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Online Advertisement Publishing – Which Pricing Model is the best?

Online Advertisement Publishing – Which Pricing Model is the best?. Jason Deane Stochastic Optimization Project Professor: Dr. Uraysev Wednesday, December 7 th , 2005. Talk Outline. Research Motivation Online Advertising – Industry Terminology Model Formulations Deterministic

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Online Advertisement Publishing – Which Pricing Model is the best?

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  1. Online Advertisement Publishing – Which Pricing Model is the best? Jason Deane Stochastic Optimization Project Professor: Dr. Uraysev Wednesday, December 7th, 2005

  2. Talk Outline • Research Motivation • Online Advertising – Industry Terminology • Model Formulations • Deterministic • Stochastic • Research Objectives • Results and Conclusions

  3. Research Motivation • Research Stream

  4. Research Motivation • Online Advertising Revenue

  5. Research Motivation • Real-world issue • IAB • DoubleClick

  6. Industry Terminology • Participants Users Publisher Advertisers

  7. Advertiser Advertiser Publisher Publisher User User Industry Terminology • Pricing Models • Impression Based Models • CPM (cost per mille) • Performance Based Models • CPC (Cost per click) • CPS (Cost per sale) • CPA (Cost per acquisition) • Currently 50/50 Split

  8. Online Ad Publishing • Implicit Focus for Performance Models • Advertisement Targeting • Ideal situation – accurate probability matrix • Efforts to maximize inclusion of the advertiser’s target audience • Content • Geographic • Local Advertising • Nielsen’s DMA • Time of day • IR Based Technique

  9. Online Ad Publishing • No Clearly Dominant Pricing Strategy • CPM, CPC, CPS ????? • Many market based factors • Inflation, unemployment, energy prices, etc. • Periods of positive economic growth • Performance based models dominate • Periods of economic decline • Impression based models dominate

  10. Online Ad Publishing

  11. Online Ad Publishing • Over the given planning horizon • Which days do we publish ads? • Which pricing strategy do we use for the advertisement slots?

  12. Targeted vs Non-targeted Slots • Strategic Decision • Strategy 1 • Uses 700 targeted and 300 non-targeted slots • Results in 300 CPM, 250 CPC and 450 CPS slots • Strategy 2 • Uses 300 targeted and 700 non-targeted slots • Results in 700 CPM, 150 CPC and 150 CPS slots • Managerial Requirements • 3000 CPM, 1500 CPC & 1500 CPS

  13. Talk Outline • Research Motivation • Online Advertising – Industry Terminology • Model Formulations • Deterministic • Stochastic • Research Objectives • Results and Conclusions

  14. Deterministic Formulation

  15. Stochastic Formulation

  16. Research Objectives • Determine the expected value of perfect information • Determine the value of a stochastic analysis

  17. Results and Conclusions • Stochastic Analysis Improvement • 23% improvement over the deterministic solution • EVPI • VSS • In conclusion, although our analysis is based on hypothetical data, we feel that this project successfully demonstrates the potential power of a stochastic analysis when the decision making process involves uncertainty for which we have an estimated probability distribution.

  18. Thank you! Any Questions

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