A Farewell to AdSense

I'm sure there's an economic point in here somewhere, but as of today, I'm removing AdSense from this blog.

This is mainly in response to AdSense's payout scheme: if your account is active, you need to reach $100 before getting a payout, while you can cancel your account and get paid if your balance is $10 or higher. I've been stuck in the middle of that range for months; I made a little money after my post about the Nationals ticketing office attracted a few thousand hits, but now I get about 15 hits a day. I'm sure my almost complete absence of new posts has something to do with that, but at this rate it would take decades to reach the $100 threshold.

So, there you have it: Econ Tricks, with a little less clutter. There are more than a few cautionary tales online about people getting screwed out of AdSense payouts, so wish me luck.

Why MLB Teams Have Their Own TV Announcers but NFL Teams Don't

CC photo from anniemack on Flickr.

The above photo is of Vin Scully, who has been the Dodgers' broadcaster since 1950. For many in Southern California, a love for the Dodgers and a love for Vinny go hand in hand. Fans across the nation feel much the same way about their own long-tenured baseball announcers (many of whom are now deceased), whether it be Harry Kalas in Philadelphia, Jack Buck in St. Louis, Harry Caray in Chicago, Jon Miller in San Francisco, and so forth.

But football teams don't have their own exclusive TV announcers. The economics of each sport dictates its broadcasting style, due to differences in national TV exposure and advertising.

For the majority of fans, baseball is a regional sport. Only occasionally do fans see national broadcasts of random matchups on ESPN, Fox, and other channels. Only two teams--the White Sox and the Cubs (and until recently, the Braves)--have anything resembling a regular national TV presence. Only recently could diehard fans follow out-of-market teams through premium services such as DirecTV or MLB.TV. But the local team can be seen day in and day out, so it makes sense for the club to have its own announcers to build a sense of consistency, warmth, and intimacy with the viewers.

Every Sunday during the NFL season, each game is seen in the local markets of the participating teams as well as other parts of the country, often nationwide. In both baseball and football, local broadcasts are blacked out whenever there's a national broadcast. This is because the league earns more money from national advertisers who can reach the most earnest viewers in the local markets, as well as the rest of the country, than each team could earn from local advertisers on its own broadcast. Because every game is seen by fans across the country, there's no room for each team to have its own TV broadcasters.

On the radio, teams in both sports have their own announcing crews. In the playoffs, both sports employ a single TV broadcast for each game. Advertising and national exposure are the rationale for both.

Help Amazon Sell Kindle Books and Earn $0!

Many Web sites, including this one, earn commissions when they refer customers to Amazon.com who end up purchasing items. Last week, I noticed that I earned a 0% referral fee for helping Amazon sell a Kindle book, netting the company about $9. I wrote to Amazon, and here's the response I got back:

Hello,

At this time, Kindle Books are excluded as Qualifying Products. While we don't pay advertising fees on Kindle Books, we continue to pay a 10% advertising fee on all qualifying Kindle reader sales and Kindle magazine and blog subscriptions referred to us.

We appreciate your understanding.

Kindle books are a loss leader (here's a good discussion from Newsweek). In other words, Amazon loses money on each Kindle book it sells in hopes of getting people to buy Kindles at a hefty markup. Maybe the economics of ebooks will change someday, but for now, it's understandable that Amazon doesn't want its partners to push sales of Kindle books to people who already own Kindles, hence the 0% referral fee.

However, Amazon partners can't control whether the customer will buy the Kindle or the print version. If 50% of the people you refer end up buying the Kindle version, then the nominal 4% referral fee you earn on book sales effectively becomes 2%. (This is ignoring some pricing differences and the fact that the existence of the Kindle increases overall demand for books, securing some sales that otherwise wouldn't have been made.) This decreases the expected returns to hawking Amazon's wares, which should in turn reduce the number of referrals for Amazon books, both print and Kindle versions.

UPDATE 5/4: Apparently Amazon has changed course.

3 Ways that Google Benefits From Its $100 AdSense Payment Threshold

Google AdSense is the most popular and lucrative advertising program on the net. It's also among the easiest to join (especially on Google's Blogger/Blogspot platform, which lets bloggers seamlessly add customized AdSense widgets).

Each publisher doesn't have to track down advertisers selling products in their particular niche. AdSense's contextual algorithms ensure that relevant ads appear on each page, which drastically increases the chances that readers will be interested in the products, click the ads, and thus generate revenue for the publisher.

