CHAPTER 1 - INTRODUCTION

1.1	Definition of Terms
The following is the list of some of the terms used in this paper, which need to be understood in order to follow the paper:
•	Internet - this is the number of computers connected together for the initial purpose of exchanging and sharing information. Also, such terms as Internet, Net, and Web mean the same thing in this project.
•	WWW – these three letters stand for World Wide Web. In practice, the WWW is a number of interconnected documents that are composed altogether and is called web page or website.
•	Search engine – a powerful database, where users of the Internet can find different documents using the keywords in the search system.
•	Banners – banners are known to be small images of different size on web pages containing advertisements in a form of pictures and/or text. 

1.2	The Hypothesis
The purpose of this project is to show that there are advantages in advertising on the Internet and that is has potential and promising future.

1.3	The Methodology
The title of this project is “Advertising on the Internet.” This project will start with few sections for Internet history, how it is organised and statistical data. Then there is going to be brief discussion of the worlds famous companies such as Microsoft, Hotmail, Yahoo and others that made their business on the Net. So that those examples will show companies that have become some of the world most famous either by innovations, inventing things no body ever thought about and most importantly companies grown so called endogenously – grown out of nothing. Thus, these examples will help in supporting the hypothesis of this project, which is to show that on-line advertising has a future. Then, the paper will smoothly proceed to the core of the topic discussing what online-advertising is, what its differences from the classical one are, what its advantages and disadvantages are. And, then, towards the conclusion of the paper there is going to be shown some secondary research facts and then an implementation of the primary research findings that will be conducted. Finally, the conclusion will be drawn, under what circumstances there is the potential for online advertising.

1.4	History of the Internet
So what is the Internet? In simple terms, this is the number of computers connected together for the initial purpose of exchanging and sharing educational information. The history of the Internet began in 1969, when Advanced Research Agency (A.R.P.A.) went online connecting four major U.S. Universities. That network was initially designed for education, research and governmental organisations. Additionally, though, it was made for linking the country in case when a military attack would destroy the communication systems. Through the 70s, this network started to grow being known as Internet. In 1972, electronic mail was introduced. In 1973, the so-called TCP/IP protocol was designed, which has become the standard for communicating between computers over the Internet. Through the 90s, there has been a rapid growth of business organisations deciding to launch their sites on the Internet, as well as different non-profit and governmental organisations. In other words the Internet moved on to the stage of having its services for commercialisation in the early 1990s.

“The Internet is not owned or funded by any one institution, organisation, or government. It doesn’t have a CEO, and it’s not a commercial service. The Internet is however directed by the Internet Society (ISOC), which is composed of volunteers.” 

The book called “Understanding Business on the Internet” gives an introduction to the Internet by informing readers about the ten things they can do on the Internet. “Ask questions of unknown experts; e-mail the White House; buy a book; find out about company products; transfer software updates; search the library of Congress; read summaries of management research reports; look at the Mona Lisa; find out the Budget details; follow a training course.” Of course these ten things are just the general hints, whereas indeed, nowadays, on the Internet you can do roughly everything one can imagine. At the first sight, Internet seems to be a perfect solution for future communications, businesses, marketing, advertising, data storing, and so on, but it’s got its disadvantages as well. Some of the disadvantages today are that it is time consuming, it usually threatens users with information overload, and it can be slow.

1.5 Growth through Time/Life-Cycle
So let’s move on and see a bit of a numbers, how the Net has been actually growing. In 1998, there were approximately 70 million people using Internet all around the globe. For instance, in the United States, there were 13% households out of the entire population of US officially using Internet, not taking into consideration students using it from their institutions, people visiting web-cafes, Internet-clubs, or employees using internet primarily from their working places, etc. During the year of 1996, the number of registered commercial sites on the Internet increased by more then 500%. The Internet is accessible from more then 100 countries. The growing rate of people using the Internet is very high and still keeps growing rapidly; for instance, today; there are from 10 to 20 thousands of new people each month. It  should  be  mentioned  that  a  lot  of people
Actually get to know Internet by starting using e-mail. Lots of businessmen, students, housewives and other people find email very efficient and very  useful.  Here	
		you can take a look at some of the opinions of business people. “My initial activity has been to correspond with friends and ex-colleagues who are not within easy reach.” “Whenever I have placed a request for help on one of the newsgroups I have usually had the correct answer within twenty-four hours.” “I am using e-mail to swap data between the various companies in our group. We  are  an  interna-	
Table 1.1 Number of people with Internet access at various times		
Year	Number of People		
1 1970
2 1980
3 1990
4 1993
5 1995
6 1998
7  2000	400
3000
100,000
3,000,000
24,000,000
68,000,000
150,000,000		
Source: Web Advertising and Marketing;  pg. 4, 1998-99		
		
tional company. Using a mail box means we are now tied to any routine or physical presence.” “I joined primarily to

Figure 1.1 Life-cycle of people with Internet access

be able to send electronic mail to my daughter at university.” That is how different people find e-mail usefulness and more importantly, as already mentioned efficiency. From the Table 1.1 it is shown that from 1970 to 2000 there has been the increase of people having an access to the Internet from 400 people (1970) to 150,000,000 people. Also, on the Figure 1.1, the life cycle of people with Internet access shown. The graph shows that the life cycle of people with Internet access is still on growth stage.

1.6 Some of the Real Life Examples

1.6.1 Microsoft Corporation
Nowadays, it is difficult to find a person in a well-developed country who doesn’t know what Microsoft is. Dating back to 1975, the mission statement of Microsoft was to create software for the personal computer that empowers and enriches people in the workplace, at school and at home. Its early vision was computer on every desk and in every home. These are the vision and mission statements of 70s; basically, the success of the company was due to the detailed study of the market and the entrepreneurial policy of the CEO - Bill Gates. Bill Gates uses one very simple rule: “Freedom to Innovate.” He wants his workers to sit and dream, innovate, to come up with new ideas, to always try something; he doesn’t want standardised and routine work. Today as a result of the latest challenge, which is the Internet, the company goes not only by software, but also by latest Internet-related technologies. The company has obviously the strongest competitive advantage comparing it to Microsoft’s competitors. US Government sets different regulations to prevent the company from gaining too large market share. Although there are law suits against Microsoft, the company has nothing that it makes customers unhappy, rather, Microsoft claims that customers are happy but competitors aren’t. This associates with what Michael Porter said in one of his videos “Do it or your competitors will do it for you.” This is exactly what happens on the Net now meaning that there are so many opportunities not taken now that every person can find a way to earn money sitting at home. Today the term “Virtual Organisation” is very popular, and nobody will think that one is crazy if he/she says that his or her office is on the Internet. Another example of the co-called virtual organisation is Hotmail. Hotmail is a free-of-charge service that provides everyone with free e-mail account; it is called a “virtual post-office.” In fact, these days, there are a lot of services like that, but the Hotmail was one of the first ones that invented such a service. At first sight, one may ask, what is the point in providing free e-mail accounts? But, here, the only answer is advertising. The way that Hotmail survives is by showing advertising messages while people check/compose/send their e-mails. Upon the creation of this virtual organisation, they didn’t make enough money; they simply had fair profit to keep going. But, in 1998 Microsoft Corporation bought the Hotmail. The point here is: what is the difference between Microsoft and Hotmail? Microsoft is a world leading software providers since 70s and Hotmail is a free-web-based e-mail founded in early 90s. These two organisations cannot be compared. But, from being nothing in early 90s, Hotmail Company worth over $50 mil in late 90s. That’s where Microsoft’s CEO foresee opportunity for the future potential and buys it.

1.6.2 Yahoo!
Another example of the company, which turned to tens of millions of dollars in assets from being nothing, is Yahoo. Here’s the story starts from two students, Ph.D. candidates in Electrical Engineering at Stanford University, who decided to get all of their favourite addresses of the Internet web-pages together and make a list of them so that they could keep track on them easily. Further, they found that their list was getting too long, and they decided to get it all together as a database web page and publish it on-line. During 1994 they converted Yahoo into customised database designed to serve the needs of the thousands of users who began to use the service. In early 1995, co-founder of famous Netscape Communications (competitor of Microsoft) invited them to locate their computers at Netscape house. Right now, it’s over tens of millions of dollars in assets offering such service as Internet gateway, free web-based email account, cyber clubs, e-mail and name directories, local directories, news, and others. 

1.6.3 ICQ
ICQ, these three letters, which mean “I Seek You” (ICQ),	
meant nothing back in late 1996; whereas now, it’s a necessity for most of the Internet ICQ users as a chat/communication software. On the Image 1.1 you can clearly see the increasing number of users from December 1996 to December 1998. Basically, in two years the company attracted 30,000,000 users. That of	
Image 1.1
	
course would never have been possible if the company had not used the right marketing and smart advertising campaign. On the left-vertical axis you see the number of subscribers, and on the bottom-horizontal axis you see the time. Therefore, by looking at the curve you can imagine how many users this Israeli company gained. One more thing that should be added regarding this company is that it is being run by 4 people the oldest of whom is only 27, and youngest is 24.	

