- 22 Jan 2010
- Working Paper Summaries
Competing Ad Auctions
Joining ad platforms can attract substantial regulatory attention: In November 2008, the Department of Justice planned to file antitrust charges to stop the proposed Google-Yahoo transaction. More recently, in September 2009, the Department of Justice sought additional information from Microsoft and Yahoo about their proposed partnership. At first glance it might seem paradoxical to claim that the Google-Yahoo transaction is undesirable, for advertisers and for the economy as a whole, while the Microsoft-Yahoo transaction offers net benefits. But that conclusion is entirely possible. HBS professor Benjamin G. Edelman and doctoral candidates Itai Ashlagi and Hoan Soo Lee explore competition among ad platforms that offer search engine advertising services. In addition, the authors evaluate possible transactions among ad platforms—building tools to predict which transactions improve welfare and which impede it. Key concepts include: Participation costs exist and matter, affecting bidders' decisions about which ad platforms to use, and changing the welfare consequences of mergers or joins among platforms. By creating a joined ad platform of larger size than Microsoft or Yahoo alone, the transaction lets advertisers spread participation costs over a larger purchase, making it worthwhile for small to midsize advertisers to sign up with the joined Microsoft-Yahoo platform even though they do not use Microsoft or Yahoo separately. Preventing a competing platform from attracting advertisers reduces the quality of that competing platform (fewer ads yielding an inferior match with users' searches), cuts that platform's revenue (impeding future investment), and generally hinders that platform's efforts at growth. Closed for comment; 0 Comments.
- 22 Oct 2009
- Working Paper Summaries
Strategies to Fight Ad-sponsored Rivals
Many companies choose to finance themselves using ad revenues and offer their products or services—from newspapers to software applications, television programs, and online search—free to consumers. Yet the emergence of ad-sponsored entrants in various industries poses significant threats to the incumbents in these markets whose business models are often based on subscriptions or fees charged to their customers. Faced with the threat from ad-sponsored entrants, incumbents must choose strategies to respond. HBS professor Ramon Casadesus-Masanell and University of Southern California professor Feng Zhu create an analytical framework to establish guidelines for incumbent firms facing these issues. The researchers consider four alternative business models: pure-subscription-based; pure-ad-sponsored; mixed-single-product; and mixed-product-line-extension. Analysis shows that the optimal strategic and tactical choices change dramatically in the presence of an ad-sponsored rival. This is the first study to provide a comprehensive analysis of the competition between a free ad-sponsored entrant and an incumbent that has the option of choosing different business models. Key concepts include: The presence of the ad-sponsored rival puts an upper bound on the number of ads that an incumbent competing through a mixed-product-line-extension can set. When the advertising rate is low, a mixed-product-line-extension model is inferior to the pure-subscription-based model. Even if the incumbent can avoid cannibalization by using a mixed-single-product model, the incumbent may still prefer to use the pure-subscription-based model, since the advertising intensities of the two firms are strategic substitutes. Sometimes the best response of the incumbent to an ad-sponsored entrant is to not change its business model and tactics. This happens only when the optimal business model under both monopoly and duopoly is the pure-subscription-based model, and when the quality difference between the incumbent and the entrant is large. Closed for comment; 0 Comments.
- 14 Sep 2009
- Research & Ideas
Understanding Users of Social Networks
Many business leaders are mystified about how to reach potential customers on social networks such as Facebook. Professor Mikolaj Jan Piskorski provides a fresh look into the interpersonal dynamics of these sites and offers guidance for approaching these tantalizing markets. Closed for comment; 0 Comments.
- 17 Aug 2009
- Research & Ideas
Quantifying the Economic Impact of the Internet
Businesses around the advertising-supported Internet have incredible multiplier effects throughout the economy and society. Professor John Quelch starts to put some numbers on the impact. Open for comment; 0 Comments.
- 27 Jul 2009
- Research & Ideas
Social Network Marketing: What Works?
