2. PAID SEARCH

3. PAID SEARCH - RHS

4. PAID SEARCH - FEATURED

5. IN THE 1990s, STANFORD STUDENTS SERGEY BRIN AND LARRY PAGE DEVELOPED A SEARCH ALGORITHM

6. THEY TRIED TO SELL THEIR SEARCH ALGORITHM TO YAHOO FOR $ 1 MILLION Source: Hal Varian’s Berkeley Lecture on Search Economics

7. THEY FOUNDED GOOGLE IN 1998 AND WENT PUBLIC IN 2004

8. AROUND TEN YEARS AGO THERE WERE MANY SEARCH ENGINES

9. TODAY, THERE ARE EFFECITVELY 5 PRIMARY SEARCH PROVIDERS comScore April 2008 Search Engine Rankings

10. AND 3 PAID SEARCH PROVIDERS Based on June 2008 Covaris numbers reported at mediapost (msn is inferred)

11. PAY PER CLICK MODEL $0.25 x 10000 clicks = $2500 $1.00 x 2500 clicks = $2500 $10.00 x 250 clicks = $2500

12. GOOGLE’S ORGANIC SEARCH GOAL IS USER SATISFACTION

13. GOOGLE’S PAID SEARCH GOAL IS USER SATISFACTION ADVERTISER SATISFACTION MAXIMUM PROFITABILITY

14. PAY PER CLICK MODEL $0.25 x 10000 clicks = $2500 $1.00 x 2500 clicks = $2500 $10.00 x 250 clicks = $2500

15. WHY AD POSITION MATTERS – EYE TRACKING Source: Jan Pederson’s Search Quality Presentation at Berkeley (2007)

16. PPC - BIDDING ashtonsd90.com bids $1.38 ritzcamera.com bids $1.17 shopcartusa.com bids $3.23

17. ashtonsd90.com bids $1.38

18. ritzcamera.com bids $1.17

19. shopcartusa.com bids $3.23

20. HOW RELEVANT IS THE LANDING PAGE AND AD?

21. RANK THEM ashtonsd90.com bids $1.38 ritzcamera.com bids $1.17 shopcartusa.com bids $3.23

22. NORMAL AUCTION ashtonsd90.com bids $1.38, ranks 2 nd and pays $1.38 ritzcamera.com bids $1.17, ranks 3 rd and pays $1.17 shopcartusa.com bids $3.23, ranks 1 st and pays $3.23

23. VICKREY AUCTION (VCG) ashtonsd90.com bids $1.38, ranks 2 nd and pays $1.17 ritzcamera.com bids $1.17, ranks 3 rd and pays ??? shopcartusa.com bids $3.23, ranks 1 st and pays $1.38

24. GOOGLE AND YAHOO USE A GENERALIZED SECOND PRICE (GSP) AUCTION Google’s customers are ranked based on a quality score * their bid and pay slightly more than the next ranked bidder not exceeding their maximum bid. PRICE AND RANKING ARE RECALCULATED EACH QUERY

25. AD RANK = BID x QUALITY SCORE (QS) ashtonsd90.com 1.38 x 4 = 5.52 ritzcamera.com 1.17 x 6 = 7.02 shopcartusa.com 3.23 x 1 = 3.23

26. HYPOTHESIZED PRICE = NextPlace(AR) / QS +.01 ashtonsd90.com 1.38 x 4 = 5.52 pays 3.23/4 =.82 ritzcamera.com 1.17 x 6 = 7.02 pays 5.52/6 =.93 shopcartusa.com 3.23 x 1 = 3.23 pays minimum.05

27. HOW MUCH WOULD NIKON HAVE TO PAY FOR NUMBER 1? HYPOTHESIZED PRICE = NextPlace(AR) / QS +.01 CompanyBidQSAR Ashtonsd90?4 Ritzcamera1.1767.02 Shopcartusa3.231.05

28. GOOGLE SYNDICATES ITS ADS TO PARTNER SITES

29. GOOGLE SYNDICATES ITS ADS VIA ADSENSE

30. A FEW ADSENSE SITES GENERATE GOOD REVENUE As compiled on mindofmichael.com

31. ADSENSE PARTICIPANTS AGREE NOT TO DO BAD THINGS

35. CLICKFRAUD

36. PAID SEARCH IS SANDBOXED FROM ORGANIC

37. WHEN I CLICK HERE, I DON’T CLICK HERE

38. PHOTO ATTRIBUTIONS Slide 37: 'Happy Kids NEED A Healthy Sandbox‘ www.flickr.com/photos/44124458380@N01/567277264www.flickr.com/photos/44124458380@N01/567277264