Advertising Business Model and How it Works

When starting a business, you need to identify a problem in the market and develop a solution to it. The solution is the aspect that helps you to generate some revenues. With rising entrepreneurship desires, many people are launching businesses. These businesses are operating either online or offline.

As each of them tries establishing a brand name, a need for marketing is becoming a new business opportunity. Every entrepreneur is trying to reach more audiences than their competitors and turn them into customers. There are many ways of realizing this goal and one of them is advertising. But what is an advertising business model?

In this article, we cover the advertising business model. This includes the meaning of the model, how it works as well as pros and cons of using this model. Therefore, please keep reading this article to understand more about this model.

What is Advertising Business Model?

Advertising is among the oldest business models. From olden times, business owners have been promoting their business by placing ads on radio, TV, newspaper, and street banners as well as billboards. With the rise of the internet, advertising is now a business model that many people can now invest in.

A simple definition of an advertising model is an approach that involves the creation of attractive content that people can watch or read and placing ads next to it. Your advertisers pay for the ads displayed while the viewers or readers may access the content free or pay some sum subscription fee. You can be the content creator or allow users to create and post free content.

Related:  Franchise Business Model and How It Works

How Does Advertising Business Model Work?

As per definition, advertising requires drawing a large audience who have an interest in your content. With the large traffic, you display ads alongside the content where viewers and readers can view it. The advertising model involves some parties that include the platform owner, advertisers, users/content creators, and readers/viewers.

The platform owners are entrepreneurs. They provide a space for advertisers to promote their business by creating a pool of audience. The platform owners can achieve this by having valuable content that meets the need of different audiences. When a person reads or watches the ads and takes the requested action, the advertisers pay some fee to the platform owner. This approach is known as Pay-per-Click (PPC) in the digital arena.

Users are people using the platform or website to achieve a given goal. Maybe they are reading some information, watching a video, or reviewing the current news. Some advertising model entrepreneurs allow users to develop content. They have a chance to upload posts and videos for their fellows to watch or read. This way, the owners enhance their audience base which is a crucial aspect of the advertising model.

Advertisers are business owners seeking to promote and market their products. They pay a fee to the platform owner to display ads to their audience. Advertisers generate leads through clicks they receive from the platform audience. Hence, it enables them to boost sales with little investment in ads.

Example of Advertising Business Model

Ranging from online newspapers to social media, there are many examples of businesses using the advertising business model to generate revenue. Any online venture or website offering an advertising space is applying a kind of this model.

Related:  Attention Merchant Business Model

A good example of a business using this approach is Google. As the largest search engine, google generate massive revenue through ads. Advertisers have a chance to learn an advertising campaign where Google displays its ads through its network sites. Advertisers can pay to have their content appearing above others on the search results.

Also, google runs YouTube where users have a chance to create content. Google displays ads when viewers watch videos on YouTube. Other examples are the New York Times and CBS which are online newspapers offering advertisement services.   

Pros and Cons of Advertising Business Model

Like any other model, the advertising business model is not immune. It comes with a bundle of both pros and cons. Here are some of them:

Pros

Simple to start

Learning an advertisement business is not hard. You, basically, do not need to invest a lot of investment. For you to start generating revenue, all you need is to create a pool of audience. In order to generate revenue with this model is to generate valuable contents that will attract large traffic to your website. So, unlike other businesses, you do not need to search or create products, wait for orders, and spend a huge shipping cost.

Easy to scale

In this model, your earnings rely on your efforts. To scale up your business by enhancing your traffic level is very easy. When your website or platform gets new viewers, your revenue goes up. The secret of doing this is producing quality and on-demand content. This way, you can grow your revenue to as high as you want.

Related:  Software as a Service Business Model (SaaS)

Freedom to work with any brand

In advertising, you do not limit the brands you will work with within your business. You can choose to work with A or B depending on your goals and desires. Also, you do not have a limitation on whose ads you can display and the ones you can’t. This freedom is crucial in enhancing your business growth and expansion.

Cons

Low returns

One of the shortfalls of this model is low returns. As you know, your income relies on the number of clicks an advertiser receives. Some viewers or readers may see the displayed ads and leave the site without clicking them. This aspect means that you won’t receive payment for the view.

Require strong following

Traffic is the determiner of your earnings and charges. The stronger and higher your following is, the more chances of making high returns and charging extra dollars. So, you require time to build a strong audience to benefit from your venture.

Conclusion

In a word, the advertising business model is easy to practice for any website owner. You can use it as your sole or additional revenue stream. All you need is to offer ad space to different brands and charge them some fee. Also, you do not have to create content or pay creators. Rather, you can allow users to create content and publish it for free like the way YouTube and social media platforms operate. 

Scroll to Top