The Components and Impact of Sponsored Search Bernard J

IT SYSTEMS PERSPECTIVES The Components and Impact of Sponsored Search Bernard J. Jansen, Pennsylvania State University Theresa B. Flaherty, James Madison University Ricardo Baeza-Yates, Yahoo! Research Lee Hunter, Google Brendan Kitts, Microsoft Jamie Murphy, University of Western Australia

Sponsored search advertising has dramatically impacted search engines, consumers, and organizations, and will continue to do so in the foreseeable future.

ccording to market- Florida Golf current search engines need to crawl research firm IDC, $35 for 18 holes plus a cart at billions of webpages, index these Internet marketing Orlando Resort’s golf courses documents (including text, images, A is projected to grow OrlandoFloridaResort.com videos, newspapers, blogs, and audio 15-20 percent through 2011, with files), accept millions of Web queries sponsored search advertising the dom- Sponsored search provides the rev- per day, and present billions of links inant model (www.idc.com/getdoc. enue base for major search engines per week. jsp?containerId=prUS21304208). In such as Google, Yahoo!, Microsoft Without sponsored search, it is sponsored search—also known as Live, and Ask, as well as many online doubtful that the major search engines paid search, keyword advertising, businesses that rely on traffic driven could finance anything close to their pay-per-click (PPC) advertising, and by PPC platforms. For example, more current infrastructures to provide search advertising—advertisers pay than 90 percent of the $21.8 billion these services. Keyword advertising search engines for traffic from the Google earned in 2008 came from is critical as a revenue source for the search engine to their websites via sponsored search (http://investor. major search engines and appears to link-based ads that search engines google.com/fin_data.html). be their major business model for the display in response to user queries. foreseeable future. Unlike many online advertising Sponsored Search models that preschedule online ads Components Consumers such as banners, buttons, and sky- Introduced in 1998 by Over- Consumers often use search scrapers on select webpages and ture (later acquired by Yahoo!), the engines to collect information and charge based on the number of ads sponsored search model impacts evaluate alternative products and served, sponsored search dynami- three interrelated components: services. Market-research firm TNS cally places small ads based on search engines, consumers, and reports that an estimated 81 percent keywords that reflect user interests organizations. of Internet users worldwide and 89 and charges based on user clicks. For percent of Internet users in the US example, a sponsored-search ad or Search engines rely on search engines to locate link in response to the query “Florida Sponsored search provides the websites (www.emarketer.com/ golfing,” in which “golf” is the key- revenue stream to support the mas- Article.aspx?R=1006885). Spon- word, might be: sive and expensive infrastructure sored search supports many free

