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The Networked Economy (11):Information Management, Strategy, and InnovationSponsored Search

people & data | www.weigend.comAndreas S. Weigend, Ph.D. # people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 1

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 AgendaAdvertisingConsumer attention across media, ad spend across mediaBranding vs direct responseSponsored search: Keyword advertisingBusiness modelsMarket mechanism, for price discoveryTools for advertiser self-service (Panama, AdWords)YahooPanamaGoogleAdwordsGoogle checkoutGoogle# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 Why advertise??Goal: The right information at the right time to the right personConsumer surplusPeople will buy more stuff if they only know about it E.g., detergent for black clothes Connect sellers with prospective buyersValued based on effectiveness Monetize consumer services Consumer pays by attention # people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 4Advertising budgetsAll channels (US): USD 370 billion 3700Online (US): USD 10 billion100

Online segment small, but fastest growing 100

20052004# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 5Time spent with media vs advertising media mixPeople spend on average more than 30% of viewing time on internet 30%Younger people: Even more time on web, less on TV

yet companies spend only 4% of their ad budget online4%

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 Online advertising market sizeInternet advertising market in China (2004)2004Sina: USD 85M8500Sohu: USD 68M6800Baidu: USD 25M25003721 (Yahoo): USD 50M37215000

Google1993Google# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 7Business models Pay when transaction CPA = cost per action (purchase, transaction, registration, )CPA=Pay when clickedCPC = cost per clickCPC=Pay by impressionCPM = cost per mille (French language for thousand)CPM=Rent the space for a flat fee (fixed amount)Reach, as in traditional media

Easiest to verify: both parties know this information# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 8

The Performance Pyramid# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800

Yahoo Panama: Tools for setting bids Yahoo Panama# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 10Google AdWords Google AdWordsDecisions to be made by advertiserText of adLanguage, geography to be shown inKeywordsSystem helps by leveraging all other users inputMaximum CPC (cost per click)CPCDaily budget# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 11Google AdWords, Yahoo Panama Decisions to be made by the search engineIn which position to show the ad?Google: Rank determination includesGoogle (click through rate) * (expected amount paid if clicked)*

This is the expected revenue for GoogleGoogleMechanism: Second-price auctionActual amount paid: Price of the next lower one (plus 1 cent) If too few people click, google will warn the advertiser and then take the ad offgoogle# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 12Why does it work?User communicates interest (self-selects)User is information seeking modeUser explicitly states interest Targeting can be fine-grained Transparency: Advertiser can measure business impact CPC: EasyCPCCPA: A clear pixel, or web-bug is placed on advertisers transaction confirmation pageclear pixelweb-bugWorries about giving away too much information about revenues# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 13AdSense

Vineyard Spam Salad combine grapes, spam, peapods and onions# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 CommentsAuction mechanisms gives price discoveryMake market efficientArbitrage between different payment schemesBid management for keywords based Feedback through experimentationPerformance Search Engine Optimization (SEO)SEODifferent landing pages for different keywords

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 15Search related businessesMedia mix and search marketing E.g., unrealmarketing.com unrealmarketing.comDirect marketingEmail channelAnalyticsAd serving Profit margins eroding due to commoditizationE.g., DoubleClick DoubleClick

Search as serviceProvide technology (license or sell) An individual query costs ~1 US cent0.01

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 Search and commerce: Keyword advertising

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 17

Search and commerce: Keyword advertising# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 18Search and commerce: Keyword advertising

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 19Overture: View bidsOverture

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 20Overture: View bids for E-business Overture

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 21Overture: View bids for Amazon Overture

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 22Business models for search engines and user reactionsBusiness models: Sponsored links

Pay-for-inclusionAdvertisers pay to be in directories

Pay-for-placement (folded into main results) Advertisers pay to obtain high rank

User reaction: Customers accept, and see valueExample: Competitors to NetMeetingNetMeeting

Demand comprehensiveness

Demand transparency about paid placement

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 Also: sponsered links

23Use sponsored links to find competitors

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 Maximium cost per click: USD 0.50CPC0.50

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 27Googles role in e-commerceGoogle

Google UsersGoogle

Google helps users more easily and efficiently find merchants and purchase productsGoogleMerchant /Customers/* Internet Retailer news, March 6, 2007 ** Custom Analysis by ComScore/Google, Sept. 2006 Search Find Buy 51% of internet users are influenced by search engines for their purchases.*51%

Google reaches more Internet users worldwide than any other web property or ad network.Google

Google receives more than 475 million unique visitors/month.**Google4750

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 27Googles role in ecommerce is to help connect Google users with online merchantsUsers come to Google to search for products they want to buyAdWords helps them find merchants to buy fromNow, were working to improve the buying experienceOpportunities in e-commerce28Online retail purchases accounted for 2.8% of total retail sales in 2006.2006 Consumer PurchasesShare by Channel

