3 ms·

How do they lose the money? I... what? Do they donate it to a charity or something?

byoung2 17y ago
I suppose they lose the money they would have made if another company had paid for the ad slot.
mdasen 17y ago
As I said, they lose the money because that ad space isn't being sold to a paying party. Let's say you own a baseball stadium and a bar. You decide that you want to put an ad for your bar in the baseball stadium - it will drive business to your bar where you'll make money. Let's say that it drives $1,000 worth of business to your bar every day. That's hard to measure, but assume you can measure it. Someone comes along and says that they'll pay you $10,000 per day to put an ad for their competing bar in that spot. You calculate that that ad isn't worth $10,000/day to you - even taking into consideration natural business to your bar which might now be drawn to a competitor. So, your bar loses the $1,000 per day that the ad drives there plus you determine that you'd lose another $5,000 per day from business that would naturally go to your bar, but is now driven to your competitor. You'll sell them the ad. Why would you sell them the ad? Because you make money. If you decide to keep your own ad, you have to justify $10,000/day in expense. It drives $1,000 in business and a competitor's ad would lose you $5,000 in business for a total of $6,000. It doesn't make business sense. In order to want to keep your own ad in that space, you have to believe that you're gaining more than you would by accepting cash from your competitor. In this scenario, you aren't - you'd be losing $4,000 per day. But if you determine that the ad drives $11,000 worth of business to your bar, then you'd be willing to "pay" that $10,000 for the ad. So, your bar pays your baseball stadium $10,000 per day for the ad and the profits of the bar go up even with that expense. However, if the bar becomes less profitable "paying" for that ad, it's better to sell it to the competitor. When another department of the same logically-owned company does something for another department, it isn't free. If Google's search gives Gmail a freebie ad, search is losing money. So, the gain in money for Gmail must be greater than the amount that search is losing by not selling that ad to a competitor. Therefore, from an internal accounting perspective, it makes sense for Gmail to bid on the "email" keyword just like everyone else as part of their marketing budget. If they're the top bidder, they get the spot. If they aren't, they don't.
- DannoHung 17y ago
  Why wouldn't they just make the ad area one spot longer when they put up one of their ads?
  - mdasen 17y ago
    If you're going to be showing another ad, you could show another ad from another company. So, you're still losing that money if you decide to put your own ad there.

I suppose they lose the money they would have made if another company had paid for the ad slot.

As I said, they lose the money because that ad space isn't being sold to a paying party. Let's say you own a baseball stadium and a bar. You decide that you want to put an ad for your bar in the baseball stadium - it will drive business to your bar where you'll make money. Let's say that it drives $1,000 worth of business to your bar every day. That's hard to measure, but assume you can measure it. Someone comes along and says that they'll pay you $10,000 per day to put an ad for their competing bar in that spot. You calculate that that ad isn't worth $10,000/day to you - even taking into consideration natural business to your bar which might now be drawn to a competitor. So, your bar loses the $1,000 per day that the ad drives there plus you determine that you'd lose another $5,000 per day from business that would naturally go to your bar, but is now driven to your competitor. You'll sell them the ad. Why would you sell them the ad? Because you make money. If you decide to keep your own ad, you have to justify $10,000/day in expense. It drives $1,000 in business and a competitor's ad would lose you $5,000 in business for a total of $6,000. It doesn't make business sense. In order to want to keep your own ad in that space, you have to believe that you're gaining more than you would by accepting cash from your competitor. In this scenario, you aren't - you'd be losing $4,000 per day. But if you determine that the ad drives $11,000 worth of business to your bar, then you'd be willing to "pay" that $10,000 for the ad. So, your bar pays your baseball stadium $10,000 per day for the ad and the profits of the bar go up even with that expense. However, if the bar becomes less profitable "paying" for that ad, it's better to sell it to the competitor. When another department of the same logically-owned company does something for another department, it isn't free. If Google's search gives Gmail a freebie ad, search is losing money. So, the gain in money for Gmail must be greater than the amount that search is losing by not selling that ad to a competitor. Therefore, from an internal accounting perspective, it makes sense for Gmail to bid on the "email" keyword just like everyone else as part of their marketing budget. If they're the top bidder, they get the spot. If they aren't, they don't.

DannoHung 17y ago
Why wouldn't they just make the ad area one spot longer when they put up one of their ads?
- mdasen 17y ago
  If you're going to be showing another ad, you could show another ad from another company. So, you're still losing that money if you decide to put your own ad there.