Digital advertising, or online advertising, is a form of marketing used by companies to promote the brand, product, or service through online channels.
Digital advertising refers to marketing through online channels, such as websites, streaming content, and more. Digital ads span media formats, including text, image, audio, and video. They can help you achieve a variety of business goals across the marketing funnel, ranging from brand awareness to customer engagement, to launching new products and driving repeat sales.
The field of digital advertising is relatively young, in comparison to traditional channels such as magazines, billboards, and direct mail. The evolution of advertising isn't just about what the ads look like or where they appear, but also the ways they're built, sold, and measured.
The primary differences between digital advertising and traditional advertising are flexibility and precision.
There are many reasons that digital ads are a crucial part of any business's marketing strategy. Maybe the most important one is that consumers are spending more and more time connected to the Internet through their computers, smartphones, and smart home devices. The average American has access to more than 10 connected devices in their household.1 Digital marketing allows you to meet audiences where they are.
People make decisions about the goods and services they buy at all times of the day, during all kinds of activities. With digital ads, you can reach audiences when they are browsing online for products to buy. Or you might reach them when they're streaming a TV show, visiting a favorite website, or using social media. Even if they don't choose to purchase from you in that moment, reaching them in these different contexts can help them remember your brand later on, when they're ready to purchase.
There are multiple types of advertising formats in digital marketing. These are some of the most common:
Social media ads appear in social media platforms, such as Twitter or LinkedIn.
There is no one answer to the question, "How do digital ads work?" With the wide variety of digital ad formats, you can find ads that are simple to create and publish, as well as ads that require more complex tools. There are also ad types for all levels of budget, with different pricing models and targeting methods.
Publishing digital ads
How digital ads are published is determined by the specific type of ad. With some ads, you can purchase advertising inventory—the space for ads on a given website, or publisher—directly from the publisher. For example, Sponsored Brands and Sponsored Products are ads that appear only on Amazon.
Digital ads can also be purchased programmatically. Programmatic advertising is the automated buying and selling of digital advertising inventory, including display advertising and video advertising. You can use a demand-side platform (DSP), which is software that automates purchasing and management of digital advertising inventory from multiple publishers. A supply-side platform or sell-side platform (SSP) is software used by publishers to automate the sale and management of their advertising inventory.
Cost of digital advertising
The cost of digital advertising also varies by format. A common type of pricing is cost-per-click (CPC), or pay-per-click (PPC), which is a pricing model where you pay each time someone clicks your ad. Another type is cost-per-mille (CPM), which means cost-per-thousand-impressions. This is a pricing model where you pay a certain amount for 1,000 impressions, or times your ad appears.
You might also pay using other models, such as paying each time your ad leads to a desired action (e.g., someone signs up for your email list or downloads your eBook). Because digital advertising can be measured in so many different ways—how often an ad appears, is clicked, leads to a sale, and more—pricing can be tailored to the intended function of the ad.
Targeting for digital ads
As mentioned above, digital advertising is much more precise than more traditional forms of advertising. There are a variety of ways that ads are matched with audiences, depending on the type of ad. Search ads are targeted to specific search terms. Ads can also be matched based on shopping signals, such as audiences who have purchased products related to yours, or indicated interest in the type of product you sell.
The result of this robust matching ability is that audiences can see ads that are more likely to be relevant for them. Reaching relevant audiences boosts the success of your digital ads, and keeps you from spending your marketing budget on serving ads to audiences who wouldn't be interested in your product or service.
Digital advertising metrics
Digital ads can be measured in almost every aspect of performance. To measure your digital advertising campaign, you might use these engagement metrics:
- Clicks: How many times your ad is clicked
- Impressions: How many times your ad appears
- Click-through rate (CTR): The percentage of impressions that result in a click
- Reach: How many viewers are shown your ad
- Video completion rate: How many times viewers who are shown your video ad watch the entire ad
The following metrics measure the results of your campaign:
- Conversion rate: How many times customers performed a desired action (click, purchase, subscription) after viewing your ad
- Ad-attributed sales: Purchases that can be traced back to your ad (attribution models vary by ad type and service)
- Return on ad spend (ROAS): How much revenue was generated by your ad campaign in relation to how much budget you spent
- Return on investment (ROI): How much net profit you earned from your ad campaign in relation to how much budget you spent
- Advertising cost of sales (ACOS): The ratio of ad spend to ad-attributed sales
- New-to-brand sales: How many purchases were made by customers who had never bought from you before
Digital advertising strategy can be complex, but there are a few key best practices you should start with: