Managing Web Sites for Profitability: Balancing Content and Advertising

Abstract

Balancing the amount of advertising and content affects the profitability of the web site and its attractiveness to potential visitors. This tradeoff is modeled as a control problem for a web site manager who is maximizing the net present value of cash flows by controlling the amount of advertising and content displayed on the web site over its life. The model is calibrated and justified using web site advertisement and audience data. A new measure of web site traffic is developed and it is statistically significant in explaining the market value of firms that own advertising supported web sites.