Network Economics of ‘Skip Ad’ – Part 1

When you were watching videos on video sites such as YouTube, for many Ads you are given the option of skipping advertisements after watching them for few seconds. You skip the ad and then happily watch your favorite video. As a consumer you may be wondering “Oh boy…did I get a good deal or what?”. But actually the video ad platform is getting a good deal out of this (Google in the case of TrueView ads). Let us see how.

Before we go further let us have a little brush up on two-sided networks. An ad platform is a good example of a two-sided network. On one side of the network you have Advertisers and on the other side you have Publishers who display the advertisements from the advertisers. In this two-sided network each side prefer to have higher number of participants on the other side. In the case of a Ad network, Advertisers prefer to have a large number of publishers so their ads can reach a large number of audience. And publishers prefer to have large number of advertisers, so they can increase their revenue. This is a two-sided network 101.

In a highly competitive environment, it is just not sufficient for a network owner to provide high numbers of participants for either sides. Also it is not just sufficient to make services free for one set of participants. For a network to become stronger, it needs to increase the value it provides to all its participants. ‘Skip This Ad’ provides this extra value.

An Advertiser finds an ad network valuable if it can deliver the ads to the right audience, a publisher finds value in the network if it delivers interesting ads to his users and the ad network finds value if it has a good supply of quality ads. In traditional display/banner ads it is (relatively) easy to measure the ‘quality’ of ads based on users interaction with it. And in these cases users interactions are ‘clicks’. If the right ad is delivered to the right user then the probability of user ‘click’ goes high. Clicks are quantifiable and that quantity can be translated to measure the value of an ad. But in video ads, it is difficult to quantify their value. And that is where ‘Skip This Ad’ comes into play. Skipping,

• Lets the network know more about the end user: Over the course of tracking me the network may know that i am interested in Blues. May be it can try to sell me the next album of my favorite Blues artist or it may try to sell me a blues guitar. But I am much more than that. May be i am looking to buy a new car and i don’t mind watching car ads. By letting me Skip (or not Skip) the ad, the network learns more about me. This adds value to the network, which can be passed on to the advertiser (by improving the targeting capabilities)

• Forces the advertisers to produce quality ads: Even though i may be interested in buying a car, i will not pay attention to a boring car ads. Also a boring ad displayed over a publisher’s property wastes the valuable ad inventory. Ability to skip forces advertisers to produce compelling ads. This again increases the value of the network, which can be shared with the video publisher.

• Allows the network to offer a differentiated product: Google calls it as TrueView ads. For these kinds of ads Google was able to come up with a different pricing model. It is based on the view (CPV – Cost Per View). Only if the end user watches the add (for at least 30 secs), the advertiser will be charged.

To increase its value, a network should know more about its users. This applies well to publishers also. To know its true value, a publisher should know about its users. Only then a publisher can demand high price for their assets. As a mobile application owner, you act as a publisher when you allow ads to be displayed in your app. Do you know the composition of your audience? Sign up for Neemware to know more about your users and your value !!!

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