Showing posts with label google. Show all posts
Showing posts with label google. Show all posts

Saturday, December 15, 2012

Why it makes economic sense for Google to build computer programs that do the jobs that journalists do

A quick note.  Google appears to be expanding its computer programs that do the work that journalists do.

These programs are called digital journalism tools, and the keywords here are digital and tool.

And once again, journalists and journalism organizations are helping Google take away their jobs.

Why do I suspect this - Google is offering journalists and journalism students a 10-week fellowship for $7,500 and $1,000 in travel funds. The price someone is willing to pay journalists for their labor is a key economic signal - it tells the journalists exactly how much they are worth to the company that is paying them. 

That means at this moment Google and the foundations are willing to pay journalists about $8,500 for 10 weeks of work.

Google only makes $0.02 a search, so the journalism foundations listed in Google's press release are subsidizing the fellowships. (I'm not linking because the last thing I want to do is help Google).

The subsidy might be needed because at $0.02 a search, each journalist has to generate 425,000 searches before the work they do is worth any money.

The small amount of revenue generated by each search is the reason that Google must develop computer programs that are more efficient and capable than any human journalists can be.  The programs at Google must compete with computer programs at other new media companies that are also learning to do the same jobs that journalists do.

What are these companies competing for?  To drive traffic to websites where digital advertising tools are used to sell and deliver advertising. The keywords here are digital and advertising. 

I wonder if the foundations financing this venture have offered to do it again next summer. Google will has every reason to keep working with the foundations so long as the fellowships help Google refine its digital journalism tools, making the tools better and better and faster and faster at doing jobs that used to be done by people.

Meanwhile, journalists at all the newspapers that recently abandoned their print editions are about to find themselves competing against computers that drive traffic to websites and sell advertising. And when people compete against machines, machines always win. 

Wednesday, February 28, 2007

Of Search Engines, Ad Prices, and Blind Sales

A report that Google and Yahoo are losing ad sales to an upstart might, at first glance, raise doubts about the search giants’ understanding of the advertising business. However, a closer look suggests the famously smart people at Google and Yahoo know exactly what they are doing.
The article in Monday’s New York Times reports a new company, Quigo Technologies, convinced Fox, ESPN, and Cox Enterprises to abandon the search giants as providers of text advertising. These ads appear beside your search results in response to the words you are searching for.
Quigo, unlike Yahoo and Google, tells advertisers where ads appear on the web and allows advertisers to buy ads on specific sites, the Times reports.
It may seem odd for search giants to conceal this information because advertisers target people likely to buy their products. So most advertisers want to appear on websites with content that attracts large numbers of people potentially interested in their products – if you sell sporting goods, you want to be on the big sports sites.

How Search Advertising Works

According to Advertising Age, the search giants make most of their money from these text ads.
Advertisers buy key words, and their ad appears when those words are typed in a search engine. The advertiser only pays if someone clicks on an ad. Advertisers bid a certain amount for each click, and that determines how often and where their ads appear.
The search giants display the ads on their pages and on innumerable other web sites participating in their advertising programs. The advertiser knows how many clicks it paid for, but not where the clicks came from.
If advertisers knew ads were appearing on sites they want to target, wouldn't they buy even more ads? So why is this information concealed?

Concealing Information Increases Ad Revenues

I am indebted to Roy W. Kenney and Benjamin Klein , authors of a 1983 article in the Journal of Law and Economics (cite below), for this explanation:

Advertisers consider some web sites to be better than others. They may be attracted by the large number of sites available through Google and Yahoo, but most advertisers would probably like to select some sites and ignore the rest.
But advertisers cannot select sites, so they must instead estimate the average value of a click from all sites, desired or not. Many people who click on an ad will not buy anything. And sites with small amounts of traffic probably have smaller proportions of buyers among those who do click on ads.
So the best sites will generate large numbers of clicks and many more likely buyers. Another way to think of this is that average sales per click will be much higher on the desirable sites.
If advertisers could identify the desirable sites they would bid more for those, and advertising would be concentrated there. But Google and Yahoo would be forced to sell ads for much less on the undesirable sites, and their total advertising revenue would decline.

Two Alternatives

What if Google and Yahoo instead offered to sell advertisers web sites in groups -- or bundles -- and included some less desirable sites in each bundle? Buyers would look for bundles they considered bargains, and only bid for those. The search giants would be forced to sell ads on the remaining bundles for less than buyers would pay if they did not know what bundle they were getting.
Another alternative would allow buyers to experiment, buying ads on a variety of sites to see which sites produced the best results. Advertisers would make adjustments after their initial purchase, asking the search giants to redirect ads to sites generating the most sales. But this would be costly for the search giants. It would also have the same effects on ad prices and revenues as the other alternatives.

A Change is (Probably) Gonna Come

The existing arrangements also make it possible for Google and Yahoo to distribute ads differently than expected. For example, an ad on 1,000 blogs might generate 1,000 clicks, but few buyers. The same ad on a few big news sites might generate the same 1,000 clicks and deliver far more potential buyers. Google and Yahoo are asking buyers to trust that this is not happening.
The Times article also reports some buyers are worried about click fraud. This happens when people click on ads just to generate revenue for the sites where they appear (Google and Yahoo share some of the revenue with the site).
The article says Google is planning to give advertisers more information about where ads appear. The search giant is feeling competitive heat from companies like Quigo. It will be interesting to see what happens next.

(The cite for the Kenney and Klein article, "The Economics of Block Booking," is Journal of Law and Economics, Vol. 26, No. 3. (Oct., 1983), pp. 497-540.)