Transcript Online advertising - UC Berkeley School of Information

The State of Search-based
Online Advertising
Vs.
Michael Cho
Andrew Iskandar
Sanjay Kidambi
Steve Shepherd
Cuong Do Tuan Vuong
November 3, 2005
SIMS/Haas School of Business,
UC Berkeley
Agenda
• Setting the Stage
– Basic concept
– History
– Major players
• Economics at work
– Network Effects
– Complements
– Lock-In
• Where are we headed?
SIMS/Haas School of Business,
UC Berkeley
Search-based Online Advertising is a
simple process at its core
• Bidding process occurs beforehand
– Advertisers bid to be displayed by keywords of their choice
in auction-like process
• User types a keyword into search engine
• Advertisements displayed next to search results
– The higher the advertisers bid, the higher the placement on
the page
SIMS/Haas School of Business,
UC Berkeley
In 10 short years, advertising has been
changed forever
1995
1996
Timeline
• InfoSeek began to target banner-ads
1997
1998
1999
• Yahoo and Proctor & Gamble introduced “pay for
clicks” model
2000
2001
2002
2002
• GoTo.com (later changed to Overture) and AdWords
(Google) introduced labeled text-ads correlated to
keywords
2003
2004
2005
• Open Text experimented unsuccessfully with targeting
text-based ads to search queries
• Yahoo! buys Overture
• Growth of smaller, specialized firms in tangential
business like search engine optimization (SEO)
• Google IPO
SIMS/Haas School
of Business,
• MSN introduces
its own
search engine
UC Berkeley
Search advertising shows huge market
potential
• Online advertising: fastest
growing sector
• Spending will predictably
increase in the coming years
− From $11.5Bn in 2005 to $17.6Bn in
2008
− Search-based advertising: $7Bn –
nearly 85% increase
− Forrester: $11.5Bn on search engine
marketing in 2010
$US Billions
– Universal McCann: increase of
nearly 53% (from $4.3Bn in 2000 to
$7.1Bn in 2004)
– PWC/IAB: $9.6Bn in 2004
– Search-based advertising: 40%
Search Engine Marketing in US
14
12
10
8
6
4
2
0
7.07
8.29
9.46
10.53
11.57
5.67
4.27
2004 2005 2006 2007 2008 2009 2010
SIMS/Haas School of Business,
UC Berkeley
Forrester Research, July 2005
Google is currently the clear market
leader in search
Search Market Share, July 2005
Infospace Network,
Ask Jeeves,
0.90%
6.10%
Other, 0.60%
Time Warner
(AOL), 9.90%
Google, 36.50%
MSN, 15.50%
Yahoo!, 30.50%
SIMS/Haas School of Business,
UC Berkeley
Overall, Yahoo! is the most visited site
on the web
Yahoo: most popular website
–
–
–
–
Sponsored Search
Local Sponsor Search
Search Submit Express
“Cost-per-click” and monthly payment after an
initial fee
SIMS/Haas School of Business,
UC Berkeley
Best of the rest…
• Microsoft: the last in ranking of the three
– MSN AdCenter
– MSN Paid Search Solution
• Cooperation between MSN and
AOL/TimeWarner
– AOL/TimeWarner: dominance in media
– MSN: dominance in desktop application
• Main competitor to Google and Yahoo on
online advertising?
SIMS/Haas School of Business,
UC Berkeley
Agenda
• Setting the Stage
– Basic concept
– History
– Major players
• Economics at work
– Network Effects
– Complements
– Lock-In capabilities
• Where are we headed?
SIMS/Haas School of Business,
UC Berkeley
Network effect: Yahoo and Google’s
scale will be tough to overcome
The Virtuous Cycle
Better user
experience
Technology
investment
Attracts
new users
More
advertising
dollars
SIMS/Haas School of Business,
UC Berkeley
Google and Yahoo! have created an
‘ecosystem’ of complementary products
The Search “Ecosystem”
travel
photo sharing
games
Blogging tools social networking
calendar
maps
Firefox
news shopping
Fantasy
partnership
sports
toolbar
mobile SEARCH
personals
email
images
Dell
groups
IM
Hotjobs
distribution
search engine optimizers
Sun
sports
desktop
search
distribution
finance
SIMS/Haas School of Business,
music
UC Berkeley
Achilles’ heal to business model: low
switching costs for consumer
Many tactics aim to overcome this challenge:
•
“Personalize” search results by tracking
consumer behavior and preferences (Y!’s
MySearch)
•
Establish desktop presence outside of
browser as a constant reminder (Y!
music engine, Google desktop search)
•
Utilize community in social networks
improve search results (Yahoo’s MyWeb
2.0)
•
Create complementary web products so
search box is always in view (email,
maps, etc.)
SIMS/Haas School of Business,
UC Berkeley
Agenda
• Setting the Stage
– Basic concept
– History
– Major players
• Economics at work
– Network Effects
– Complements
– Lock-In
• Where are we headed?
SIMS/Haas School of Business,
UC Berkeley
Matching a specific ad to a specific sale
is the holy grail of advertising
1998
Pay per
impression
2005
Pay per
click
2008
Pay per call
20??
Pay per sale
SIMS/Haas School of Business,
UC Berkeley