By Akhil Raj Gupta,

Edited by Namrata Caleb, Senior Editor, The Indian Economist

At the outset, I would like to clarify that this is the first part of an intended two-article exposition on the complex world of online advertising. I will try to outline its unique features, vocabularies, metrics, and how it has come to represent a significant proportion of the ad spend mix in India (8% as per industry data), specifically in the backdrop of an explosion in the Indian internet user base. I am nowhere close to an authority on the subject but I have spent a considerable amount of time trying to understand the entire online advertising ecosystem in India and the tremendous opportunity lying therein.

First, the facts. Google and A.T. Kearney report that India has over 200 million subscribers actively engaging with the Internet, growing at a phenomenal pace of about 5 million subscribers a month. To put these numbers in perspective, India should overtake the U.S. in terms of active Internet subscribers within 8-12 months and we should have close to 500 million subscribers in the next four years. That is roughly equal to the audience coverage for television connections in India. To conclude, digital is already huge and it is growing fast (approximately 30% v/s 4-6% for other media consumption channels). Why should this be of any concern for marketers? Well, if the Internet is a great medium for viewing content, it is also an ideal target for ads! More specifically, Facebook’s 100 million user base in India provides a ready audience for companies wishing to advertise themselves on the platform through social media marketing. Other digital channels available and widely viewed include advertising on websites (banner ads), video content (YouTube, Vimeo, etc.) and mobile (again display and banner ads on mobile Internet and apps). How exactly would digital advertising differ from traditional advertising (via media like television, print ads, telemarketing campaigns, etc.) shall be the focus of my article. According to me, the three key dimensions across which these two formats differ are – 1. Customer reach 2. Measurability and ROI 3. Cost (and therefore access).

  1. Customer reach

–       Imagine you are the CMO of a global brand specializing in luxury bathroom sinks (a wasted luxury, in my opinion). Your team has been working overtime developing an innovative ad campaign for your soon-to-be launched aquarium-cum-bathroom sinks (I’ve always wanted one). You have a fairly comprehensive idea of your target audience, ranging from fancy middle-aged ladies living in South Delhi to fancy middle-aged ladies living in South Delhi. (because let’s face it, yours is a niche product.) You want to ensure maximum viewership from said target segment and you are absolutely clueless about how to go about doing it. An old fashioned CMO might adopt a shotgun approach (spray pellets in every direction and hope that a few hit) splitting his marketing budget evenly between TV ads, print ads, Yellow Pages, and a cold caller campaign. That’s great except you have literally no idea about how many people actually saw your ad and of that number, what proportion actually belonged to your target segment. Alternatively, you decide to pursue a 100% digital campaign split between advertising on websites, YouTube, and mobile. Using a simple programmatic media buying approach (fancy words for ‘a targeted advertisement process run by a computer’), your analytics dashboard immediately shows you how many of your ads were viewed by customers with demographic and behavioral traits similar to those of people in your target group, ensuring optimum utilization of the each advertising dollar. That’s the magic of digital advertising. The ability to deliver good quality content to the audience with the highest propensity to buy is significantly enhanced when the medium of delivery is the Internet. The specific strategies that one might use to achieve this sophisticated customer targeting will be the subject of the next piece.

  1. Measurability and ROI

–        Another key differentiator between digital ads and the rest is the ability to measure a specific ad campaign’s success rate (defined by metrics like the clickthrough rate or the bounce rate) and to modify ad campaigns accordingly. Imagine that your friendly neighborhood creative agency creates an ad campaign that is perfect in every way except the call to action (in the form of a phone number or a store address or a discount coupon) isn’t attracting enough attention. For ads released via traditional media it would be tough to estimate exactly how many incremental sign ups can be attributed to the specific campaign versus a digital analytics led strategy that could almost near precisely define a company’s CAC (customer acquisition cost, basically the total marketing spend divided by the number of incremental customers). Using these metrics, a CMO would be able to devise more effective strategies and measure the relevant return on investment generated from the advertising campaign.

  1. Cost

–       The final criteria across which we would evaluate digital media advertising v/s traditional forms of advertising is the cost structure involved with buying ad space online. Rajan Anandan, MD of Google India, declared in his fireside chat with Sir Martin Sorrell that only about 10,000 companies in India could afford to advertise on television. Compare that number to the mindboggling fact that 10,000 first time advertisers are pushing ad content on the Internet every quarter. There’s a reason for this. In the current landscape, cost structures of digital marketing campaigns are very flexible and designed as per almost any customer profile. For campaigns designed purely to maximize eyeballs, marketers may choose to opt for a cost-per-thousand impressions structure v/s a conventional cost per click (CPC) led pricing strategy (where you pay each time a customer clicks on your specific ad). Google goes one step further in determining the relevant CPC for a lead generated via its search engine page through algorithmic calculation of a quality index for your website. Compared to flat rates available for ad space on TVs or newspapers, it’s no wonder that small businesses form a massive part of Google or InMobi’s target audience.

It is hoped that the above discussion has served as a somewhat hopeful primer on an aspect of advertising that most of us talk about but have never really understood (Big data – another example). My intention is not to upsell digital advertising in any way. I understand that for a long time, a company’s digital strategy is essentially complementary to other components of its marketing budget. In the follow up piece we’ll delve deeper into the subject, talk further about some of the metrics that I have mentioned here, and also expand further on brand building v/s performance based advertising and the integral role that an Internet channel could play in both.

Akhil is currently in his final year at college, pursuing a Bachelor of Arts degree in Economics (Hons) at Sri Ram College of Commerce, University of Delhi. He has been passionate about writing since an early age and is currently involved with the official College magazine and Economics Department magazine at SRCC. His areas of interest include behavioural economics / finance, econometric analysis, macroeconomic policy, and political theory. He spends his free time reading extensively, watching interesting videos on YouTube, and trying to convince everybody around him that he really does know a thing or two about economics in the midst of all the pontification! He intends to wear the hat of a consultant soon and is trying his best to think strategically about everything. 

Posted by The Indian Economist | For the Curious Mind