Understanding How IP Addresses Work

Learn more about IP addresses and how they work, as well as how it is possible to target a consumer for digital advertising using an IP address.

Advancements in technology have changed the way that advertising is delivered and seen. Aside from traditional forms of media, ads can now be served to consumers through the Internet. Digital ads are quickly rising in popularity, as evidenced by the report released by the Interactive Advertising Bureau (IAB) which reveals that digital advertising spending in 2014 reached $49.5 billion in the United States. In addition, new figures from eMarketer project that digital ad spending in the U.S. will total $58.61 billion. One of the ways that advertisers target consumers is by IP targeting, wherein ads are served to a particular viewer based on his or her IP address.

Some of the important questions that people ask are:

  • Do IP addresses stay the same, or do they change?
  • If it’s the latter, how is it possible to target households using IP addresses?

How IP Addresses Work

In order to understand how IP addresses are assigned, you need to first understand Dynamic Host Configuration Protocol or DHCP. DHCP is a protocol for assigning dynamic IP addresses to devices on a network. (Webopedia) Simply put, this is the process used by an Internet Service Provider (ISP) to assign IP addresses to their users. There are 2 types of IP addresses: Static and Dynamic IP.

Static vs. Dynamic IPs

ISPs can either configure a user’s IP address to be static (an IP address that stays the same) or dynamic (IP address can change). Most businesses subscribe to Internet plans with static IP addresses. Normally, static IPs are something that you have to pay extra for, business owners do not mind the additional fees, especially if they utilize servers or Virtual Private Networks (VPN) that typically require the same IP addresses every day in order to function properly.

Casual Internet users, such as households, usually have dynamic IP addresses. In this case, your ISP assigns a non-static DHCP IP address which is received by your router; the assignment comes with a pre-defined time limit called a DHCP lease. The typical lease time for ISPs in the U.S. is 7 days; however, routers will usually renegotiate the lease before it expires. During the renegotiation, the same IP address is typically reassigned to your router. It is not uncommon for homes that have supposedly dynamic IPs to have the same IP address for months or years.

In addition, there are two different types of IP addresses on your computer, whether you are using it from your office or home:

  1. The public IP address (also known as gateway IP), is the IP address assigned to your router by your ISP. This is the IP address that communicates with the rest of the World Wide Web and is the one seen by the world.
  2. The internal IP address is assigned by your router to each connected device within the Local Area Network (LAN). This internal IP will help the devices within the LAN to communicate with each other and the router so that they can connect to the Internet. It’s important to note that while you may have many devices within your LAN, they will all share the same public IP address.

IP Address Targeting

IP targeting firms utilize proprietary technology in able to analyze, interpret, validate and categorize IP addresses in order to accurately target a household or building and serve them relevant ads. This way, advertisers are assured that their ads are seen by audiences who have the highest likelihood of converting.