A law of one price argument could be made that AdSense can pay lower rates and insist on more demanding terms than could other advertising programs. These other programs must pay higher rates (or offer better terms) to compensate publishers for relative inconvenience of using their services.

Take, for instance, the minimum payment threshold. AdSense will not pay a publisher until he or she has earned $100, while Chitika's and Amazon Associates' minimums are both $10.

A high payout threshold benefits Google in several ways:

(1) Transactions and Accounting Costs

It's cheaper to pay publishers larger amounts less frequently than it is to pay them smaller amounts more frequently. Fewer transactions means lower bank fees and accounting costs.

(2) Interest

The time value of money can be calculated from interest rates; in short, $100 today is more valuable than $100 a year from now. If Google paid a publisher $10 every month instead of $120 at the end of the year, he could invest the money along the way and come out with more than $120. Instead, Google keeps the interest, which substantially lowers the cost of making payments when they come due many months down the road.

(3) Small Accounts

Many small Web publishers will give up long before reaching the $100 payment threshold. They may shut down their Web sites, cease to publish new content, or switch to a more lucrative advertising network.

Although a publisher can cancel his relationship with AdSense and receive a payout if his account has earned at least $10, there is an expected 90-day delay before he will see the money (and again, Google is not compensating him for the lost interest).

But not everyone below the threshold who is no longer earning AdSense revenue will cancel. Google's advertisers pay Google for each and every their ads are clicked, but Google will never have to pay some of its AdSense publishers their share because of the hurdles described above.

YouTube to Auto-Caption Videos

From TechCrunch:

In November of last year, the company began to roll out auto-captions on a limited scale, which use speech recognition to automatically transcribe what’s said in a video. And now, it’s going to enable the feature for all videos uploaded to YouTube where English is spoken.

This move will engender a lot of goodwill for Google, and rightly so, for enabling deaf people to consume video content that they otherwise couldn't. Even if the transcription is poor (and I've seen some pretty bad transcripts from humans covering live events), it's better than nothing.

More importantly, this will give Google more text to scan and analyze. The system will have a better idea of what each video is about and therefore be better at suggesting related videos. It will also make it easier for Google to correctly target advertising based on the content of each video. More relevant advertising leads to higher clickthrough rates and more money for Google's bottom line.

Why Advertisers Pay for Spots on Bogus Web Sites

The front page of newyorktimes.cm. Click to enlarge.

There is a fascinating, if dated, CNN Money story from a few years ago about a man who owns 300,000 domain names. Most interestingly:

And what few people know is that he's also the man behind the domain world's latest scheme: profiting from traffic generated by the millions of people who mistakenly type ".cm" instead of ".com" at the end of a domain name.

Try it with almost any name you can think of -- Beer.cm, Newyorktimes.cm, even Anyname.cm -- and you'll land on a page called Agoga.com, a site filled with ads served up by Yahoo (Charts,Fortune 500).

Ham makes money every time someone clicks on an ad -- as does his partner in this venture, the West African country of Cameroon. Why Cameroon? It has the unforeseen good fortune of owning .cm as its country code -- just as Germany runs all names that end with .de.

The difference is that hardly any .cm names are registered, and the letters are just one keyboard slip away from .com, the mother lode of all domains. Ham landed connections to the Cameroon government and flew in his people to reroute the traffic. And if he gets his way, Colombia (.co), Oman (.om), Niger (.ne), and Ethiopia (.et) will be his as well.

It looks like the domain names have since switched hands, and Agoga.com seems to have vanished (see an archived version here). The interesting economic question here is, how can such sites be profitable? Why do Yahoo and Google, and by extension their advertisers, help subsidize these deceptive practices and thus offer some sort of tacit approval?

Imagine two ways (there are countless more) for an Internet user to come across an ad for a particular kind of car:

• Finding a blog or news article about the Toyota Prius and clicking on a contextual link along the side of the page.
• Trying to type in "prius.com," getting taken to an advertisement-laden page because of a typo, and seeing the same ad and clicking on it.

A blog post takes at least some effort to produce and is much more likely to be informative to the audience. A typosquatting site, on the other hand, can be produced almost automatically and costs about $7 a year for the Web hosting service. The former looks to build reader relationships over time through continued quality content, while the latter deceptively attracts one-off hits from poor spellers and hasty typists.

