How online advertising works? – Key components of digital marketing value chain

Online advertising value chain consists mainly of the following participants:

  1. Advertisers
  2. Publishers
  3. Ad Network
  4. Ad Agency
  5. Ad Exchanges
In the most basic form, Online Advertising value chain can be shown as follow:
Online Advertising Value Chain

Advertising Inventory

Advertising inventory is the actual product being sold in above advertising value chain. Advertising inventory is the number of advertisements or amount of ad space a publisher can make available to an advertiser. It mainly implies the supply of opportunities to display advertising in a digital medium. It comes in many forms and includes space website, RSS feeds, blogs, mobile applications, e-mails etc.

Publishers (Supply Side of ad value chain)

Publishers create advertising inventory by providing an opportunity to serve advertisements on their web sites, mobile apps and video games. Publishers sell their ad inventory to advertisers, their agencies and ad networks and thus lie at supply side of ad value chain. Publishers get ad revenue for selling their advertisement inventory. In the most Example includes publishers like Google, Yahoo and Microsoft search engines which create huge amounts of ad inventory that gets sold directly to advertisers and agencies.

Advertisers

Advertisers and their agencies seeks opportunities to display their advertisements and thus lie at demand side of value chain agencies. Publishers, ad networks and ad exchanges lie on the supply side of ad value chain.

Ad Agency

Ad Agency buys ad inventories on behalf of their client i.e advertisers. They plan media strategy on behalf of advertisers that will give maximum value to the advertiser.

Ad Networks
Ad network purchases ad space/ad inventories from publishers and aggregates these ad space/ad inventories in order to sell to advertisers. Ad networks make money by buying ad inventory at lower price and selling these inventories at higher price.
Small publishers are unable to sell their inventory due to lack of sales team and big publishers are unable to get appropriate value for their inventories which have some times very low value. Thus, small publishers often sell their entire inventory through ad networks. Ad networks provide a platform to these publishers for selling their inventories. Similarly large publishers often sell their remnant inventory through ad networks. Example – Google Adsense
Advertisers need to put advertisement for their products on various digital platforms. They put advertisements for brand marketing (raising general awareness) and direct response marketing (getting someone to actually buy something online now). Advertisers sell their advertisement to publishers and ad networks. Example in this case is Ad words which is the advertiser-facing side of the AdSense network.

Ad networks use a central ad server to deliver ads to consumers and also enables targeting, tracking and reporting of ad impressions.
Advertisements

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