Monday, December 8, 2014

Tyler Cowen Confusion on Basic Economics of Marketing

Tyler Cowen has this post up:
A variety of media stocks may fall even further

…Google announced that 56.1% of ads served on the internet are never even “in view”—defined as being on screen for one second or more. That’s a huge number of “impressions” that cost money for advertisers, but are as pointless as a television playing to an empty room.

... The web metrics company ComScore reported last year that 46% of online ads are never seen., an ad fraud company acquired by Google in February, has pointed out that a large portion of ads are “viewed” only by robots, revealing that one botnet of 120,000 virus-infected computers viewed ads billions of times, running up the tab for advertisers without offering them the human eyeballs they sought.
With that headline (in bold), Cowen is giving the impression (pun intended) that this news will hurt Google. But this does nothing but demonstrate his complete confusion about basic calculations made in direct marketing.

Direct marketing, of which Google ads are a category, generate revenue based on results. Thus it doesn't matter what percentage of ads "are seen." Advertisers, bottom line, watch the click throughs (or actual sales) based on impressions ordered and pay for that.

For example, say for every 1,000 ad impressions purchased, there are 100 click throughs. Any business will pay a specific amount  fo for those click throughs. That's what they want: click throughs. If that amount of click throughs occurs because 100%, 75%,  50% or 10% of ads are seen,. the price will be the same if the click throughs are the same.

The formula/question for businesses is: What kind of click throughs am I getting?  It really doesn't matter to the firm how many views occur to get those click throughs, it just needs to know the click through rate.

Thus, if currently only 50% of ads are seen, a click through rate will be based on that and prices will adjust accordingly. If media stocks drop on this news, of impression failures, it is simply a failure to understand how cost is calculated by advertisers in direct marketing.

1 comment:

  1. This is something new that Tyler Cowen is confused.. How this confusion will be removed?