History of web advertising banner ads 1995 2001

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History of web advertising Banner ads (1995-2001) Initial form of web advertising Popular websites charged X$ for every 1000 “impressions” of ad Called “CPM” rate Modeled similar to TV, magazine ads Untargeted to demographically tageted Low clickthrough rates low ROI for advertisers
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Performance-based advertising Introduced by Overture around 2000 Advertisers “bid” on search keywords When someone searches for that keyword, the highest bidder’s ad is shown Advertiser is charged only if the ad is clicked on Similar model later adopted by Google with some changes Called “Adwords”
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Ads vs. search results
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Web 2.0 Performance-based advertising works! Multi-billion-dollar industry Interesting problems What ads to show for a search? If I’m an advertiser, which search terms should I bid on and how much to bid?
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Adwords problem A stream of queries arrives at the search engine q1, q2,… Several advertisers bid on each query When query q i arrives, search engine must pick a subset of advertisers whose ads are shown Goal: maximize search engine’s revenues Clearly we need an online algorithm!
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Greedy algorithm Simplest algorithm is greedy It’s easy to see that the greedy algorithm is actually optimal!
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Complications (1) Each ad has a different likelihood of being clicked Advertiser 1 bids $2, click probability = 0.1 Advertiser 2 bids $1, click probability = 0.5 Clickthrough rate measured historically Simple solution Instead of raw bids, use the “expected revenue per click”
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Complications (2) Each advertiser has a limited budget Search engine guarantees that the advertiser will not be charged more than their daily budget
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Simplified model (for now) Assume all bids are 0 or 1 Each advertiser has the same budget B One advertiser per query Let’s try the greedy algorithm Arbitrarily pick an eligible advertiser for each keyword
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Bad scenario for greedy Two advertisers A and B A bids on query x, B bids on x and y
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