Google Adsense •Doubleclick •MSN.Com •Yahoo Publisher •Valueclick Network •AOL.Com •Aquantive •Quigo •Ask.Com •24/7 Real Media
Total Page:16
File Type:pdf, Size:1020Kb
DefiningDefining thethe RelevantRelevant ProductProduct MarketMarket forfor GoogleGoogle-- DoubleClickDoubleClick MergerMerger Robert W. Hahn, Reg-Markets Hal J. Singer, Criterion Economics IndustryIndustry BackgroundBackground InIn 2007,2007, U.S.U.S. advertisersadvertisers werewere expectedexpected forfor thethe firstfirst timetime toto spendspend moremore onon onlineonline advertisingadvertising thanthan onon radioradio advertisingadvertising • Source: eMarketer U.S.U.S. onlineonline advertisingadvertising revenuesrevenues inin 20072007 werewere roughlyroughly $17$17 billion,billion, anan increaseincrease ofof 3535 percentpercent overover 20052005 revenuesrevenues • Source: Interactive Advertising Bureau 2 TheThe InputsInputs toto anan OnlineOnline AdAd Suppliers of online advertising provide three primary inputs: (1) ad tools, (2) intermediation, and (3) publisher tools Ad tools: software packages that allow advertisers to manage inventory and produce ads Intermediation: matching advertisers (buyers) to publishers (sellers) in an advertising marketplace • publishers’ direct sales forces • “ad networks” (resell publisher ad space) • “ad exchanges” (match advertisers and publishers) 3 ResearchResearch AgendaAgenda OurOur analysisanalysis focusesfocuses onon whetherwhether differentdifferent channelschannels ofof onlineonline advertisingadvertising representrepresent aa singlesingle productproduct marketmarket Limitation:Limitation: WeWe dodo notnot analyzeanalyze whetherwhether otherother formsforms ofof advertisingadvertising (e.g.,(e.g., print)print) shouldshould alsoalso bebe includedincluded • Reid, King, Martin and Soh (2005) (finding that local advertisers perceive Internet advertising to be a poor substitute for traditional media) 4 SegmentsSegments ofof thethe OnlineOnline AdvertisingAdvertising IndustryIndustry andand thethe MajorMajor ProvidersProviders Online Advertising Search-Based Publisher-Based Contextual Graphic •Google.com •Yahoo.com •Google AdSense •DoubleClick •MSN.com •Yahoo Publisher •ValueClick Network •AOL.com •aQuantive •Quigo •Ask.com •24/7 Real Media 5 ContextualContextual andand GraphicGraphic AdAd InputInput ProvidersProviders Contextual Graphic • DoubleClick Advertiser Tools • aQuantive • ValueClick • Google Adsense • Direct Sales • ValueClick Intermediation • Yahoo • aQuantive Publisher • 24/7 Real Network Media • DoubleClick Publisher Tools • 24/7 Real Media 6 TheThe SearchSearch SegmentSegment GoogleGoogle collectscollects betweenbetween 7070 andand 7676 percentpercent ofof searchsearch adad revenuerevenue •• Source:Source: AlanAlan RimmRimm--Kaufman,Kaufman, eMarketereMarketer TheThe toptop tenten paidpaid searchsearch advertisers,advertisers, generatinggenerating 1616 percentpercent ofof allall sponsoredsponsored links,links, werewere allall retailretail oror comparisoncomparison shoppingshopping sitessites •• Source:Source: comScorecomScore 7 TheThe PublisherPublisher--BasedBased SegmentSegment LineLine betweenbetween texttext--basedbased andand graphicgraphic adsads isis blurringblurring • Google’s AdSense, which scans a page’s content and selects an appropriate ad, can now deliver “text or image ads.” 6060 percentpercent ofof thethe $2$2 billionbillion aa yearyear contextualcontextual segmentsegment waswas claimedclaimed byby GoogleGoogle’’ss AdSenseAdSense • Source: eMarketer GraphicGraphic adsads useuse electronicelectronic tagstags oror ““cookiescookies”” toto tracktrack whichwhich sitessites anan InternetInternet useruser visitsvisits (behavioral(behavioral ratherrather thanthan contextual)contextual) 8 LegalLegal PrecedentPrecedent onon MarketMarket DefinitionDefinition KinderStart.comKinderStart.com LLCLLC v.v. Google,Google, IncInc PlaintiffPlaintiff allegedalleged searchsearch resultresult rankingranking abusesabuses • Argued that search advertising was a relevant product market CourtCourt rejectedrejected thisthis definitiondefinition asas beingbeing tootoo narrownarrow • “Because a website may choose to advertise via search-based advertising or by posting advertisements independently of any search, search-based advertising is reasonably interchangeable with other forms of Internet advertising.” 