The economics of online advertising
The normal economics of supply and demand do not seem to adhere to strongly towards the media market.
TV Market: In the television market, there is always a constraint of supply. There is a limited number of hours that are dedicated to advertising, and thus, the price of advertising has steadily increased over the years.
Online Contextual ads, although vastly larger than the TV Market, is also limited. When we look at the market for cars we can see that the average consumer also looks only to a limited number of areas for advertisement. Thus, there is once again a limited supply, which drives up the marketing prices.
However, the most interesting area is the Online Inventory Market. Where, those annoying ads pop up on the sides of nearly every website you go onto. The cost of adding these ads is next to nothing, while the pricing options are also very low. There is literally no constraint on who can create these types of inventory ads, and as the supply is so high it is quite cheap for companies to purchase these ads. Thus, these are the only types of ads, where the price is actually decreasing. However, the problem is that it is hard to differentiate between the options as the supply is so huge.
With this supposed “unlimited market”, economists have tried to ultimately determine how to input metrics to create scarcity. In this article, the author decided to utilize viewership as a an extra metric. The measurement that the author uses to find whether or not advertising is successful is through brand lift. Brand lift is the increase in demand for your product after the advertisement goes into effect.
Ultimately, through being able to differentiate between types of ads, we can provide an accurate assessment of which ads to actually utilize which provides several different benefits.
1 Publishers win because then the real ad spaces get more demand and price increases.
2. Advertisers win because they get better and more reliable results for the money they spend.