Purchase decisions are influenced differently in social networks than in the brick-and-mortar world, says Harvard Business School professor Sunil Gupta. The key: Marketers should tap into the networking aspect of sites such as Facebook. Key concepts include: Some social network users are influenced by the purchases of their friends. Of these users, 40 percent show a strong "keeping up with the Joneses" behavior, increasing sales by 5 percent. "High-status" users are more likely to not purchase something that others have bought. On social networks, viral campaigns may work better than advertising. Closed for comment; 0 Comments.
- 05 Feb 2009
- Research & Ideas
In Praise of Marketing
Marketers do a surprisingly poor job of marketing Marketing, says professor John Quelch. "They do not appreciate, let alone articulate, the economic and social benefits of marketing." Here is the story that needs to be told. Key concepts include: Seventeen million Americans engaged in marketing go about their daily work contributing brilliantly but often unknowingly to our quality of life. Respectable marketers need to work harder to expose and shut down the charlatans. Modern marketing is more than just selling. It involves design, branding, communication, and distribution. Marketing is as much art as science, as much right brain as left brain. Closed for comment; 0 Comments.
- 18 Dec 2008
- Working Paper Summaries
Concentration Levels in the U.S. Advertising and Marketing Services Industry: Myth vs. Reality
How concentrated is the U.S. advertising and marketing services industry? Over the past several decades, the effects of deregulation, globalization, and technological innovation have reshaped the advertising and marketing services industry as they worked their way through the economy. Estimates from the existing literature are typically based on data from trade sources and present a picture that emphasizes rising concentration over time and domination by a handful of holding companies. These estimates are suspect as they suffer from a number of conceptual and measurement limitations. This paper analyzes changes in concentration levels in the U.S. advertising and marketing services industry, using data that have been largely ignored in past discussions of the economic organization of the industry. Key concepts include: Concentration levels vary across the advertising and marketing service industry's nine sectors, but all are within the range generally considered indicative of a competitive industry. From 1977 to 1992, census data show that the number of firms and establishments and the level of agency receipts in real terms increased. After 1992, however, the number of firms and establishments decreased while real agency receipts have continued to grow, and concentration levels have tended to increase. Between 2002 and 2006, the four largest holding companies captured a fifth to a fourth of the total U.S. revenue flowing to suppliers of advertising and marketing services each year. After several waves of mergers and acquisitions, the collective position of the major holding companies in the United States is considerably less than dominant. Closed for comment; 0 Comments.
- 14 Oct 2008
- Research & Ideas
Should You Bring Advertising Expertise In-House?
Advertising agencies have traditionally offered services to firms that couldn't afford or didn't find value in having that expertise in-house. But a recent study indicates more firms than previously thought are developing internal advertising units. Q&A with HBS professor emeritus Alvin J. Silk. Key concepts include: The likelihood of a firm internalizing advertising services decreases as the size of its advertising expenditures increases. Cost efficiencies and savings are the major reasons for pursuing the in-house advertising route. Some industries more than others develop in-house advertising expertise, particularly technology-based and creative industries. The make or buy decision relating to advertising services is complex, and should be based on a careful economic analysis. Closed for comment; 0 Comments.
- 07 Oct 2008
- Working Paper Summaries
Securing Online Advertising: Rustlers and Sheriffs in the New Wild West
Online advertising remains a "Wild West" where users are faced with ads they ought not believe and where firms overpay for ads without getting the results they were promised. But it doesn't have to be this way. Enforcement by public agencies is starting to remind advertisers and ad networks that long-standing consumer protection rules still apply online. And as advertisers become more sophisticated, they're less likely to tolerate opaque charges for services they can't confirm they received. During the past five years, Edelman has uncovered hundreds of online advertising scams defrauding thousands of users, including all the Web's top merchants. This chapter summarizes some of what he has found and what users and advertisers can do to protect themselves. Key concepts include: Advertising security gaps are widespread. Many companies don't view advertising fraud as a priority. Marketers often write off advertising fraud as an unavoidable cost of doing business. But effective fraud reduction can transform "unavoidable" losses into a bigger bottom-line and a real competitive advantage. Some advertisers compensate ad buyers in ways that discourage ad buyers from rooting out fraud. Furthermore, ad networks operate under mixed incentives in their supervision of partners, affiliates, and syndicators. Often, a marketer's partners and even its own staff have strong incentives to ignore problems rather than to take effective action. Closed for comment; 0 Comments.
