Monday, March 05, 2007

The long tail of advertising

Courtesy: Nidhi

“The long tail” is being talked about in a number of contexts these days – music, books and advertising being most popular. Very simply put, the theory reverses the logic of ABC analysis and Pareto’s 80-20 rule (For businesses, this meant that 80% of your revenues come from 20% of your customers). The earlier theories proposed optimization by focusing on few entities (products/ channels/ customers) to bring in higher value. The theory of long tail reverses the logic by saying “hits” (entities that bring higher value) constitute only a fraction of total value and significant value lies in entities of higher value.

This is the concept that has revolutionized the way Web 2.0 is evolving and the way internet companies generate revenues. So, here I talk about the long tail concept in relation to internet advertising. Since internet has emerged as a new marketplace, cost of distribution has hit rock-bottom. It has become feasible to cater to a number of smaller entities. In advertising context, these entities are advertisers and WebPages (publishers). There are a few advertisers with huge budgets and infinite number of those with smaller budgets. Traditional media like TV, radio, newspaper are costly vehicles for advertising. Internet, on the other hand, provides infinite ad space with only marginal cost to webpage owners. Hence it has become a very attractive destination for these small time advertisers

Let us see how Google acts as a mediator to get the maximum out of the long tail to understand the concept. Google provides a platform for contextual advertising. It means that Google searches the webpage on which an Ad is displayed, picks up the key words and serves an Ad relevant to the content of the webpage.
Say e.g., OnlineCat is an online CAT portal that wants to advertise on the internet. It subscribes to Google Adwords like ‘CAT’, ‘MBA preparation’, ‘online MBA’ etc. So when these words are found on a website (like Catfundae blog), Google will put in the Ad for the company. When there are many companies competing for the same Adwords, the one paying more will get his Ads displayed. So more competition means higher price. When user click the Ad on the website, Google charges the company and also pays a part of it to the person owning the website.
With Google Adwords, an advertiser can spend anywhere starting from Rs.800 per month and still reach a sufficiently large audience.

In short, Google acts as a mediator between millions of websites and thousands of advertisers. Webpages are like newspapers publishing Ads. More the reach, more the revenue.
Note that unlike newspapers, on a webpage, you can measure the interest shown by users through clicks. More popular websites get higher revenue Ads and hence get paid more for each click on the advertisement (Like TimesofIndia charges more for an Ad than Deccan Herald)

But things are not hunky dory for all the websites. What people fail to understand in this is, that with 7 million web pages being created per day, the supply-demand scenario is such that advertisers have an upper hand. It is possible to get a page to advertise your product; no matter how low the budget is (even zero budget charity ads find takers).
So if you think you just have to put ad-sense on your page and rest is easy, think again.

Suggested readings:
http://www.wired.com/wired/archive/12.10/tail_pr.html
http://longtail.typepad.com/the_long_tail/
http://publications.mediapost.com/index.cfm?fuseaction=Articles.showArticle&art_aid=45390
http://www.wired.com/wired/archive/14.07/longtail.html

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8 Comments:

Blogger Gyan-ee said...

Also look at how Yahoo etc are changing the rules of internet advertising by behavioral rather than contextual advertising.

This article is also courtesy Nidhi who has been giving me lot of Gyan on Web 2.0 and internet happenings at home :)

http://money.cnn.com/magazines/business2/business2_archive/2007/03/01/8401043/index.htm?postversion=2007022615

I am sure that internet advertising, behavioural/contextual advertising, long tail etc will be topics to dominate many a GDs to come. If not this year, expect it for sure to be the flavour the next season.

I am also guessing that a couple of courses too shud be cropping up in the big MBA schools to keep their students updated. So brace up and get a headstart

4:29 AM, March 05, 2007  
Blogger Gyan-ee said...

A very nice video on how the web has changed... small video, so make sure you watch.

And all the future MBAs will appreciate ans learn a great style of presentation.

http://www.youtube.com/watch?v=6gmP4nk0EOE

11:21 PM, March 05, 2007  
Blogger Himanshu Gupta said...

