Most people don’t realize one critical element when discussing Google’s success and how it will impact other more traditional media (advertising) businesses. The key area overlooked is the role of the auction marketplace to define price for advertising services or paid search results.
Why is this important?
In general, media businesses are all about the sale of the audience to advertisers. Generally, these industries rely upon third-parties to provide audience metrics. These audience metrics become an exchange standard used between buyers and sellers. Most media businesses have enough scale so the marketplace has enough information to determine a “fair” price each audience member.
The use of the auction process is important for the monetization of the long tail. The auction marketplace is the most efficient method to determine prices for the sale of goods and services which don’t have pre-existing price history.
This auction methodology can be used in various mediums which also have imperfect marketplaces. Look to Google to change all advertising marketplaces as these marketplaces to digital. The D-Mark acquisition (digital delivery of radio advertising) combined w/ Google’s auction experience will extend Google’s business to one of the most inefficient advertising marketplaces.
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