2.8%97.2%Online salesOffline sales Total eCommerce sales: $108.7BTotal Retail sales: $3.9 Trillion*Quarterly Retail eCommerce Sales, 2006, US Census BureauNote: These numbers do not include travel 20062.8%2006

: 1087: 39000 2.8% 97.2%# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 28Google has an opportunity to greatly expand the ecommerce piece of the pieWhats keeping people from shopping online? Long checkout processes: the more fields and forms people have to fill out, the more likely they are to abandon their purchasetoo many accounts: buyers dont only shop at your site, they shop at many sites and they dont want to have to create an account every time they want to buyFear of sharing personal information: even when shopping with large, well-known brands, buyers are hesitant to share their credit card information onlineOpportunities in e-commerce29

What is holding back eCommerce?

Long checkout processes63% of shopping carts are abandoned after beginning checkout**

Too many accountsAverage number of passwords per internet user: 17** (Source: Verisign, 2004)

Fear of sharing personal informationConsumers are afraid of their personal information being compromised

* Verisign, 2004** Online Customer Experience Survey, Allurent, February 2006?

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# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 29Google has an opportunity to greatly expand the ecommerce piece of the pieWhats keeping people from shopping online? Long checkout processes: the more fields and forms people have to fill out, the more likely they are to abandon their purchasetoo many accounts: buyers dont only shop at your site, they shop at many sites and they dont want to have to create an account every time they want to buyFear of sharing personal information: even when shopping with large, well-known brands, buyers are hesitant to share their credit card information onlineGoogle CheckoutGoogleGoogle Checkout is an online checkout process that provides a fast, secure way to buy and sell onlineGoogle Checkout

Payment Guarantee covers 98% of all Checkout orders98%Checkout

When resolving disputes, we assume our merchants are honest and trustworthy Fraud ProtectionLess costMore salesFree credit card processing on all Checkout sales until 2008200Google CheckoutBeginning 2008, earn free transaction processing with AdWords2008AdWordsGoogle Checkout badge attracts more customersGoogle Ckeckout

Streamlined checkout process increases conversions

For SellersFor BuyersConfidenceSpeedConvenienceSingle login across the web with sreamlined checkout

One place to track purchasesCredit card number concealed# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 30Google Checkout is an alternative checkout process that provides a fast, secure way to buy and sell online its not a payment method.- The primary goal of Google Checkout is to make buying fast and convenient; the design of the product features and consumer experience are focused on just that. Therefore, if we need to make a tradeoff, we make it in favor of convenience.- Consumers have responded very positively to the aggregated purchase history and ability to make purchases with a single login.- Google leverages the trust we have with consumers to bring peace of mind when buying online, knowing that their information safe.- On average the Google Checkout badge has had a positive impact on CTR. There are many factors that contribute to changes in CTR such as ranking, brand, and presence of other Checkout merchants in search results.- Google is aggressively working to drive traffic to Checkout merchants in other ways, including product search results on Google.com and promotions.A faster checkout process means more conversions; Checkouts conversion rates are 50% higher than the industry average.Checkout merchants get free transaction processing on all Checkout transactions until 2008; starting in 2008, for every $1 a merchant spends on AdWords, theyll be able to process $10 of Checkout sales for free.Currently Googles Payment Guarantee covers ~98% of transactions.SearchFindBuyShoppers use Google and Product Search to search for items to buyGoogle

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# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 31Every day, millions of consumers search for products to buy on google.com, Product Search and other Google propertiesSearchFindBuyProduct Search and Checkout help shoppers find exactly what theyre looking for and where to buy it from32

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 32SearchFindBuyTo buy, shoppers need only click Google Checkout and enter their username/passwordGoogle33

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 33Checkout offers a checkout process to consumers that may otherwise abandon their purchaseThe user interface is optimized for fast and convenient purchasingConsumers trust Google to store and protect their information

Order HistoryGoogle Checkout users can easily manage all of their purchases in a central locationGoogle34

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 34

Google Checkout 1 year after launchGoogleCheckout (2007.07)Checkout200771 year after launchMillions of buyersThousands of sellersIncluding 25% of top 500 merchants25%500Example: JockeyJockeyGoogle Checkout has 23% higher click through rate on Sponsored LinksGoogle23%Customers using Google Checkout convert 24% more frequently than standard Google24%

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 Sources of data Google gathersGoogle

Search

On other websites: Google AnalyticsGoogle

Following users: Google ToolbarGoogle

Purchase data: Google CheckoutGoogle

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 Survey of Facebook users (2007.06.13, 3pm) Facebook2007.6.13

Facebook# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 Survey of Facebook usersFacebook

Facebook# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800

Generation GG

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800

In-Game Product Placement# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800

In-Game Billboard

# people & data | www.weigend.com | +1 650 906-5906 | +49 174 906-5906 | +86 138 1818 3800 Chart20.0280.972

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