One of the big surprises of the 21st century has been the ability of all sorts of interesting Web applications to support themselves through advertising, rather than subscription. While radio and television have managed to use advertising as their primary revenue source, most media – newspapers and magazines, for example – have had to use a hybrid approach, combining revenue from advertising and subscriptions.
By far the most lucrative venue for on-line advertising has been search, and much of the effectiveness of search advertising comes from the “adwords” model of matching search queries to advertisements. We shall therefore devote much of this chapter to algorithms for optimizing the way this assignment is done. The algorithms used are of an unusual type; they are greedy and they are “on-line” in a particular technical sense to be discussed. We shall therefore digress to discuss these two algorithmic issues – greediness and on-line algorithms – in general, before tackling the adwords problem.
A second interesting on-line advertising problem involves selecting items to advertise at an on-line store. This problem involves “collaborative filtering,” where we try to find customers with similar behavior in order to suggest they buy things that similar customers have bought. This subject will be treated in Section 9.3.
Issues in On-Line Advertising
In this section, we summarize the technical problems that are presented by the opportunities for on-line advertising. We begin by surveying the types of ads found on the Web.
8.1.1 Advertising Opportunities
The Web offers many ways for an advertiser to show their ads to potential customers. Here are the principal venues.
(1) Some sites, such as eBay, Craig's List or auto trading sites allow advertisers to post their ads directly, either for free, for a fee, or a commission.
(2) Display ads are placed on many Web sites. Advertisers pay for the display at a fixed rate per impression (one display of the ad with the download of the page by some user). Normally, a second download of the page, even by the same user, will result in the display of a different ad and is a second impression.