r5its.indd 98 4/22/09 4:00:31 PM search engine services—including an array of metrics that measure the ing. One of the main advantages of currency conversion, flight time effectiveness of advertising dollars. CPC is that the advertiser can easily tracking, desktop searching, and Advertising helps inform and per- audit the number of clicks. Using language translation—that have suade potential customers about a an online auction process, multiple rapidly become essential to many particular brand, good, or service, advertisers bid on potential terms, online consumers. but results have often been difficult which sets the eventual CPC. to measure. This problem is epito- Another metric in the sponsored- Organizations mized in a saying attributed to John search model is cost per action (CPA), Sponsored search is vital for many Wanamaker, the father of modern in which the advertiser only pays if profit- and not-for-profit organizations advertising: “I know that half of my the customer clicks on the ad and to attract the interest of search- advertising budget is wasted, but I’m follows a given call to action such as ers and reach potential customers not sure which half.” purchasing a product. through online advertising. By lever- aging sponsored-search platforms, The impact of sponsored search on advertising is small-to-medium-size enterprises groundbreaking due to an array of metrics that can effectively compete in the online measure the effectiveness of advertising dollars. global marketplace. Sponsored search provides unique opportunities to SMEs at little to no increased Advertising in media such as Sponsored-Search transaction costs. television, radio, magazines, and technologies Commonly used by mail-order newspapers traditionally relies The technologies underlying companies, telemarketers, and cat- on impressions to reach a certain sponsored-search services are com- alogers, direct marketing targets demographic, geographic, or psycho- plex. The primary goal of these individual customers to sell directly graphic target group, an approach technologies is to get relevant ads in to them. Due to the growing amount that calls for running ads as fre- front of interested consumers. There- of digital data at the individual quently as possible. However, it is fore, sponsored-search platforms consumer level and increasingly difficult to precisely determine the provide mechanisms for businesses sophisticated modeling, direct mar- number of customers that actually to develop ads and link them to query keters continue to refine which see or hear the ad or change their keywords that potential customers consumers they target. marketplace behavior as a result of submit to the search engine. Unlike traditional direct market- it, and thus to measure the return on This isn’t as simple as it sounds ing, which segments customers based investment. given that most Web queries are only on demographics and past behavior, This isn’t the case with sponsored one or two terms, and terms can have sponsored search relies on dynamic search, which presents targeted ads multiple derivations and meanings. consumer interests and current as an integral part of a potential consumer needs to reach potential customer’s search experience and Targeted ads customers. Further, keyword adver- impacts several stages of the search Modern sponsored-search plat- tising provides real-time results and process, including information search forms provide means for advertisers to lets direct marketers change adver- and alternative evaluation. tailor their campaigns across myriad tisements immediately. Sponsored search also initially variations. These include keyword To address the growing inter- relied on impressions, but it quickly matching (broad, exact, phrase, or est in sponsored search, the Direct evolved into a more sophisticated negative keywords), keyword gen- Marketing Association now offers a model with multiple layers of mea- eration that automatically produces Search Engine Marketing Certifica- surement. For example, advertisers possible alternate terms to trigger tion (www.the-dma.org/seminars/ can accurately measure customer the ad, and dynamic ad creation that searchcertification) aimed at profes- awareness based on whether a user automatically creates ads targeted to sionals in the industry. clicks on an ad. specific queries. The ad click-through rate (CTR) or In addition to targeting ads based Impact of ratio of clicks to impressions became on user information searches, organi- Sponsored Search the industry standard for gauging an zations can refine target campaigns The impact of sponsored search on advertiser campaign, and cost per based on traditional demographics. advertising is groundbreaking due to click (CPC) became the basis for pric- Sponsored-search platforms include

