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J. Serv. Sci. Management, 2008,1: 233-243 1 Published Online December 2008 in SciRes (www.SciRP.org/journal/jssm) Combining Keyword Search Advertisement and Site- Targeted Advertisement in Search Engine Advertising Li Chen Department of Operations and Information Management, School of Business, University of Connecticut Email: lchen@ Received June 3rd, 2008; revised November 17th, 2008; accepted November 27th, 2008. ABSTRACT Internet advertising has seen a strong growth in recent years and search engine advertising has played an important role in that growth. Search engines continue to expand their business by providing new options of advertising. For ex- ample, Google provides a new advertisement mechanism based on cost-per-thousand-impression (CPM) payment called “site-targeted advertisement” in addition to the famous “keyword search advertisement” based on cost-per -click (CPC). While keyword search advertisement is a cost-efficient way of advertising, site-targeted advertisement provides a quicker alternative to expose the ad to a mass population at a higher expense. This paper studies a mixed strategy of optimization by combining these mechanisms to exploit their corresponding advantages. We set up a general model to find optimal starting and ending times for both met hods. Closed-form solutions are calculated for two applications: (1) Advertising of perishable information with click -based revenue only; and (2) Site-targeted advertisement first and key- word search advertisement last. Comparative static analysis provides an analysis of properties of each application. We also develop a computational experiment based on Google AdWords to illustrate the application of the model. Keywords: online advertising, search engine, keyword auction, cost per click 1. Introduction An increasingly