Onlineadvertising.pptVIP

Online advertising Hal Varian April 6, 2009 Problems with advertising You’ve got to do it It is unreasonably effective Nobody knows what really works Hard to reach potential customers Hard to grab enough of their attention It’s difficult to tell how effective marketing is Experimentation is costly: “Does it play in Peoria?” Leads to a portfolio strategy But technology is changing all of this…advertising is becoming scientific Broadcast radio Killer app: ship-to-shore Broadcast: a nuisance… Could that bug become a feature? The Euphoria of 1922…like the Euphoria of 1999 What’s the business model for broadcast radio? Government provision (BBC)? Private contributions (public radio)? Hardware producers subsidize content (RCA)? Tax on vacuum tubes (Media tax) Advertising – the least favorite alternative Advertising model First radio commercial Apartment rentals in NYC Challenge to advertising Could only survive in areas with dense population Need enough potential buyers to pay for content that people would want to listen to So only viable in big cities ATT to the rescue Sent radio signals over copper and rebroadcast nationwide Built national networks Didn’t have to make very much per person to cover cost of producing content National brand marketing TV took this model over when it arrived CPMs – the problem Advertising is, in general, very low-effectiveness business Cost measured per thousand impressions (CPM)? Broadcast TV: $10 CPM for 30 second impr Superbowl 30 second spot: $25-40 CPM Around 1 cent per 30 sec impression; 2 cents for 1 minute; 20 cents for 10 minutes Conclusion: TV network is paid 20 cents an hour of content for your attention Too cheap. That’s why trend towards viewer pays for video content Trend towards cable TV, DVDs, satellite radio: pay per view, and consume what you want Typical CPMs Outdoor: $1-5 CPM Cable TV: $5-8 CPM Radio: $8 CPM Online Display $5-30 CPM Contextual: $1-$5 CPM Search: $1 to $200 CPM Network/Local TV: $20 CPM Magazine: $10-3