Web Economics

Where Does All This Great Stuff Come From?

Competition is great
Multiple vendors, fighting to get chosen by customers
Better features, lower prices, fewer security problems
We'll prefer structures where customers can choose/switch
Vendors are always competing to get the customers
e.g. Microsoft monopoly circa 1995
- low competition, high prices, bugs and security problems
e.g. today: iphone vs. android phones
- great!
- criticizing each other, competing on price and features
- nobody resting on their laurels - consumers win

Web site or app where people spend minutes
"eyeballs", internet term, for people spending time on a site
"viewership" is perhaps an older term for the same thing
Presumably the site is good
Not just web sites:
- twitter, instagram, netflix, NBC tv, HBO
- "have eyeballs"
There's a ton of competition to get eyeballs
e.g. nytimes.com has articles, so we spend time on site reading them
e.g. facebook has images/news tailored for us, so we spend time there
"monetize" - the site has eyeballs, convert that to money

Advertisements are a common way to monetize eyeballs
The amount of money is very small
Perhaps a fraction of a cent for an ad "impression"
BUT the site has millions of users
Ad ecosystem:
- user eyeball ($) TO advertiser ($) TO content producer (content) TO eyeball
It's a cycle!
So the ads may add enough to fund the site
1. NBC tv, broadcast radio - ads mixed with content (demographic targeting)
2. Facebook - ads targeted based on social network (social network targeting)
3. web-search ads (search-term targeting )

An ad is high relevance if the person is more likely to act on it
"targeting" refers to optimizing to raise ad relevance
Put the right ad in front of the right person = make more money
1. NBC tv, broadcast radio
-demographic targeting: who watches what kind of show
-AXE body spray ads (gender + age)
-Medicare drug insurance ads (age)
-Gold coins (political)
-Aside: gold is a terrible investment
2. Facebook, twitter ads
- like the above, but better tuned to your age, interests

Ad targeting based on what you just searched for
This one works the best!
Thinking about buying something ... do a web search
Web search results, a mixture
organic results - information google computes you are most interested in
ad results - ads mixed in, ideally visually separate from organic results
Demo e.g. search for "monterey" "monterey vacation" "half moon bay vacation" "weather" "pregnancy tests"
We see a mixture of organic and ad results

Advertisers want:
-lots of ads, very little organic (zero?)
-Oracle famously installs the ask.com toolbar
-flashy animations, sounds
-make ads and organic results look the same
Google strategy - make users happy, advertisers will follow
This is a great strategy!
Google results: Ads are separate, graphics are restrained, lots of organic results
yahoo.com used to have a very ad-heavy design - long term, drove users away
Yahoo has since almost gone out of business
Look at yahoo.com now -- same restrained strategy as google
Dynamic: switching search engines is easy
Therefore the search results have to be user-friendly
Competition!
A nice "good guys finish first" story

Having highly targeted ads can be creepy
Amazon does this, for one example
e.g. I search for a gas BBQ on amazon
- later pages on random sites show up with gas BBQ ads
There is a tradeoff:
- targeted ads work better
- without targeted ads, you need to see more ads to fund the content
Some balance of reasonable targeting, without crossing a line

"war" is a very common metaphor - A wins, so B loses
- sports fit this pattern
- hurting A helps B
War is not the right metaphor for many economic schemes
- suppose you destroyed all the advertisers
- is a web utopia the result?
- the ads pay for the content
Bee and Flower is a good metaphor, symbiosis
- each side contributes something, each side gets something
- flower "wins" by making the bee successful
- e.g. suppose a flower saves energy putting out water instead of nectar, all its bees die
For whatever reason war is an easy metaphor to slip into, so think it through

Disclosure: I don't use an ad blocker
Ad blocker: browser software to block ads
Makes your web experience nicer
Pro ad blocker:
- ads are irritating, use up bandwidth, screen size etc.
Anti ad blocker: Bee and Flower!
Without ads, no web, no facebook, etc.
A lot of stuff you like is funded by ads
AdBlocker / hybrid / sythesis
- some ads get through, but they have to follow some norms
-the advertiser may also pay the AdBlocker, so it's a bit parasitic
More info: Tim Bray