Search Advertising

Question 1

Average CTR for search

Answer 1

Average CTR for search = 2% (vs. 0.5% display)
• Intent: Because Intent is already there
• Timeliness: Because you’re thinking about it at that moment

Question 2

How much commerce starts at search engines

Answer 2

• Lots of commerce starts at search engines (53%), 29% display

Question 3

Search Ads are highly effective due to high relevance § But,

Answer 3

Ads are highly effective due to high relevance § But, advertising still requires scale § 2% of ads (“impressions”) might get clicks § 2% of clicks might convert into sales § So only 4 / 10000 who see an ad actually buy § CPM will not be large § But this performance is good compared to conventional advertising!

Question 4

The economics of search from search company’s perspective

Answer 4

High fixed costs, super low marginal costs (2cnd add costs nothing)

Question 5

Google share

Answer 5

Dominates everywhere but China (Baidu) and Russia.

Question 6

Where is consumer’s attention when looking at a search result page?

Answer 6

Where is consumer’s attention when looking at a search result page?

a. Attention is top left.
b. All the eye attention is in the top 4 search
c. CTR position: 1 7%, 2 3%, 3 2%, 4 2%, 5 1.5%, etc..
d. It’s all about location, location, location
e. Top left gets most clicks, but costs more!
f. Also, how to know if it’s better or not?

Question 7

Google RHS

Answer 7

Feb16 Google eliminated right hand side ads and incorporated maps

Question 8

Organic SEO

Answer 8

Organic SEO: making sure your site ranks higher (through a process called SEO) in search.

Question 9

as CPC goes up along with ROI

Answer 9

Quality Score becomes more important

Question 10

Keywords

Answer 10

Keywords: what consumers type in the search bar (e.g., surf, surfing, surfer)

Question 11

PPC

Answer 11

pay per click

Question 12

First model of keyword bidding / auctions

Answer 12

First model came from overture: first price auction (bought by Yahoo which became the first paid search auction company)
• First price auction: Advertisers are displayed in order of decreasing bid amounts.
• Upon click, advertiser is charged a price equal to your bid.
• Every time an advertiser clicks, you pay $2 (what you bid)
• Break even PPC = NP per sale * Conversion rate

Question 13

Second model of keyword bidding / auctions

Answer 13

Second model: Google model: Stylized second-price auction
• Pay second, not highest bid.
• But stylized b/c it’s a combo of bid and quality score that determines the rank
• The bidding process by bod price follows an ‘Edgeworth process’
• Each color is a different account; bidders stop when internal economics don’t match, so #2 drops and goes to second position, so 2cnd bidder comes in just above. Same cycle happens over and over again.
• Reverse Bertrand competition
• Bidders change their max bid based on quality and ROI changes, etc.
• Price you would pay is always the bid below you.
• Note: mobile ads can be geofenced (possible to say within x blocks or miles of store for example).
• Quality Score: Relevance (CTR, landing page quality (loading time, etc.), relevance of ad text o keyword, historical adwords account performance).
a. This also retains people searching Google
b. And also CTR = maximizes Google revenue
c. Incentives are aligned here with customers
d. Ad Rank = CPC BID x Quality Score
e. Actual CPC = Competitor Rank / Your Qual Score + $0.01
f. * The higher your quality score, the lower your cost per conversion (CPA)

Question 14

• Average CTR for search

Answer 14

= 2% (vs. 0.5% display)
• Intent: Because Intent is already there
• Timeliness: Because you’re thinking about it at that moment

Question 15

How much eCommerces starts with search?

Answer 15

Lots of commerce starts at search engines (53%), 29% display

Question 16

Economics of search

Answer 16

• Ads are highly effective due to high relevance § Search advertising requires scale § 2% of ads (“impressions”) might get clicks § 2% of clicks might convert into sales § So only 4 / 10000 who see an ad actually buy § CPM will not be large § But this performance is good compared to conventional advertising!

Question 17

Why Search Engines End Up Dominant

Answer 17

• High fixed costs, super low marginal costs (2cnd add costs nothing)
• Search: High contestability, higher barrier to entry, etc. creates one dominant player, and a few hangers-on in each language category
• China: Baidu 70%, USA, Google 90% Basically everywhere but China and Russia, Google dominates

Question 18

Where is consumer’s attention when looking at a search result page?

Answer 18

Where is consumer’s attention when looking at a search result page?

a. Attention is top left.
b. All the eye attention is in the top 4 search
c. CTR position: 1 7%, 2 3%, 3 2%, 4 2%, 5 1.5%, etc..
d. It’s all about location, location, location
e. Top left gets most clicks, but costs more!
f. Also, how to know if it’s better or not?

Question 19

Organic SEO

Answer 19

making sure your site ranks higher (through a process called SEO) in search.
Quality Score becomes more important as CPC goes up along with ROI

Question 20

Keywords

Answer 20

Keywords: what consumers type in the search bar (e.g., surf, surfing, surfer)

Question 21

The first model of keyword bidding

Answer 21

• First model came from overture: first price auction (bought by Yahoo which became the first paid search auction company)
• First price auction: Advertisers are displayed in order of decreasing bid amounts.
• Upon click, advertiser is charged a price equal to your bid.
• Every time an advertiser clicks, you pay $2 (what you bid)
• Break even PPC = NP per sale * Conversion rate

Question 22

Second model of keyword bidding

Answer 22

• Second model: Google model: Stylized second-price auction
• Pay second, not highest bid.
• But stylized b/c it’s a combo of bid and quality score that determines the rank
• The bidding process by bod price follows an ‘Edgeworth process’
• Each color is a different account; bidders stop when internal economics don’t match, so #2 drops and goes to second position, so 2cnd bidder comes in just above. Same cycle happens over and over again.
• Reverse Bertrand competition
• Bidders change their max bid based on quality and ROI changes, etc.
• Price you would pay is always the bid below you.
• Note: mobile ads can be geofenced (possible to say within x blocks or miles of store for example).
• Quality Score: Relevance (CTR, landing page quality (loading time, etc.), relevance of ad text o keyword, historical adwords account performance).
a. This also retains people searching Google
b. And also CTR = maximizes Google revenue
c. Incentives are aligned here with customers
d. Ad Rank = CPC BID x Quality Score
e. Actual CPC = Competitor Rank / Your Qual Score + $0.01
f. * The higher your quality score, the lower your cost per conversion (CPA)
g. * Your quality score effects your cost per click and cost per conversion
h. * 23
i. ** Go to Adwords page, check quality score, if it’s low, stop advertising and fix quality. Advertise a little. Then Once quality is at an 8, throttle back up, will massively improve your ROI

Question 23

Walled Garden

Answer 23

Walled Garden:
A Walled Garden is a closed ecosystem in which all the operations are controlled by the ecosystem operator.
A great example, from history, is the telecommunication industry during its maturing days in the 70s. At some point, only phones devices manufactured by the telecoms operator themselves could connect to their network. For example, in the USA, Bell System was owning all of the phone hardware that its customers were using. Buying our own phone wasn’t possible but things have significantly changed since then :-) …