Secrets of Googlenomics: Data Fueled Recipes Brews Profitability
https://www.wired.com/2009/05/nep-googlenomics/?currentPage=all
This article follows Hal Valerian, Google’s chief economist and goes through the history of how Google began operating their sales through auctions. It specifically discusses Google’s AdWords, an ad-selling system based on second price auctions. Originally, Google sold ad slots directly to advertisers (based on impressions), but later changed to an auction system (based on clicks) after Googlers Salar Kamangar and Eric Veach created the system. The auction system was first used only for sidebar ads, but after its initial success Google shifted its sales focus to auctions. The article examines how Google uses quality scores to decide winners of auctions, not just bids. Google gives quality scores to advertisers based on how well their ad matches a keyword and the percentage that users click the ad. Google also uses a Keyword Pricing Index to keep track of different auctions. The article also talks about how different companies are following Google’s lead in hiring economists to forecast prices and design auction plans to maximize revenue.
This article relates to Second Price Auctions which was taught in class. Google utilizes their own modified version of a second price auctions, but overall the winner of the auction gets the ad slot and pays the second highest bid. In class, we’ve also learned about web search and how Google needs to figure out what search results to return based on user’s queries. In connection to our class discussions, the article provides a corroborating view on how Google takes into consideration which advertiser is most relevant to the keyword/query when deciding who wins the auction.