- 18 Sep 2008
- Working Paper Summaries
The Internalization of Advertising Services: An Inter-Industry Analysis
When are advertisers more likely to establish and maintain their own in-house agencies? Despite occasional indications to the contrary, such self-sufficiency has long been viewed by industry observers and scholars as more the exception than the rule in the U.S. advertising and marketing services business. With the background that vertical integration in this industry is a neglected domain of research, analysis by HBS professor emeritus Alvin J. Silk and colleagues suggests that while most large U.S. advertisers rely primarily on independent agencies for advertising services, many other advertisers operate in-house advertising units. Key concepts include: The organization of the advertising and marketing services industry is likely to undergo considerable change as it absorbs new communication and information technologies, creating challenges and opportunities for both managers and researchers. In the 1990s, almost half of all U.S. advertisers, large and small, operated some form of in-house advertising unit. Smaller advertisers and advertisers of technical, creative, or highly differentiated products were more likely to integrate. Closed for comment; 0 Comments.
- 12 Aug 2008
- Op-Ed
Google-Yahoo Ad Deal is Bad for Online Advertising
A proposed advertising deal between Internet competitors Google and Yahoo would reduce competitiveness in the Internet advertising market, likely resulting in higher advertising rates, says Harvard Business School professor Benjamin G. Edelman. Closed for comment; 0 Comments.
- 03 Dec 2007
- Research & Ideas
Authenticity over Exaggeration: The New Rule in Advertising
Advertisers thought technology was their friend in identifying and creating new customers. Funny thing happened along the way, though: Now consumers are using the Internet to blunt traditional commercial messages. Time for companies to rethink their strategy, says HBS professor John A. Deighton. Key concepts include: In today's media-rich world, traditional advertising models are breaking down. Now, the consumer runs the show. Successful advertising campaigns today are self-parodying and spark discussions rather than blatantly sell products. As digital interactivity increases the contexts in which people use new media, it becomes less and less productive to think of people as consumers alone. Closed for comment; 0 Comments.
- 17 Sep 2007
- Research & Ideas
Broadband: Remaking the Advertising Industry
Evolving from the Marlboro Man in the 1960s to the Subservient Chicken in a recent Web campaign, advertising is undergoing a radical transformation. Harvard Business School professor Stephen P. Bradley, who is cowriting a book on how broadband technologies are remaking many industries, discusses how advertising is responding to the challenges. Key concepts include: Traditional advertising vehicles such as television are becoming less interesting to advertisers because of fragmented viewership and inadequate user data. Broadband technology is becoming more important to advertisers because of its ability to move the consumer closer to a transaction decision and to deliver clearly segmented audiences. The advertising industry is wrestling with this transformation in part by merging with media companies and by launching creative ad alternatives. Closed for comment; 0 Comments.
- 14 Sep 2007
- Research & Ideas
How to Profit from Scarcity
This past summer's launches of the iPhone and final Harry Potter book were textbook examples of companies profiting in part by creating the illusion of scarcity. Professor John Quelch explains the advantages of this strategy when executed well, and tells how to recover from a real product shortage. Key concepts include: Marketers understand that using the illusion of scarcity can accelerate demand by encouraging us to buy sooner and perhaps to buy more than normal. Using false scarcity as a strategy also carries risk: it invites heightened scrutiny and frustrates buyers. Even if you experience a real product shortfall, take steps to mitigate potential disaster. Closed for comment; 0 Comments.
- 16 Aug 2006
- Research & Ideas
Is MySpace.com Your Space?
