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Understanding Emerging Threats to Online Advertising

26 Pages Posted: 6 Oct 2014 Last revised: 29 Jun 2016

Ceren Budak

University of Michigan at Ann Arbor

Sharad Goel

Stanford University

Justin M. Rao

Microsoft Research; Microsoft Corporation - Microsoft Research - Redmond

Georgios Zervas

Questrom School of Business, Boston University

Date Written: June 11, 2016

Abstract

Two recent disruptions to the online advertising market are the widespread use of ad-blocking software and proposed restrictions on third-party tracking, trends that are driven largely by consumer concerns over privacy. Both primarily impact display advertising (as opposed to search and native social ads), and affect how retailers reach customers and how content producers earn revenue. It is, however, unclear what the consequences of these trends are. We investigate using anonymized web browsing histories of 14 million individuals, focusing on “retail sessions” in which users visit online sites that sell goods and services. We find that only 3% of retail sessions are initiated by display ads, a figure that is robust to permissive attribution rules and consistent across widely varying market segments. We further estimate the full distribution of how retail sessions are initiated, and find that search advertising is three times more important than display advertising to retailers, and search advertising is itself roughly three times less important than organic web search. Moving to content providers, we find that display ads are shown by 12% of websites, accounting for 32% of their page views; this reliance is concentrated in online publishing (e.g., news outlets) where the rate is 91%. While most consumption is either in the long-tail of websites that do not show ads, or sites like Facebook that show native, first-party ads, moderately sized web publishers account for a substantial fraction of consumption, and we argue that they will be most affected by changes in the display advertising market. Finally, we use estimates of ad rates to judge the feasibility of replacing lost ad revenue with a freemium or donation-based model.

Keywords: e-commerce, privacy, competition, advertising

JEL Classification: L10, M37, C93

Suggested Citation

Budak, Ceren and Goel, Sharad and Rao, Justin M. and Zervas, Georgios, Understanding Emerging Threats to Online Advertising (June 11, 2016). Boston U. School of Management Research Paper No. 2505643. Available at SSRN: https://ssrn.com/abstract=2505643 or http://dx.doi.org/10.2139/ssrn.2505643

Ceren Budak

University of Michigan at Ann Arbor ( email )

110 Tappan Hall
855 S. University Ave
Ann Arbor, MI 48109
United States

Sharad Goel

Stanford University ( email )

475 Via Ortega
Stanford, CA 94305
United States

HOME PAGE: http://5harad.com

Justin M. Rao

Microsoft Research ( email )

641 Avenue of Americas
7th Floor
New York, NY 11249
United States

Microsoft Corporation - Microsoft Research - Redmond ( email )

Building 99
Redmond, WA
United States

Georgios Zervas (Contact Author)

Questrom School of Business, Boston University ( email )

United States

HOME PAGE: http://people.bu.edu/zg

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