1.6.4 Tripod Inc
Tripod Inc is nowadays wellknown name. This project was organised by 27-year-old entrepreneur, which he recently sold for $58 mil. One can be sure that just by looking at the amount of money that Internet projects cost makes us think a lot about it. Tripod is just a provider of free web-space for users who want to create their own home pages for free. The secret of the company is very simple. The Tripod service gets famous by providing free hosting for web pages. Then, when their service is very famous on the Internet, commercial servers and organisations are willing to show their advertising messages, or simply banners, on those pages. In other words if one creates my personal page on their server, they have rights to show their banners on one’s page. That is the agreement upon the creation of account. So, advertising is where most of the profits are coming from talking of Tripod.

1.6.5 Other Miscellaneous Data
There are also some of the facts that are published on Internet Industry News. According to the research of Edison Media Research & Arbition Co., about 13% of the entire population of the United States of America listen to the radio on-line. About 7 months ago this number was just 6%. So, roughly saying, in about 7 months, the listeners of the radio online (i.e. on the Internet or while on the Internet) have doubled. Another interesting finding was reported by International Data Corp.; according to their research, financial organisations of USA, who are willing to maintain their current market share and expand it more, are trying their strength on the Net. Victorias Secret reported another interesting fact. As a result of their show of underwear, traffic to their site was increased by 3 in a week-time.

These were some of the real life examples, which certainly is a good prove that Internet is a big opportunity for potential young businessmen. As to this project, these facts are support to what this project is going to inform, prove, and argue for.

On the Table 1.2 you can see the growing number of sites connected to the Internet. From June 1993 to March 1997 the number of sites increased from 135 to 700,000 sites. Figure 1.2 proves that the life cycle of sites connected to the Internet is still on growing stage.			
	Table 1.2 Sites connected to the Web	
	Date	Number of sites	
	1 June 1993
2 September 1993
3 October 1993
4 March 1994
5 June 1994
6 November 1994
7 March 1995
8 March 1996
9 March 1997	135
597
630
1,800
4,000
12,000
24,000
250,000
700,000	
	Source: Web Advertising and Marketing;  pg. 11, 1998-99	

Figure 1.2 Life cycle of sites connected to the Internet

CHAPTER 2 - ADVERTISING ON THE INTERNET

2.1 The Popularity of on-line Advertising
The Internet became a very valuable, efficient and promising means of advertising and marketing as it has grown and became known. A lot of opportunities were found on the Web; and now, successful business people know that it is wise and important to observe as well as learn from the experience and mistakes of others made on the Internet. “Marketing in the Internet is a work in progress…,” says the article in the Megmag-Online magazine. Really, unlike the regular classic marketing, in the virtual world there are no set standards, strict rules and regulations, that’s what partly creates all the opportunities. In other words, entrepreneurs can find plenty of opportunities in the Internet using their ideas for innovation as well as things they aren’t allowed to do in the classic business world. Then, the Internet has created a true global market, this means that there’s a chance to target people all over the world, not only local market; this also means that there are no national borders technically, for marketing, targeting the audience of the company. Bill Gates, the President of Microsoft says: “The Internet is the first medium that allows anyone with reasonably inexpensive equipment to publish to a white audience… It is the first medium that distributes information globally at almost no marginal cost.” Here it is important to mention the implementation that has to do with the proper targeting of the audience; in other words, selective targeting should be used instead of extensive. Otherwise, the whole thing of the Internet marketing or/and advertising maybe worth nothing and will fail; but this is a subject that will be discussed in details later on in this paper.

2.2 The Concept of Internet Advertising
What is Internet advertising like? There is a lot of ways to advertise in the Net, but there are some standardised and perfect ways which barely can be replaced with anything else, unless of course something new comes up in the future. The advertising is organised by different advertising agencies. Let us see the policy of these agencies and the way of earning money. The structure of advertising business on the Internet is very simple, much simpler then the classic one. The businesses apply to advertising agencies asking for such services as to design banners, target the right market, conduct a market research, maintain the specified number of hits to the page per day and more. The number of hits is the most popular and profitable service. Thus, let’s consider the situation of a virtual shop which seeks let’s say 200 hits to his page per day (i.e. 200 hits is 200 visits to the page).

2.3 Ways to Advertise: Banners
One of the most popular and efficient ways to advertise is banners. Banners are known to be some small boxes placed either on top or in the middle or the end of the page containing the message to the potential customers. There are three different commonly known standards of banners (measured in pixels, i.e. points on the display) - a). 468 x 60; b). 88 x 63; c). 81 x 31. In the Image 2.1 you can see some of the examples of the actual banners and see what it actually is. For a). and b). kinds of banners, there’s an exception - they can appear everywhere on the page, in any place you can imagine.

Image 2.1

a). 468 x 60	

b).  88 x 63