New PPC Ranking Algo: "Truthful Auction Pricing of Keywords"

[rustybrick]

Abstract and link posted by Gary Price at http://blog.searchenginewatch.com/blog/051101-221356

We present a truthful auction for pricing advertising slots on a web-page assuming that advertisements for different merchants must be ranked in decreasing order of their (weighted) bids. This captures both the "Overture model" where bidders are ranked in order of the submitted bids, and the "Google model" where bidders are ranked in order of the expected revenue (or utility) that their advertisement generates. Assuming separable click-through rates, we prove revenue-equivalence between our auction and the non-truthful next-price auctions currently in use.

http://dbpubs.stanford.edu/pub/showD...me=2005-31.pdf [PDF]

Thoughts?

[vinniesmith2227]

It appears that the link is bad or the site is down....

[cline]

Their assumptions are seriously flawed.

1. Their model assumes that conversion rates, order values, and customer returns do not vary by ad position. But such factors do vary by position.

2. It assumes that advertisers have perfect knowledge of the value of a click. Actually, we're making estimates with often huge error margins and considerable long-term uncertainty, in the case of lifetime value assessments, for which a profit premium is required.

3. It assumes that advertisers should be willing to cede all excess profitability to the ad medium. We can't do that because the extra profitability is needed to cover testing and other areas of "excess" unprofitability.

4. From p2. "there may be an incentive for a merchant to bid less than its true value for each click on its bid, but there is never an incentive for over-bidding." False. We even have a term for it: "bid jamming". And there are good reasons why an advertiser would pursue either as a strategy or as a tactic bidding more than a click is worth.

Lastly, perhaps "truthful" has some specific meaning in this academic context, but as a practitioner I find it to be both inaccurate and offensive.

-- just the opinion of one of those "expensive consultants" (p2) whose services would be unnecessary, the authors claim, if their system were adopted.