Optimizing Online Advertising

Google Inc.

  • Provides products and services related to the Internet
    • Mission: “… to organize the world’s information and make it universally accessible and useful.”
  • Most widely known for its search engine
    • User enters a query, Google returns links to websites that best fit query

History of Google

  • 1996 - Sergei Brin and Larry Page, graduate students at Stanford, working on a research project
    • How to measure importance of any webpage using links on the internet

  • 1998 - Incorporated Google as a company and received first funding; database of 60 million webpages

  • 2005 - Initial Public Offering

  • 2007 - Google acquires YouTube and other companies

  • 2013 - More than 1 billion unique monthly visitors

Google’s Business Model

  • Google search engine is free to use, so how does Google make money?

  • Answer: online advertising

Google Advertising - AdWords

  • Why do companies advertise on Google?
    • Google receives heavy traffic
    • Search pages are formatted in a very clean way
    • Companies can choose which type of queries their adds will be displayed for; better targeting
  • 97% of Google’s revenues come from AdWords

How does Advertising on Google work?

  • Advertisers place bids for different queries in an auction

  • Based on bids and quality save (fit of advertiser and ad to the queries), Google decides price-per-click of each advertisers and each query

  • Google then decides how often to display each ad for each query

Price-per-click (PPC)

  • For each query, Google decides each advertiser’s price-per-click (PPC)
    • How much advertiser pays Google when user clicks ad for that query
  • Each advertiser also species a budget
    • Each time user clicks on advertiser’s ad, budget is depleted by PPC amount

Example of price-per-click

Click-through Rate (CTR)

  • Advertiser only pays Google if the user clicks on the ad

  • The probability that a user clicks on an advertiser’s ad is the click-through rate (CTR)
    • Can also think of as “clicks per user”

Example of click-through rate

Average Price Per Display

  • Average amount that an advertiser pays each time its ad is shown is PPC x CTR

How average per display works

Query estimates

  • Google does not control how many times a query will be requested - driven by users!

  • For each query, Google has estimate of number of times query will be requested over a given day

Google’s problem

  • How many times to display each ad for each query to maximize revenue

  • Objective
    • Maximize revenue
  • Decision
    • For each advertiser and query, number of times ad will be displayed for that query
  • Constraints
    • Average amount paid by each advertiser cannot exceed budget
    • Total ads for given query cannot exceed estimated number of requests for that query

Problem data

Modeling the problem

Slates/positions

  • Search result page has space for more than one ad

  • Slate: combination of ads

  • Many possible slates: which ones to display?

Personalization

  • In addition to the query, Google can use other information to decide which ad to display:
    • IP address/geographic location
    • Previous Google searches/browser activity on Google
  • How do we account for this?

AdWords at Google’s scale?

  • In reality, problem is much larger
    • Hundreds to thousands of bidders, over $40 billion
    • Gains from optimization at this scale become enormous