9 SurveySurvey DataData AccordingAccording toto MergerMerger Guidelines,Guidelines, productproduct marketsmarkets areare defineddefined basedbased onon ““evidenceevidence thatthat buyersbuyers [1][1] havehave shiftedshifted oror [2][2] havehave consideredconsidered shiftingshifting purchasespurchases betweenbetween productsproducts inin responseresponse toto relativerelative changeschanges inin priceprice oror otherother competitivecompetitive variables.variables.”” InIn thethe absenceabsence ofof evidenceevidence onon [1],[1], aa surveysurvey cancan informinform [2][2] 10 SurveySurvey BackgroundBackground Firm:Firm: ShawShaw andand CompanyCompany Respondents:Respondents: 200200 retailretail advertisementadvertisement managersmanagers whowho hadhad purchasedpurchased publisherpublisher--basedbased advertisingadvertising withinwithin thethe lastlast yearyear RespondentsRespondents answeredanswered asas manymany asas 2121 questionsquestions relatedrelated toto theirtheir usageusage ofof onlineonline advertising,advertising, theirtheir substitutionsubstitution preferences,preferences, andand theirtheir firmfirm characteristicscharacteristics 11 RepresentativeRepresentative RespondentRespondent SpentSpent $2.4$2.4 millionmillion onon onlineonline advertisingadvertising inin thethe lastlast twelvetwelve monthsmonths BeenBeen inin businessbusiness forfor roughlyroughly 6.56.5 yearsyears HadHad aboutabout 550550 employeesemployees ““FinancialFinancial servicesservices oror insuranceinsurance”” waswas thethe mostmost commoncommon industry,industry, followedfollowed byby ““ClothingClothing apparelapparel oror shoes,shoes,”” andand ““ComputerComputer services,services, hardware,hardware, softwaresoftware”” 12 DoDo AdvertisersAdvertisers ViewView GraphicGraphic AdsAds asas SubstitutesSubstitutes forfor ContextualContextual Ads?Ads? Q6.Q6. SupposeSuppose thethe priceprice ofof graphicgraphic adsads placedplaced onon allall publisherspublishers’’ websiteswebsites increasedincreased byby 1010 percent.percent. HowHow wouldwould youryour purchasespurchases ofof texttext--basedbased adsads placedplaced onon publisherspublishers’’ websiteswebsites change?change? Not at all. Increase by 5 percent or less. Increase between 5 and 10 percent. Increase by 10 percent or more. Decrease by 5 percent or less. Decrease between 5 and 10 percent. Decrease by 10 percent or more. Don’t Know / Refused / NA. 13 DoDo AdvertisersAdvertisers ViewView GraphicGraphic AdsAds asas SubstitutesSubstitutes forfor ContextualContextual Ads?Ads? Amount Percent Not At 12% All Increase < 5% 12% 5-10% 31% > 10% 25% Subtotal 68% Decrease < 5% 5% 5-10% 6% > 10% 2% Subtotal 13% Don’t Know/Refused/NA 9% 14 HowHow WouldWould CurrentCurrent DoubleClickDoubleClick CustomersCustomers ReactReact toto aa PricePrice Increase?Increase? Q10. [ASK ONLY THOSE WHO USED DOUBLECLICK SERVICE IN LAST YEAR] Now suppose that the price of DoubleClick’s graphic ads services – including ad management or exchange software – increases by 10 percent. Would you: Purchase the same amount of graphic ads through DoubleClick. Purchase the same amount of graphic ads through another firm (such as ValueClick, aQuantive, or 24/7 Real Media). Purchase fewer graphic ads through DoubleClick and increase the amount of text-based ads you purchase on the publisher’s website. Purchase fewer graphic ads through DoubleClick and increase the amount of search-based ads you purchase. Keep everything the same. Don’t Know / Refused / NA. 15 HowHow WouldWould CurrentCurrent DoubleClickDoubleClick CustomersCustomers ReactReact toto aa PricePrice Increase?Increase? Percent Purchase Same Amount of Graphics 30% Ads Through DoubleClick Purchase Same Amount of Graphics 41% Ads Through Rival Firm Purchase Fewer DoubleClick Graphic 19% Ads and More Contextual Ads Purchase Fewer DoubleClick Graphic 9% Ads and More Search-Based Ads Don't Know/Refused/NA 1% 16 ConclusionsConclusions Advertiser tools/intermediation services used in one channel likely belong in the same product market as advertiser tools/intermediation used in another channel Google could drive some marginal DoubleClick customers to contextual ads (dominated by Google) Evans & Noel (2007): Given network effects in online advertising, and given the higher absolute margins of Google’s Adsense relative to DoubleClick’s service, amount of switching between channels need not be significant 17 DharDhar’’ss CritiqueCritique ofof OurOur SurveySurvey ClaimClaim 1:1: AA smallsmall increaseincrease inin DoubleClickDoubleClick’’ss adad serviceservice feesfees couldcould notnot induceinduce thethe levellevel ofof substitutionsubstitution byby onlineonline advertisersadvertisers evidencedevidenced byby thethe survey.survey. ClaimClaim 2:2: FindsFinds faultsfaults withwith thethe surveysurvey design,design, includingincluding thethe lacklack ofof openopen--endedended questionsquestions andand samplesample size.size. 18 DharDhar’’ss CritiqueCritique ofof OurOur SurveySurvey DemandDemand responseresponse amongamong onlineonline advertisersadvertisers thatthat currentlycurrently useuse DoubleClickDoubleClick servicesservices (19%)(19%) isis proofproof thatthat thethe surveysurvey resultsresults areare ““obviouslyobviously implausible.implausible.”” • Cites blog claiming that the cost of display ad