I’m Feeling Lucky…and Wealthy!
http://www.wired.com/epicenter/2011/07/google-revenue-sources/
It is a bit astonishing when I read the article on Wired.com recently concerning Google’s revenue from advertising. The number speaks: 36 billion a year advertising revenue for Google—skyrocketed the 21-billion record in 2009. In this article, Wordstream, a company that sells software analyzing text ad campaign, has come up with the top 20 “expensive” key words that advertisers pay Google in order to have their brand name pop up in the search. Wordstream defines “expensive” by doing the multiplication of cost-per-link times the number of times people search that key word. The result shows that the top three expensive key words are: insurance, loan, and mortgage. To some extent the ranking explains itself—the most expensive key words are in the industries that earn a decent amount of money from each customer they have in the long run. Therefore, insurance companies for example, are willing to pay Google more than $54 per click to outbid their competitors and survive in the game; thus it is not surprising this industry makes up 24 percent of Google advertising revenue, according to Worldstream.
This topic goes very closely with our discussion in class earlier on Web Search. That is, the ads auction we talked about using GSP or VCG Procedure. Google uses a unique tool to sell their online advertising through what they called: AdWords, which creates the world’s biggest, fastest, automated auction that takes place on every search we make. The sidebar slots on the searching result page are auctioned in a single auction. In class we talked about the auction is second-priced; what makes this feature neat and beneficial to Google and its advertising revenue? The reason lies in the fact that second-price auctions save competitors from those costly overbidding errors, thus encouraging higher bid, since the winner only has to pay the second-highest bid as the price. That is, the advertisers would like to raise their bid so that they could win the auction, but they do not have to worry that they raise it too high that they have to pay that price if they win the auction. This principle is a bit of a contradiction to what we discussed in class about the VCG Procedure in which Nash Equilibrium exists when bidders bid truthfully with their own true values. Yet Google doesn’t seem to use VCG (Facebook does though as we mentioned a little bit in class). Plus in the real world what happens always differs a little from what we study in theory. Therefore, Google’s AdWords seems like a way maximizing its advertising revenue.
On a different note—just a fun fact—the other web giant Facebook, does not beat Google in the advertising campaign according to a recent report, claiming social networks to be the last among the ten customer-acquisition tactics based on 102 online retailers. However, Facebook might be an exception among other social networks; after all, advertisers take into account the fact that there are more than 800 million active users around the world, and on average a good majority of the users spend hours and hours on their Facebook pages every day.