http://adage.com/digital/article?article_id=115896

http://business.timesonline.co.uk/tol/business/industry_sectors/media/article1604806.ece

http://www.businessweek.com/technology/content/apr2007/tc20070404_033516.htm?chan=technology_technology+index+page

In class we talked about Google’s methods of selling their ads. Google sells ads based on the keywords users use to find content they’re interested in using their search engine. Using this method, Google is able to provide the most pertinent ads to the correct group of audience, hence facilitating a larger percent in click through rate, generating more revenue for itself. Google has revolutionized the way ads are being sold on the internet, many rival companies including Microsoft and Yahoo are beginning to alter their own search engines to become more like Google’s. However, the “$170 billion global television market still eclipses online advertising spending, which is expected to be worth $31 billion this year.” Google hopes that its recent joint venture with EchoStar, the American Satellite network, to create a new TV advertising system will tap into this massive market, and generate an effect as big as it initially did in the online world.

The classical method of selling ads on the TV allows advertisers to bid for a certain spot between shows, and the slots during the most popular shows costing the most. In this method “a marketer is given the overall rating for the program in which his or her ads ran”, and the advertisers have no idea if the audience “tuned out” for the commercial break, or whether their commercials reached the intended audience. In its new TV advertising system, Google will “report a rating for that specific ad. If a program generated 1 million viewers, but 50, 000 tuned out before the commercial break commenced, Google would only report an audience of 950,000 for the ad.” This is analogous to the paying per click model we talked about in class, and the the advertiser would only pay for every click, or every commercial seen by the viewer in this case, increasing the confidence of the advertiser, and revenue of the system. In addition, Google also uses the “first widely available second by second measurement of each commercial,” allowing the advertisers to know exactly when the viewer “tuned away” from the commercial, hence telling them whether or not the commercial is efficient.

Google also utilizes its innovative second price auction in this new system. Advertisers submit a closed one time bid into the system for a particular time slot during the day on a specific channel, perhaps a time and channel that’s most pertinent to the thing they’re trying to advertise. The marketers will “only know what the winning bid price was if they indeed won the auction, and all bidding will be based on household cost-per-thousand viewers.” Each marketer will then have their own independent private values, and we can use the same methods we learned in class to find the market-clearing price for the advertisements. The prices then are set by the auction.

Skeptics are less sure of success on this move by Google. One large reason for Google’s success on the dot.com world is its ability to efficiently target the individuals most interested in the ads they’re trying to sell. However, offline, “Google lacks the same extensive targeting ability.” The advent of devices such as the Apple TV “will help advertisers use information collected by Web users to serve more relevant ads both online and on TV.” That is where the strengths of Google lies, and where it should be pursuing in the future.

Only time will tell whether Google’s new TV advertising system is a boom or bust, until then, we have to sit back, relax and perhaps read a little from Google news.