PAID SEARCH

PAID SEARCH - RHS

PAID SEARCH - FEATURED

IN THE 1990s, STANFORD STUDENTS SERGEY BRIN AND LARRY PAGE DEVELOPED A SEARCH ALGORITHM

THEY TRIED TO SELL THEIR SEARCH ALGORITHM TO YAHOO FOR $ 1 MILLION Source: Hal Varian’s Berkeley Lecture on Search Economics

THEY FOUNDED GOOGLE IN 1998 AND WENT PUBLIC IN 2004

AROUND TEN YEARS AGO THERE WERE MANY SEARCH ENGINES

TODAY, THERE ARE EFFECITVELY 5 PRIMARY SEARCH PROVIDERS comScore April 2008 Search Engine Rankings

AND 3 PAID SEARCH PROVIDERS Based on June 2008 Covaris numbers reported at mediapost (msn is inferred)

PAY PER CLICK MODEL $0.25 x clicks = $2500 $1.00 x 2500 clicks = $2500 $10.00 x 250 clicks = $2500

GOOGLE’S ORGANIC SEARCH GOAL IS USER SATISFACTION

GOOGLE’S PAID SEARCH GOAL IS USER SATISFACTION ADVERTISER SATISFACTION MAXIMUM PROFITABILITY

PAY PER CLICK MODEL $0.25 x clicks = $2500 $1.00 x 2500 clicks = $2500 $10.00 x 250 clicks = $2500

WHY AD POSITION MATTERS – EYE TRACKING Source: Jan Pederson’s Search Quality Presentation at Berkeley (2007)

PPC - BIDDING ashtonsd90.com bids $1.38 ritzcamera.com bids $1.17 shopcartusa.com bids $3.23

ashtonsd90.com bids $1.38

ritzcamera.com bids $1.17

shopcartusa.com bids $3.23

HOW RELEVANT IS THE LANDING PAGE AND AD?

RANK THEM ashtonsd90.com bids $1.38 ritzcamera.com bids $1.17 shopcartusa.com bids $3.23

NORMAL AUCTION ashtonsd90.com bids $1.38, ranks 2 nd and pays $1.38 ritzcamera.com bids $1.17, ranks 3 rd and pays $1.17 shopcartusa.com bids $3.23, ranks 1 st and pays $3.23

VICKREY AUCTION (VCG) ashtonsd90.com bids $1.38, ranks 2 nd and pays $1.17 ritzcamera.com bids $1.17, ranks 3 rd and pays ??? shopcartusa.com bids $3.23, ranks 1 st and pays $1.38

GOOGLE AND YAHOO USE A GENERALIZED SECOND PRICE (GSP) AUCTION Google’s customers are ranked based on a quality score * their bid and pay slightly more than the next ranked bidder not exceeding their maximum bid. PRICE AND RANKING ARE RECALCULATED EACH QUERY

AD RANK = BID x QUALITY SCORE (QS) ashtonsd90.com 1.38 x 4 = 5.52 ritzcamera.com 1.17 x 6 = 7.02 shopcartusa.com 3.23 x 1 = 3.23

HYPOTHESIZED PRICE = NextPlace(AR) / QS +.01 ashtonsd90.com 1.38 x 4 = 5.52 pays 3.23/4 =.82 ritzcamera.com 1.17 x 6 = 7.02 pays 5.52/6 =.93 shopcartusa.com 3.23 x 1 = 3.23 pays minimum.05

HOW MUCH WOULD NIKON HAVE TO PAY FOR NUMBER 1? HYPOTHESIZED PRICE = NextPlace(AR) / QS +.01 CompanyBidQSAR Ashtonsd90?4 Ritzcamera Shopcartusa

GOOGLE SYNDICATES ITS ADS TO PARTNER SITES

GOOGLE SYNDICATES ITS ADS VIA ADSENSE

A FEW ADSENSE SITES GENERATE GOOD REVENUE As compiled on mindofmichael.com

ADSENSE PARTICIPANTS AGREE NOT TO DO BAD THINGS

CLICKFRAUD

PAID SEARCH IS SANDBOXED FROM ORGANIC

WHEN I CLICK HERE, I DON’T CLICK HERE

PHOTO ATTRIBUTIONS Slide 37: 'Happy Kids NEED A Healthy Sandbox‘