Network 20Q--Q2 How does Google sell ad spaces?

When you use Google search, you will find that the pages you search will also suggest some ads on the right side of the page, in addition to the search results on the left. So how does Google earn money from these ads and what benefits advertisers can gain through Google ads?

Google's search page has different values for different ad positions, and obviously, like our search, we usually look at the top results. Ad bit is also the same, ranked the top of the ad bit more than the post-click Click-through rate is higher, and the higher the number of clicks can let advertisers are known, so advertisers can earn more benefits. The click-through rate for the ad bit is C (times/h, one-hour clicks), and it is assumed that the click-through rate of the ad bit and the ad content that the ad is running on is independent, which means that the CTR of the ad bit is not affected by the ad content.

Advertisers want to show their content in the ad, they have to bid (BID), Google integrated each advertiser's bid decision to show which advertisers to the ad position, and let the displayed advertisers pay advertising fees; what can advertisers get? Just to show that the ad bit can increase their click-through rate and exposure, assuming that the average per-click will give The Advertiser R (the value is determined by the content of the ad itself) the proceeds of the dollar, then hourly advertisers can gain from the ads is r*c, This is also known as The Advertiser's evaluation Value (Evaluation) for displaying their ad content to the ad bit. Advertising, advertisers have to pay for Google (paid), this value is not necessarily equal to their bids, and Google's billing plan is also related to the auction method of advertising (will say later), and they can benefit from this advertisement evaluation so much interest, So their net earning is: Evaluation-pay.

Advertisers bid, Google decides which of them to display to the ad position, and charges them for advertising .... Obviously, this is an auction process, The Advertiser bid is equivalent to the bid, and they display to the ad position is equivalent to the winning bid, the whole process can be abstracted into such a form:

1 Sellers (Google)

N a buyer (advertiser)

K something (AD bit)

Buyer: Bid

Seller: Allocate resources to the buyer, and want the buyer to charge the fee (the method of collecting the fee has the specific auction method to decide)

Auctions can be divided into single item auctions and multiple item auctions, first from individual item auctions. Single Item auctions have public auctions and sealed auctions.

In a public auction there are usually two methods of auction: One is the price of the auction, the auction should be our most common method of auction, first sellers to a price, the price is usually lower, and then the buyers to bid, when a buyer's bid is high enough so that no one to compete with him, the seller announced that the buyer won the bid The other is the descending auction, the same buyers first to a starting price, the starting price is usually higher, if the price of no one to buy, continue to descend, once a buyer announced the purchase, then the auction ended, the buyer won the bid.

In a sealed auction, bidders do not know their own bid price, only by virtue of their own valuation of the auction items and their own strategy to bid. In sealed auctions, it is usually divided into two ways: one is the highest price sealed auction (Sealed-first-price-auction), which first allows bidders to vote for each bid, and then the sellers compare their bid price and sell the items to the highest bidder. And let the buyer pay the buyer at his own bidding price, the other is the second high price sealed auction (Sealed-first-price-auction), which is similar to the highest price sealed auction, the sellers also compare their bid price, and sell the goods to the highest bidder, But just ask the buyer to pay the seller at the second highest bid price. Intuitively, it seems that the highest price is the best, because the highest bid price can be charged, why the second high bid price to collect fees? In fact, it is not necessarily the case, if the highest price sealed to auction, the seller's bid price will have a sense of decline, because their payment is the cost of their bids, how much directly related to the bid to pay how much, in addition, they can not blindly reduce their bid price, Otherwise, it will greatly reduce their chances of winning the bid, so they have to collect all kinds of information to estimate the opponent's bid, which will take time and energy and money, which would continue to affect their bid price, and if the second high price sealed auction, Sellers only need to follow their valuation of the auction items to bid, because they have to pay the price after the bid is not directly linked to their own bid price, determined by the second high bid price, so that buyers do not have to spend a lot of time and energy and money to collect all kinds of information, Just bid on the evaluation price of the item, and the price of the item will rise as the cost of collecting the information is spent. In contrast, for a single item, a second high-priced sealed auction is more likely to entice users to bid on their own evaluation of the item (which is why this is analyzed later), a behavior called (Truth for bidding).

If the second high-priced sealed auction extends to auctions of multiple items, the auction method becomes a generalized second high-priced sealed auction (gsp,generalized Second Price), which is also the advertising auction method used by Google. For example, there are 3 ad positions, 4 people to bid, respectively bid price for R1 > R2 > R3 > R4, then the first person will get the first ad position (the highest click-through rate), pay the cost of R2; the second person gets a second ad, and the cost is R3 The third person gets a third ad, pays the R4, and the fourth person has not won the bid because his bid price is too low. This approach does not attract the user's truth for bidding behavior, while another auction method that is sealed for multiple items can attract the user truth for bidding, which is called vcg,vickrey-clarke-groves.

Several factors should be considered as an auction plan:

1, the seller's earnings. That is, the price the buyer pays to the seller.

2, the buyer's return. That is, the value that is obtained from the seller minus the cost of paying the buyer.

3. As the designer of the auction scheme, it should also consider the fairness and efficiency of the auction, and let the buyer make truth for bidding as far as possible, that is, let them bid according to their valuation of the auction items.

