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I'm a Googler, not working on ads. The idea is that the advertiser ultimately wants to buy a certain amount of conversions. With their ad budget being roughly

by lrem 5y ago

I'm a Googler, not working on ads. The idea is that the advertiser ultimately wants to buy a certain amount of conversions. With their ad budget being roughly constant, better targeting means that you need to show fewer ads of that advertiser to get to that point. So, you're decreasing the denominator, increasing cost per impression. This is obviously oversimplified, because actual payment happens at the intermediate step of click. But the inherent feedback loops finally work out to the above.

jefftk 5y ago
> the advertiser ultimately wants to buy a certain amount of conversions That's not right at all for a large segment of advertising: the cheaper conversions are, the more most advertisers are willing to spend. Imagine I currently earn a marginal profit of $10 on each conversion (widget sold etc): this means roughly I'm willing to pay up to $10 for a conversion that wouldn't have happened otherwise. Conversions that cost more than $10 are definitely not worth it to me. I have some appetite for conversions that cost close to $10, but at some point I run into (likely temporary) capacity constraints and my marginal profitability decreases. The cheaper conversions are, the more I can continue to increase volume, and so the more I'll spend. Additionally, internet advertising is competing with other forms of advertising, and advertisers want the most cost effective medium. Increase the cost of a conversion, and the marginal advertiser shifts away from online ads. One way to see this is to imagine that instead of talking about online ads we are talking about any other product. Raise the price (cost per conversion) and people will decrease the amount they buy. (Disclosure: I work on ads at Google, speaking only for myself)
- pixl97 5y ago
  >Raise the price (cost per conversion) and people will decrease the amount they buy. This is just a form of supply/demand curve. The issue here is Google controls most of the market, giving them far more power to optimize the supply curve to maximize Googles profit leaving the consumer no other competitor to fall back on to lower prices (FB maybe?, more likely to collude and keep prices high). Google cannot act like ads are 'any other product' where there are healthy, competitive markets.

by lrem 5y ago

jefftk 5y ago

> the advertiser ultimately wants to buy a certain amount of conversions That's not right at all for a large segment of advertising: the cheaper conversions are, the more most advertisers are willing to spend. Imagine I currently earn a marginal profit of $10 on each conversion (widget sold etc): this means roughly I'm willing to pay up to $10 for a conversion that wouldn't have happened otherwise. Conversions that cost more than $10 are definitely not worth it to me. I have some appetite for conversions that cost close to $10, but at some point I run into (likely temporary) capacity constraints and my marginal profitability decreases. The cheaper conversions are, the more I can continue to increase volume, and so the more I'll spend. Additionally, internet advertising is competing with other forms of advertising, and advertisers want the most cost effective medium. Increase the cost of a conversion, and the marginal advertiser shifts away from online ads. One way to see this is to imagine that instead of talking about online ads we are talking about any other product. Raise the price (cost per conversion) and people will decrease the amount they buy. (Disclosure: I work on ads at Google, speaking only for myself)

pixl97 5y ago
>Raise the price (cost per conversion) and people will decrease the amount they buy. This is just a form of supply/demand curve. The issue here is Google controls most of the market, giving them far more power to optimize the supply curve to maximize Googles profit leaving the consumer no other competitor to fall back on to lower prices (FB maybe?, more likely to collude and keep prices high). Google cannot act like ads are 'any other product' where there are healthy, competitive markets.