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Sponsored Search Resources Search engine companies are also pushing into traditional advertis- elow are additional learning materials from a variety of perspectives and sources ing areas with innovations that link B for the interested reader. sponsored-search services to advertising in e-mail, magazines, newspapers, • Google AdWords Learning Center; www.google.com/adwords/learningcenter/ radio, telephony, and television. index.html. • B.J. Jansen and T. Mullen, “Sponsored Search: An Overview of the Concept, History, Educational and Technology,” Int’l J. Electronic Business, vol. 6, no. 2, 2008, pp. 114-131. opportunities • K.B. Jones, Search Engine Optimization: Your Visual Blueprint for Effective Internet There are also several opportunities Marketing, Wiley, 2008. in this area to expose college students • Microsoft Advertising; http://advertising.microsoft.com/home/home. to sponsored search technologies and • D. Park, Full Disclosure: Cracking the Google Online Marketing Challenge, 2009; www. demonstrate the interrelationships gomchabook.com. among search engines, organizations, • Search Engine Land; http://searchengineland.com. and consumers. • Search Engine Watch; http://searchenginewatch.com. Instructors can incorporate the • Yahoo! Search Marketing; http://help.yahoo.com/l/us/yahoo/ysm/sps Yahoo! Search Marketing platform (http://help.yahoo.com/l/ us/yahoo/ysm/sps) into course temporal targeting that displays an ad content to searchers, and this includes projects, while Microsoft and only at certain times of the day or on ads. Therefore, most major sponsored- Google each sponsor competi- certain days, geotargeting that displays search platforms now rank an ad based tions open to students at all levels. an ad only to users within a certain on both the price that an advertiser will The Microsoft Advertising Digital location, and ad reach to control where pay for it (the bid) and a relevance score Challenge (MADC; http://ms-digital- the ad appears on the Web. based on the ad’s CTR. challenge-2009.web.officelive.com/ Keyword-advertising platforms default.aspx) embraces the entire Online auctions use historical data generated from online marketing space, while the Despite or perhaps because of multiple ad displays to calculate the Google Online Marketing Chal- these sponsored-search technolo- relevance score. If an ad is deemed lenge (GOMCHA; www.google.com/ gies, organizations rarely have an less relevant to a particular keyword, onlinechallenge) focuses on spon- ad market completely to themselves. it will drop in ranking regardless of sored-search technologies. Typically, multiple advertisers desire the bid price. In reality, the advertiser In GOMCHA, groups of about five the same set of keywords. To deter- also seeks to display relevant ads, as students participate in a keyword- mine whose ad is shown and where clicks by users who aren’t potential advertising competition that narrows the ad appears on the search engine customers incur a cost with little pro- down the initial number of teams to results page, sponsored-search plat- spective benefit of a purchase. 10, including one global winner and forms use online auctions in which three regional winners (Americas, advertisers bid on the key terms Management tools Europe-Middle East-Africa, and Asia- and phrases to appear in their ads. Finally, organizations have an Pacific). The first GOMCHA in 2008 For example, in the sample ad at the array of management tools such as included more than 8,000 students beginning of the article, OrlandoFlori- account organization software, A/B from 300 universities in 47 countries daResort.com bid might bid 55 cents testing to automatically assess ad across six continents; for 2009, it has on the keyword “golf.” effectiveness, budget management attracted 14,000 students from 500 The more demand there is for tools to control advertising expen- universities in 60 countries. a particular key term, the higher ditures, and campaign analytics to GOMCHA is unique in that students the prices for top placement on the gauge progress to campaign goals. engage with real clients, use real results page. In a CPC model, the These tools make it possible to money, and leverage a real, working, advertiser only pays when a poten- manage and measure the effective- sponsored search information tech- tial customer clicks on an ad that the ness of advertising efforts in ways nology platform. search engine displays. that were impossible prior to the The original Overture scheme advent of sponsored search. Most ponsored search has dramati- ranked ads based on bid. However, permit real-time campaign manage- cally influenced how people search engine companies have an ment for both reporting results and Sinteract with the Web. It has inherent interest in serving relevant changing ads. funded the Web searching infra-

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r5its.indd 100 4/22/09 4:00:36 PM structure that users have grown accustomed to and provided unpar- alleled reach, frequency, and control of marketing efforts and advertising campaigns. The technology underlying sponsored-search platforms—including online auctions, geotargeting, and keyword volume prediction—is extremely complex yet accessible via intuitive system interfaces. Efforts such as MADC and GOMCHA are integrating the real-world aspects of sponsored search with higher education. As the Web evolves, all indica- tions are that sponsored search will continue to have a major impact on search engines, consumers, and organizations. For more information and learning materials from a variety of perspectives, see the “Sponsored Search Resources” sidebar.

Bernard J. Jansen is an assistant professor in the College of Information Sciences and Technology at the Penn- sylvania State University. Contact him at [email protected]. Interdisciplinary Theresa B. Flaherty is a professor of The marketing in the College of Business Communicates to those at at James Madison University. Contact the intersection of science, her at [email protected]. magazine of engineering, computing, Ricardo Baeza-Yates is vice president and mathematics of Yahoo! Research Europe and Latin computational America. Contact him at rbaeza@acm. org. tools and Emphasizes real-world Lee Hunter is a product marketing applications and modern manager at Google. Contact him at problem-solving [email protected]. methods for Brendan Kitts is a program manager MEMBERS at Microsoft. Contact him at bkitts@ 21st century microsoft.com. science. $47/year Jamie Murphy is an associate pro- for print and online fessor in the School of Business at the University of Western Australia. Contact him at [email protected]. edu.au. Subscribe to CiSE online at http://cise.aip.org

Editor: Richard G. Mathieu, Dept. of Computer and www.computer.org/cise Information Systems and Management Science, College of Business, James Madison Univ., Harrisonburg, VA; [email protected]

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