The second high-priced sealed auction plan to better take into account the above three factors, it will auction the bid and the price of two process to coupling, can bid to see the buyer's bid price, the specific price after winning the bid is to look at the price of other buyers (specifically to see the second high-priced buyers bid price). Just mentioned, the second high-priced sealed auction can attract users to their own evaluation of the value of the item to bid, assuming that a buyer a for an auction item evaluation value of V (the highest value), and his bid value is B, if v = B, then his behavior is truth for bidding. If the bid price is less than the estimate, B < V, then assume that another buyer B (the second highest evaluation value) bids according to the evaluation value and the bid price is B1, if B < B1 < V, then buyer A can not win the bid, the return is 0, but if he bids according to the evaluation value, Then he can win the bid, and the return is: V-B1. If the valuation value of buyer A is the second highest and his bid value is higher than the evaluation value, B > V, and Buyer B evaluates to the highest value, and bids B1 according to the evaluation value, then if v < B1 < b, then he can win the bid, but the return is: V-B1 < 0, and if his behavior is truth for bidding, he gets a return of 0. To sum up, Truth for bidding is the bidder's best bid strategy, so attracted a lot of buyers Truth for bidding, this program is also used by many institutions. And if the auction is sealed at the highest price, the user will not bid according to their evaluation value, because if they win the bid, the return is 0. Therefore, they will deliberately reduce the bid price, which will cause a great loss to Google, the specific reasons may be explained in many ways, perhaps through specific experiments to verify this conclusion.

Similar to the second high-priced sealed auction scheme is ebay's auction program, which has the following characteristics:

1. Duration of the auction.

2, the starting price.

3. The lowest increment (delta) of each call price.

4, escrow agent. The buyer bids the bid until the buyer gives the highest price below the current auction's bid price.

Suppose on the first day, ebay has an auction item, start to call the price 5$, and the lowest delta Delta for 1$,alice bid 12$, the system will be regarded as the winning bid, and the bid price is 5$, at this time the price becomes: Min (5, 5) +delta = 6$.

The next day Bob bids 8$, at this time because 12$ > 8$+1$,alice's escrow agent can beat Bob by a fare increase, so the automatic bidding 9$ (and the system continues to think he is the winning bidder), at this time the highest price of the auction and the second high price are: 9$, 8$, auction the latest bid is: min (9$, 8$+delta) + Delta = 10$.

The third day, Bob bids 10.5$, at this time because 12$ > 10.5$+1$,alice Escrow agent can beat Bob, so automatic bidding 11.5$, at this time the highest price and the second high price of the auction are: 11.5$, 10.5$, auction the latest bid is: min ( 11.5$, 10.5$) + Delta = 12.5.

On the fourth day, Bob bids 17.5$, at this time due to 12$ < 17.5$+1$,alice's escrow agent abandoned the bid, at this time the latest bid is: Min (17.5$, 11.5$+1$) +delta = 13.5$.

On the fifth day, Chris bid 18$, at this time due to 17.5$ < 18$+1$,bob's escrow agent abandoned the bid, at this time the highest bid price for auction: Min (18$, 17.5$+1$) +delta = 19$.

Eventually Chris wins the bid and needs to pay min (18$, 17.5$+1$) = 18$.

(This part of the public class is also more vague, then check the information to go through the idea of a change in this part again)

Extending the second high-priced sealed auction to multiple items becomes the GSP, the auction method used by Google. Take a look at the following example:

According to our previous GSP rules, the first bidder will eventually get the first ad, pay $25, the second bidder will get a second ad, pay $3, and the third bidder will be given a third ad position to pay the fourth highest bid for the third ad position. But as we said before, the GSP does not attract buyers truth for bidding, the second high-priced sealed auction for a single item, with a loophole, see this example:

Three Auctioneers for each time (this is a little different than the previous hour, but the same principle) the value of the click Is 12$, 8$, 4$, and the two ad-bit clicks are 400, 300. If you bid according to truth for bidding, the bid value of three bidders for each click should be 12$, 8$, 4$, when the first bidder gets the first ad position, the return is: (12-8) *400= 1600$ While the first bidder did not bid according to the evaluation value (assuming the bid 7$), the other two bids in accordance with the valuation, then he will receive a second advertising position, the return is: (12-4) *300 = 2400$, greater than the value of the evaluation of the return.

From the above example, the GSP does not attract buyers to bid according to the evaluation value, and VCG can, then why does Google not use the VCG auction plan?

The reasons are:

1, the impact of auction benefits is not only truth for bidding.

2, but also to be able to explain the auction plan, Google face a variety of customers, can make them simple and clear understanding of the auction plan is also very important, and VCG more complex.

3. Multiple auctions at the same time. It is not clear that this is mentioned in the public class.

4, irrational behavior. While Google has turned the auction solution from GSP to VCG, many users are using the GSP as a means of speculation, making Google lose more. Not very understanding.

Resources:

1, "Network 20Q", Princeton.

2, https://support.google.com/adsense/answer/160525?hl=en

3, Http://en.wikipedia.org/wiki/Sealed_first-price_auction

4,Http://baike.baidu.com/view/4421707.htm?fr=aladdin