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Online advertising - PowerPoint PPT Presentation


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Hal Varian Online advertising Online advertising Banner ads (Doubleclick) Standardized ad shapes with images Normally not related to content Context linked ads (Google AdSense) Related to content on page Search linked ads (Google Adwords) Related to search terms Search linked advertising

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online advertising
Online advertising
  • Banner ads (Doubleclick)
    • Standardized ad shapes with images
    • Normally not related to content
  • Context linked ads (Google AdSense)
    • Related to content on page
  • Search linked ads (Google Adwords)
    • Related to search terms
search linked advertising
Search linked advertising
  • Very good performance
  • Rapid growth but small part of market
    • Americans spend 14% of media time on Internet
    • Total US advertising: grow 8% to $265 billion in 2004
    • Online advertising: grow 25% to $9 billion
search linked advertising4
Search linked advertising
  • Highly effective since it reaches people when they are interested in a topic
  • Relevant, yet not obtrusive
  • Has expanded rapidly in last few years
  • Expectation of further growth…
how does google work
How does Google work?
  • Advertiser bids on search terms
    • Can use Traffic Estimator to see how many clicks they will get
  • Ordering
    • Overture: high bidder gets first position, 2nd highest bidder second position, and so on
    • Google: rank by bid x estimated CTR. Puts best ads on top of page.
aligning incentives
Aligning incentives
  • Google sells ad impressions (views)
  • Seller generally wants clicks and ultimately conversions (purchases)
    • Rank ads by how much advertisers are willing to bid for impressions:
    • Bid/click * clicks/impr = bid/impr
    • But may want too many impressions
    • Answer: disable if eCTR is too low
payment
Payment
  • Price you pay depends on bidder below you
    • Overture: pay bid of bidder below you
    • Google: pay minimum necessary to keep you above that person. (AdWords discounter)
  • Why not pay your actual bid?
    • Would then want to cut bid to just enough more than adv below you to keep your position
    • With discounter don’t need to constantly inspect bid landscape
vickrey auction
Vickrey auction
  • Similar in spirit to Vickrey auction
  • One item to sell, many bidders
    • English auction: person with highest value wins, pays price equal to second highest value+ bid increment
    • Vickrey auction: award to highest bidder, pays 2nd highest price
  • Always want to truthfully reveal your value in Vickrey auction
vickrey auction10
Vickrey auction
  • Payoff = (v – b2) Prob[b > b2]
    • If (v – b2) > 0, then want to make Prob as large as possible
    • If (v – b2) < 0, then want to make Prob as small as possible
    • Either way truthtelling is optimal
  • Ad auctions don’t quite have this property, but close…
mechanism design
Mechanism design
  • This is an example of an economic mechanism
    • Agents report messages to center
    • Center makes choices based on messages
    • Agents make payment to center based on messages and outcome of choices
  • Problem: incentive compatibility
    • Surprisingly enough, can be solved for wide variety of cases
    • Vickrey auction is relevant example
ads system from viewpoint of seller
Ads system from viewpoint of seller
  • Choose your creative text
    • Standardized size
    • Various optimization tips available
  • Choose your keywords
    • Exact, broad, phrase, negative keyword
    • Follow guidelines for content
  • Implement conversion tracking if desired
setting up ad cont
Setting up ad, cont.
  • Choose your maxCPC
    • Value of a click = prob of sale * profit per sale
    • Can you Traffic Estimator to see how many clicks you will get
    • Discounter will set actual CPC to minimum amount necessary to retain position
  • Set daily budget
  • Let ‘er rip
adsense program
AdSense Program
  • “Content ads”
    • Use keyword matching engine to pick ads related to content on page
    • Matching algorithm tweaking to deal with multiple content on page
    • Auction needs tweaking to deal with position
    • Generally lower CTRs, lower conversion performance, adjustments made in payment
technology
Technology
  • Engine to match ads to queries
    • Choose most relevant ads using various criteria (plurals, synonyms, etc.)
    • Returns up to 10 ads to show on a page
    • Promotion policy: depends on CTR performance and CPC
  • Auction engine
    • Ranks ads by CPM, records payment
factors affecting revenue
Factors affecting revenue

Revenue

Queries

Monetization(RPM)

( 1K )

=

x

Revenue

Clicks

Clicks

Queries

=

x

Revenue

Clicks

Queries w/ Ads

Queries

Ads

Queries w/ Ads

Clicks

Ads

x

x

x

=

=

x

CPC

Coverage

x

Depth

x

CTR per Ad

Quality

Price

Quantity

increasing revenue
Increasing revenue
  • Increase CPC
    • Create higher conversion prob for advertiser
    • Capture more value by increasing competition
  • Increasing coverage
    • Get more keywords
    • Match more broadly (affects CTR)
  • Increase depth
    • Get more advertisers, more ads
  • Increase CTR
    • Show more relevant ads
advertiser optimization
Advertiser optimization
  • Choose good creatives, follow tips
  • Determine your value per click
    • Can use Google’s conversion tracking
    • Or use your own tool
  • Maximum bid = maximum value per click
    • Shade down depending on competition
  • Minimums
    • Bid: 5 cents
    • CTR: around 1%
syndication network
Syndication network
  • Can syndicate search and/or ads
    • AOL = both
    • Ask Jeeves = ads only
    • Yahoo (formerly) = search only
    • MSN served by Overture/Yahoo
  • Negotiated revenue share with partners
    • Intensive bidding against Overture
competition
Competition
  • Search
    • Intensive competition to improve search
    • Hampered by attempts to manipulate algorithm
    • Entrant has an advantage!
  • Monetization
    • Size of ad network
    • Non-exclusive nature – a “media businesses”
    • Can partner in various ways, co-opetition issues
business challenges
Business challenges
  • Scale
    • Large, complex system: keeping it running and improving it is a challenge
  • Advertising guidelines
    • Detection and enforcement
    • Regulatory issues
  • Fraud
    • Credit card
    • Click fraud
  • Advertiser relations