want to sell similar products to you. Another concern is that your data might be used for nefarious purposes such as identity theft or to install a virus on your computer. However, it's worth mentioning that in most cases, the use of cookies allows you to see much more relevant ads that correspond to your interests.


Online Ads Are Here to Stay

Online advertising works similarly to TV commercials, with a few distinct differences: you can't do much about the commercials on TV other than change the channel until the commercials are over so you can get back to your favorite show. TV commercials can also be completely irrelevant to your interests. With online advertising, you can use various browser extensions to block the ads. However, bear in mind that in most cases, these ads are more targeted to your interests and sometimes contain deals or discounts.

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