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An advertiser has multiple marketing channels to choose from when launching an online campaign. They can send out email blasts, create blog sites, build a social media profile and pay for SEO to drive traffic to their home page.

However, as competition in the online sector intensifies, companies are constantly investing more and more money in marketing to generate sales. Consequently, many people resort to sponsored advertisements for optimal banner placement and increased ROI. On average, these sponsored ads see higher click through rates and lower customer acquisition costs compared to traditional ads posted on free space. Google, Facebook and Yahoo – the top three grossing sites for sponsored display traffic – offer insight to the pros and cons of this emerging trend.

Facebook: Sponsored Stories vs Standard ads

According to a 2011 report from Facebook’s API service provider, sponsored story ads saw a 46% higher click through rate, a 20% lower cost per click, and an 18% lower cost per fan than Facebook’s standard ads (allfacebook.com, 2013). The catch? Sponsored story ads are expensive and billion-dollar corporations are the only ones who see real results. Even more, the social media site confirmed they would be dropping the feature as of early April due to consumer complaints that it violates user privacy.

Facebook responded to these downfalls by making its standard ad system more comprehensive. As of last month, standard ads are divided into three levels that allow companies to create campaigns, customize the audience through ad sets, and place as many ads in each ad set as they want. They hope to accommodate smaller companies that depend on affordable advertising while still making significant profits off of its larger commercial customers that invest thousands of dollars into sponsored story placement.

Google It

True to its brand, Google’s sponsored ads are dynamic, effective and cater to the individual needs of their users. Clients have two distinct options: advertise on Google or advertise for Google. The first option allows people to create their own ad, choose their keywords and buy ad space on the directly on the search engine’s site.  Thus, when users search on Google using a predetermined keyword, the ad appears next to the search results directly positioned for viewers who have already shown interest in a relevant topic. The second option entails pasting ad code on a company’s website. Some people prefer this method primarily because it allows them to choose the ad placement. Having an ad linked to Google and empowered with ad words automatically generates a higher traffic rate to that site. However, this method often turns into a bidding war considering that the highest paying ad is the one that gets displayed. Google keeps the peace by acting as a third party agency that collects payment from advertisers and compensating companies that post these ads. Both options drive traffic to a site, but the latter is less obvious in its approach.

Yahoo!: Falling Behind

Although Yahoo! made it to the top three grossing sites in display ads, companies may want to think seriously before paying high dollar to market through them. Yahoo! trails Facebook and Google significantly in revenue, primarily due to its inability to adapt. Their display ads function similarly to Google’s in the sense that the highest bidder wins the placement. While advertisers are likely to spend good money for prime display space, Yahoo’s resources aren’t focused on catapulting sponsored ads. Under new management, their sights have been set on mobile optimization and creating new applications to expand their viewership. Display-ad revenue saw a 56% drop between the third and fourth quarter last year meaning the search engine site went an entire year without experiencing any growth (WSJ.com, 2014). Needless to say, in terms of profit generation, running ads through them could be a waste of valuable funds.

Whether or not a sponsored advertisement is worth the investment goes much further than what it will cost to run the ad. Companies should do their research before running paid campaigns on any given site. Traffic changes with trends and a site’s features must adapt to the evolving market to be lucrative. More importantly, businesses should focus on having a strong market strategy and following a regimented campaign plan. Sponsored advertisements can then be used to supplement their efforts in a cost-effective fashion.

Madrivo

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Madrivo

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