Social networking sites such as MySpace.com have demographics to die for, but PR problems with parents, police, and policymakers. Are they safe for advertisers? A Q&A with Professor John Deighton. Key concepts include: Social networking sites such as MySpace.com are emerging as powerful advertising platforms reaching millions of desirable consumers. They will be advertising rivals to established Internet sites such as Google and Yahoo. Although MySpace has been the subject of some community criticism, MySpace advertisers don't seem frightened off. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
The Presentation of Self in the Information Age
In the past, we knew a lot about the seller of a product (through ads, marketing, or reputation) but little about the individual buyer. Times have changed. From the Internet to store loyalty cards, technology has made the marketplace into an interactive exchange where the buyer is no longer anonymous. The future market will likely be one in which personal information is shared and leveraged. Consumers who are willing to share their information will be more attractive to sellers and more sought-after than those who have bad reputations or refuse to participate. Key concepts include: Consumers will play an increasingly leveraged role in the marketplace by "branding" themselves and sharing personal information with sellers. Technology is making the idea of consumer branding a reality, but it is unclear how personal information will be used in the marketplace, or which uses will be the most beneficial to both buyers and sellers. Look deeper into loyalty programs for the societal and commercial, and positive and negative effects of sharing personal information in the marketplace. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
The Motion Picture Industry: Critical Issues in Practice, Current Research & New Research Directions
This paper reviews research and trends in three key areas of movie making: production, distribution, and exhibition. In the production process, the authors recommend risk management and portfolio management for studios, and explore talent compensation issues. Distribution trends show that box-office performance will increasingly depend on a small number of blockbusters, advertising spending will rise (but will cross different types of media), and the timing of releases (and DVDs) will become a bigger issue. As for exhibiting movies, trends show that more sophisticated exhibitors will emerge, contractual changes between distributor and exhibitors will change, and strategies for tickets prices may be reevaluated. Key concepts include: Business tools such as quantitative and qualitative research and market research should be applied to the decision-making process at earlier stages of development. Technological developments will continue to have unknown effects on every stage of the movie-making value chain (production, distribution, exhibition, consumption). Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Measuring Consumer and Competitive Impact with Elasticity Decompositions
Do marketing actions expand the market or steal business from rival firms? One research method suggests that all of the demand created by an incremental advertising investment would be generated by market expansion; another suggests that the same increase would be stolen from rival firms. Steenburgh explains why these seemingly contradictory results actually are complementary and provide a more comprehensive understanding of the investment's impact. Key concepts include: Combine the consumer and the competitive points of view for a more complete understanding of the marketing investment's impact. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Advertising and Expectations: The Effectiveness of Pre-Release Advertising for Motion Pictures
This research examines how advertising affects market-wide sales expectations for pre-release movies. The authors use data on advertising expenditures and an online stock market simulation, The Hollywood Stock Exchange (HSX), to track more than 280 movies released between 2001 and 2003. Their findings show that advertising affects the updating of market-wide expectations prior to release, and that this effect is stronger the higher the product quality. Key concepts include: Stock market simulations, such as the Hollywood Stock Exchange, can provide data on test markets, and provide clues about the quality of movies and the appeal of initial advertisements. Studios should spend less money on advertising low-quality movies. Closed for comment; 0 Comments.
The Unbundling of Advertising Agency Services: An Economic Analysis
From 1982 through 2007, U.S. advertising agencies increasingly "unbundled," or disaggregated, services such as copywriting and media placement, moving away from the industry's traditional one-stop-shop model. At the same time, agencies began to charge clients based on a fee-for-service system, rather than collecting commissions on media placements. The researchers analyze this trend and consider how it may be interpreted by the economic theory of bundling. Key concepts include: Agencies are more likely to unbundle services with increasing size and diversification but are less likely to do so with increasing age. A strong trend toward unbundling over time is evident, a result partially explained by increases in media prices during the study period. With the arrival of new media technologies and lower-priced digital ads, holding companies are considering re-organizing their media agencies with digital and other capabilities so as to position themselves as offering clients broader "marketing solutions" beyond media planning and buying. Such "re-bundling" may also reflect the lower prices for digital advertising. Closed for comment; 0 Comments.