Hi gyanee, I read "The Long Tail" the week it was released in India and it was a fantastic read. I would say that a lot of things got cleared by reading Chris Anderson's "Wired" piece itself .

For me, it was interesting to read about new business models - NetFlix, iTunes, Google AdWords and Adsense, Though i was already aware of these, but reading a statistical interpretation of their business model was fascinating.

This is one post i read about "The Long Tail" concept which i found nice.
http://blog.guykawasaki.com/2006/07/the_wrong_tale_.html

In this, Guy Kawasaki tries a critical approach towards Long tail concept.

And yes, I'm not aware of behavioral advertising funda of Yahoo, so will Google :)) for it. (googling for yahoo's advertising :) yahoo won't like that )

11:21 PM, March 05, 2007  
Blogger Himanshu Gupta said...

The link got corrupted in earlier comment. Posting it here again.

11:24 PM, March 05, 2007  
Blogger Himanshu Gupta said...

Hi Nidhi (Since this post was written by her, i better address her. I did mistake in the morning but correcting it now :) )

Found this blog at the top of digg this morning. Interesting business model and applying long-tail idea too.

Hi Nidhi, nice post. You said it correctly that long-tail has been discussed quite a bit in the media and blogs in the past one year. But i still feel that Long-tail concept is too much tied to internet and that's a shortcoming in terms of India as not many people have internet connections with high bandwidth speeds too. But i hope that things will improve. Already NetFlix indian cousins - ClixFlix, seventymm are here but i think they're too costly for Most Indians.

To Gyanee, You can make Nidhi a team-member to this blog. That way she would be compelled to compete with you which will help we guys in gaining knowledge (market forces resulting in consumers advantage :) ). And one more things, you can't close this blog. Philanthropy or not, you'll have to put things on blog which you find interesting, and have to answer the questions which we ask :)

Just a simple question. I've been reading a lot about ban on future trading in commodities. I'm not able to understand how a ban on futures is resulting in temporary check on commodities prices.. or is it, arrival of fresh harvest? I've read many editorials regarding this issue so i'm pretty clear that a ban would ultimately distort a clear vision of market forces for farmers and ultimately won't bring down inflation. But how a ban is resulting in low prices.. please help me on this.

3:10 AM, March 06, 2007  
Blogger Gyan-ee said...

Hey Himanshu,

The blog link you have put is very nice. I think it is a very cool business idea. But if you look at it, this can be easily copied and many like Yahoo, Google have the muscle to pull it off. Good to the consumer in the end anyway. Let us wait and watch.

About stopping future trading, it is only a short term measure to prevent speculation and hoarding. You would have read about how Ketan Parekh and gang had rigged the prices of Urad daal before.

So the Govt is just try all measures to plug inflation and this one such 'small' measure. This may not be good in the long term as you are controlling a market that you opened in the first place :)

About continuing the blog, I will write it in the next post. Not to worry, the sun shall not set on it with so many of you showing such enthu.

3:55 AM, March 06, 2007  
Blogger Gyan-ee said...

Dont need to search Google and infuriate Yahoo. Here is a nice article on that.
The quest for the perfect online ad

I had put the link for it in my first comment. Just in case you have missed.

9:59 PM, March 06, 2007  
Anonymous Anonymous said...

Hi,

Long-tail concept is tied to internet for very strong reasons. Two factors drive it primarily:
1. Web has driven the costs to rock bottom levels. Consider cost of setting up website, traffic to websire, content upload, inventory and displaying advertisements. Since anything you earn is more than cost(which is near zero), you make profit, and hence even the low-value items (books, ads, etc) are profitable when transacted over net.
2. Transactability: This was important for bringing the skeptical advertisers into the system. No other media closes the loop from ad to sale the way net does. So one is you pay less, second is you pay only when potential customer takes an action.

And we already have 3 million internet homes, 32 million internet users in our country. If the focus is not be what to do with non-internet users, but how we can make internet more relevent for them, this shortcoming will become opportunity.

- Nidhi

1:11 AM, March 07, 2007  

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