ads, auctions and markets: a proposal

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Ads make the web go round. US internet advertisement expenditure is expected to surpass $21 billions in 2007, while the share of web ads in the UK is already bigger than ad spending in radio and newspapers. More specifically, adwords (+adsense) is maybe the single reason behind growth and sustainability of the biggest business fairytale in our times, returning for example $2.6 (+$1.0) billions in 2006Q3 alone.

Textual ads are auction powered. Speaking of Google, let me repeat the well-known process (which is valid with some variations also in Yahoo&#8217-s Search Engine Marketing and Microsoft&#8217-s ad center -forgive my partial knowledge). Each time you view or click on an ad link, the advertiser rewards the site owner for the use of her screen real estate and the redirection of your attention span. More accessible real estate costs a lot, as the more the advertisers pay the higher their ad is ranked and exposing their message to more visitors. Ad ranking occurs mainly from a dynamic Vickrey auction model, namely cost-per-click bids is the most influential factor defining your ads rank. But, to my eyes, the system&#8217-s current status seems sub-optimal. From the ad platform engine&#8217-s perspective, earnings aren&#8217-t maximized, as the advertiser pays only for actual clicks and not for impressions. From the advertiser&#8217-s view, the ad&#8217-s impact is also sub-optimal, as high rank doesn&#8217-t guarantee more visitors, in the case of low ad relevancy to the user&#8217-s query and actual interests. Finally, and most importantly, the auction-based fundamental model doesn&#8217-t accumulate the collective intelligence of the previous visitors&#8217- behavior and probably results in a poor user experience. (Well, in practice, clickthrough rates are also evaluated and the adrank algorithm is much more complicated, but this doesn&#8217-t reduce the validity of comments on the fundamental choice of an auction model).

While the auction-based approach apparently works, let me propose a more simple, direct and transparent market-based variation. In such a case, the ad-space of the universe of all potential keywords combination consists a gigantic marketplace, while each keywords&#8217- combination will form a market in this marketplace. In each market, an advertiser&#8217-s submission triggers the creation of a stock, which is initially traded at the defined cost-per-click price. But this price is nothing but constant- it goes up each time a user clicks on the ad, or down each time a user clicks on a different ad (this second action could even be omitted). As a result, stock prices, therefore ad ranking, evolves dynamically to enhance previous visitors&#8217- choices and leverage the wisdom of crowds in forming an elegant user experience. Moreover, it maximizes engine&#8217-s gainings and advertisers&#8217- impact, while enables a fully trackable procedure for advantage of both the platform and its users.

I would like to stress my lack of extended or insiders&#8217- knowledge on the topic, but I&#8217-m more than eager to discover relevant attempts, or -even better- participate in some attempt to put this idea into reality.

cross-posted from my blog

One thought on “ads, auctions and markets: a proposal

  1. Chris. F. Masse said:

    It’s a great idea that I can’t assess. I am curious to hear what the search engine specialists will say. You should submit this idea to some of the SEO blogs. (Search Engine Land, etc.)

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