Introduction - Part 2 - Short and Long Cycle Experiments - Driving Digital Innovation Through Experimentation - Edx-2

10/16/2020 QD601x Courseware | edX
Digital Publishing and Online Advertising

There are two types of advertising online. Here we give an overview of each:
1. Sponsored Search
Sponsored Search ads appear on Google and similar search services. When you enter a
query, Google identi es keywords in the query. Advertisers bid to display ads on the
result page for the query. You can see examples of such ads at the top of the following
image:
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This illustration uses the example of a rare kind of cancer caused by asbestos. Ads of
this type are often among the most expensive, because people who search for such
terms tend to have the disease and may be seeking to sue as a consequence. The
advertisers are typically law rms seeking new clients.
Traditionally these are text-based ads, although Google now includes pictures on
certain types of sponsored search ads -- speci cally those that are very product
focused and where the searcher is likely trying to buy a particular product (for example
a 65” Samsung TV).
Whenever you enter a search term into Google, before displaying the page, Google
clears an automated auction for which ads should be displayed in each of the “slots”
available on the result page. The slots are ranked from highest to lowest, and the
highest bidding advertiser wins the top slot, the second highest the second slot and so
on. Advertisers on the Google platform must decide what keywords they are going to
bid on, and how much they are willing to pay. Winners do not pay for their ad to be
displayed. They only pay if their ad is clicked upon. So bids are properly interpreted as
a “cost per click.”
Instead of a standard “English Auction,” Google employs what is called a “Generalized

Second Price Auction.” In this format, each winner does NOT pay what she bids.
Instead she pays the bid of the winner of the next splot below her own. This payment
scheme improves the stability and incentives of the auction. While some incentive to
manipulate your bid away from your true willingness to pay remains, it is modest. Most
bidders can reasonably bid something close to their true value in order to win in a
given auction. Of course, there are many possible auctions one might choose to
participate in instead, e.g. at di erent times, or on other keywords. Moreover, bidders
are typically budget constrained in their bidding. So auctual bidding strategies are
quite complex, and Google includes tools to help bidders manage their campaigns and
campaign capital e ectively.
One detail that is worth noting is that Google adjusts bids by a “quality” measure that
they calculate internally. While the exact formula used to de ne quality has not been
made public, you can think of it as a “click through probability” on the ad. Google
argues that this priorities ads that users want to click on, because they nd the content
useful, and that this is good for users. It is also important to note, though, that this
tweak is also revenue optimal for Google.
This multi-billion dollar market is hugely important, and the subject of much
experimentation, both on the part of the platform provider (e.g. Google) and the
advertisers as well as third party rms they partner with or hire.
2. Display Advertising
Most commercial sites on the internet outside of the search engines have what is
called “display advertising.” For these, the publisher reserves portions of their pages
as “slots” for ads. These slots are typically lled with visual images, and sometimes
(especially on lower quality sites) include audio or video too.
For example, in the screenshot below, there are two display ads, one at the top and
one at the side. Note that both of the ads are for the same rm, and this is often the
case in the display ad market. Advertisers sometimes like to blanket the user
experience with their brand, by buying all the slots associated with a single user view.
Occasionally, ads of this type even include interactive features, like forms to ll out or
buttons to click. These are technically more di cult to implement, but can be e ective.
For example, at election time candidates will sometimes run ads that o er to help you
nd your local polling place by typing your address directly into the ad. This type of
content is also of the “display” type but requires speci c coding, and thus is far more
sophisticated than the typical case.
The display ad market is large and complex. High quality sites, such as the New York
Times, can sell their own ads directly, given their broad readership and brand.
Smaller publishers, though, often don’t nd it e cient to sell their own advertising
space. Instead they opt to sell this space through a clearing platform of display ad
inventory. Several such platforms exist, and are run by companies such as Google and
Microsoft. These platforms match an individual ad slot from a given publisher to an
inventory of ads that need to be displayed. The match is typically based on
demographics and various user attributes, as well as price. There are many publishers
and there many rms wishing to advertise, so the platforms are supporting a many-to-
many market. In order to help rms handle the complexity of the market, and in order
to gain additional pricing power, “aggregator” rms have been established to
consolidate both supply and demand. Consequently, many publishers will sell their
inventory through the same aggregator; many advertisers will purchase slots through
an aggregator.
It is important to note, that in this (and the next) section we are primarily focused on
the publisher side of the digital marketing ecosystem. But the experimental capability
we discuss is just as applicable to the demand (advertiser) side of the market, not to
mention entirely di erent industries as well.
The following video will recap what we have just covered about the two types of online
advertising. It will then go on to discuss key decisions that need to be made in order to
be successful in creating an online publishing site.
Digital Publishing & Online Advertising

Start of transcript. Skip to
the end.

 BEN LUBIN: Broadly, there

are two types of advertising
online
- sponsored search and
display advertising.
Let me say something about
each.
First, sponsored search--
these are ads that show up
on Google and similar
search services.
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10/16/2020 QD601x Courseware | edX

Digital Publishing and Online Advertising

Instead of a standard “English Auction,” Google employs what is called a “Generalized

Digital Publishing & Online Advertising

 BEN LUBIN: Broadly, there

 0:00 / 0:00  1.0x    

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