The Economics of the Online Advertising Industry

David S. Evans
Review of Network Economics

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cites Just a Click Away on 6/3/2019, 3:49:21 PM

excerpt Three radical innovations, however, distinguish online from off-line advertising. The first has transformed the service obtained by the advertiser: the Internet provides a highly efficient mechanism for delivering ads to individual users and collecting information for targeting ads to those users. The second has transformed the process of buying and selling advertising space: the Internet has enabled the development of more efficient intermediation markets for advertising – the keyword bidding system used for search and contextual advertising is the most mature example. The third is leading to economies of specialization: traditional publishers provide content for attracting viewers and sell advertising space to advertisers; online publishers are increasingly turning the selling of advertising space over to specialized advertising platforms such as Google or advertisingcom. 363 on 6/3/2019, 3:51:25 PM

cites Hybrid Advertising Auctions on 6/3/2019, 4:01:50 PM

tag-as important on 6/3/2019, 4:04:31 PM

excerpt Platform set-up costs discourage smaller advertisers from joining smaller platforms. 373 on 6/3/2019, 4:07:13 PM

excerpt Like all sellers and buyers, publishers and advertisers require ways to identify optimal trading opportunities and to establish transaction prices. There are two major ways that this “intermediation” occurs. First, it can occur directly through bilateral exchanges between publishers and advertisers. eBay, for example, may sell Nokia the right to present an advertisement in a particular spot to viewers with specific characteristics by having its sales agents deal directly with Nokia’s buying agents. Second, it can occur indirectly through multilateral exchanges between publishers and advertisers using advertising networks. Hearst Publishing may sell ValueClick – an advertising network – advertising inventory from its various online newspaper and magazine properties. ValueClick may then sell advertisers access to particular kinds of viewers by pooling relevant advertising inventory from Hearst and other publishers. In this case, the advertiser buys access to a type of viewer – for example “fashion conscious young women in upscale locations” – but is not necessarily guaranteed that it will reach these women on Hearst’s Cosmopolitan website. 381 on 6/3/2019, 4:11:18 PM

excerpt The extent to which advertisers and publishers use direct and indirect methods of distribution for advertising varies. Smaller publishers and advertisers typically rely only on indirect methods because it is not economical to carry the cost of salespeople and purchasing agents. Larger publishers and advertisers – which account for the preponderance of online display advertising sales – often use both direct and indirect methods. Larger publishers use direct methods to sell their premium space – such as the space on the first web page and high quality space on some of the interior web pages – and this space is then said to be “reserved” for an advertiser. They also use indirect methods to lower quality space such as the bottom space on interior pages, or advertising inventory that has not been reserved either because there was an unexpected spike in viewership which increased the supply of inventory, or because they did not sell all of their advertising inventory at the prices sought in direct sales. 381 on 6/3/2019, 4:12:15 PM

excerpt Several factors suggest that there would be stronger forces leading to the emergence of a single advertising platform than has been the case for financial exchanges. First, behavioral targeting requires the use of historical information on consumers often pulled from their past behavior as observed by the advertising platform. Larger platforms could secure advantages that would be hard for smaller platforms to replicate. Second, behavioral targeting may have some of the long-tail effects that have given large search platforms advantages. As the supply and demand is sliced more finely, larger platforms have thicker markets in every niche. Third, effective behavioral targeting is likely to require significant technical advances as well significant computer capacity. 387 on 6/3/2019, 4:15:55 PM


The Online Advertising Industry: Economics, Evolution, and Privacy cites The Economics of the Online Advertising Industry on 6/3/2019, 3:48:45 PM