http://www.readwriteweb.com/archives/do_not_track_legislation_could_change_ad_landscape.php

The article starts by mentioning online advertising including the possible Do Not Track bill and Facebook advertising/privacy issues. The article then gets into push vs. pull marketing. With the Do Not Call list and Spam filters in e-mail the only form of push marketing left is junk mail. This is why online advertising has become so huge. It was a new form of pull marketing (specifically search driven CPC). However this form of advertising is showing problems now: the price to advertisers is rising because of the auction model, it is most effective for impulse buy products (around $100 and under), and is open to click fraud.

So what are the alternatives to CPC (Cost per Click)? There’s the old CPM (Cost per Impression) model. This worked when the web was static html pages, but in today’s more complicated websites this doesn’t work as well (for various reasons which this article does not go into).

What does all this have to do with Do Not Track? Most ads now are shown to users based on cookies, or data that has been tracked about their recent searches and web sites they’ve visited. This allows advertisers to display ads related to topics the user has been thinking about recently, which translates to more clicks because the ads are relevant. If Do Not Track goes through it ends this (called Behavioral Targeting), which is currently the most effective way to advertise on the web. There are several competing possibilities to replace CPC if Do Not Track harms it as much as some expect. These alternatives include CPA (Cost per Action- swings heavily in the advertisers favor because they only pay when users give them something whether it’s a sale or a e-mail sign up), VRM (Vendor Relationship Management- which is still being developed, but centers on the user saying what they want and vendors responding to that- see here for more information: http://projectvrm.org/ ), and a return to brand advertising (with new creativity from the advertisers).

Is the future of CPC really as bleak as this article makes it sound to be? One of the major flaws that the article claims CPC has is rising price due to the auction model. As we discussed in class, with the auction pricing of ad slots, a social welfare maximizing result should occur. This is true if the advertisers bid their value for the slot (the optimal strategy). As long as advertisers don’t bid (or pay) over their value for the slot, this shouldn’t be a problem. Competition will always drive profits lower, and if there are lots of companies competing for a few ad slots, the prices will be high and profits low (think of the buyer-trader-seller networks with competition). This isn’t a problem with CPC and a new model is not going to change that.

Do Not Track could still be a serious threat to CPC, as its effectiveness would decrease significantly. However how is CPA really different? You would want users to see relevant ads so they click on them and take an “action”. So Do Not Track would harm CPA as much as CPC.

What Do Not Track would actually do is take power away from the ad serving company (Google, DoubleClick- not the company that is advertising) because their current power is their ability to match users and advertisers. This power is also evidenced by the complaints of advertisers mentioned earlier for raising prices (also again mentioning the buyer-trader-seller graph- there are many more buyers and sellers: users and advertisers, then there are traders: ad serving companies, so the ad serving companies have the power). Losing the ability to match users to advertisers harms not just the ad serving companies, but the advertisers as well because their ads would be less effective. So what is needed is a new way to match consumers to advertisers. The only solution mentioned in this article that offers a new way to match is VRM. This leads me to believe that VRM could be the new model for online ads (with power in online advertising going to the company that successfully does the matching).