However, clickthroughs on the typosquatting sites are probably more valuable for advertisers. Not everyone who reads a story about a Prius is interested in buying one, but someone who bothers to type in (something close to) "prius.com" certainly may be. If advertisers take a moral high ground and refuse to advertise on such sites, they are probably costing themselves money.

I imagine that the typosquatting domain name business is becoming less profitable these days. Although old habits die hard (many people still use Internet Explorer 6, despite many calls for its abandonment), most modern Internet browsers have a built-in search bar at the top, in addition to the address bar. Google's Chrome browser has only one bar at the top for both URLs and Google searches, so a user typing in "shoes" is going to see a list of shoe-related searches populate as he types and is less likely to type "shoes.com" (or some misspelling thereof). When people look for such products via a search engine, the bogus Web sites mentioned above will be ranked very lowly and thus won't generate many clicks.

In addition, owners of such sites are often sued by the legitimate owners of the respective copyrights or products and thus forced to surrender the domain names (though no one can sue for the rights to a bogus site whose URL is based on the word "shoes").

Of course, these sites can make money in other ways besides advertising, such as installing malware on visitors' computers in attempt to gain access to financial information.

Thanks to Matt McFarland for the tip.

Some Newspapers Now Include Ads With Printer-Friendly Articles

A printer-friendly version of an article at the Courier-Journal in Louisville, Kentucky.

As noted over at the Gannett Blog, a few newspapers are adding full-color ads to the printer-friendly versions of their articles.

Traditionally, printer-friendly versions of articles have offered many advantages over the standard versions--perhaps too many. The entire article is displayed in one place, instead of over several screens. It is free from clutter, which causes the page to load more quickly, creates fewer distractions, and allows for easier copying and pasting for other uses.

It's not uncommon for people to link to the printer-friendly version of an article. There's nothing worse for a newspaper than to have a printer-friendly page go viral instead of the main article page, because the page will generate no ad revenue (aside from generating a small amount of brand building and reader interest for future articles).

The advertisement on the printer-friendly version seems like a good solution. Even if some readers print many articles, these ads probably won't be a major nuisance. After all, it's not like people will switch news sources over such a thing, especially if it's their hometown paper.

If Amazon Can't Advertise Its Low Prices, Why Bother Setting Them?

For this home theater system, Amazon is legally prohibited from displaying its price.

From the New York Times:

Where's the price?

On some pages of e-commerce sites selling products like televisions, digital cameras and jewelry, a critical piece of information is conspicuously missing: the price tag.

To see how much these items cost, shoppers must add the merchandise to their shopping carts — in effect, taking it up to the virtual register for a price check.

The missing prices are part of a larger battle sweeping the world of e-commerce. Wary of the Internet’s tendency to relentlessly drive down prices, major brands and manufacturers — and now, book publishers — are striking back, deploying a variety of tactics and tools to control how their products are presented and priced online.

...

Manufacturers consider the product pages on sites like eBay and Amazon.com to be ads, and they complain whenever e-commerce sites set prices below the minimum price.

This leads the sites to replace prices with notes that say things like “To see our price, add this item to your cart.” One day last week, prices were missing on Amazon.com for an array of products like the Milwaukee Sub-Compact Driver drill kit, a Movado men’s Esperanza watch and an Onkyo 7.2-channel home theater receiver.

Setting aside how this mandate by manufacturers no doubt hurts consumers, I'm interested why Amazon and other retailers don't just charge whatever the advertised minimum is. Going any lower seems counterproductive, as it triggers the mysterious "To see our price, add this item to your cart. You can always remove it later" message and this pop-up.

Many customers will no doubt be confused by this process or think it's some sort of scam, and thus walk away.

Amazon sells many books and other items because of its low prices, but low prices are only effective if customers know about them. I would argue that showing whatever the advertising minimum is would generate more sales than charging a lower price that customers can't see, as the latter adds a layer of transactions costs to the purchase.

It seems very unlikely that customers will add the same item to their virtual carts on several different sites in order to compare prices and then buy the item wherever it's cheapest.

Well ... If He Has Advertisements From Acura, It Must Be Good!

The Last Psychiatrist, a blog that I admittedly don't know much about, is making an odd claim:

Acura is having a 24 hour promotion to coincide with the release of its new car, hence the ads you see today on my site.  The ads mean money, of course, but I sent the note with some pride.

The ads signify a form of success, that my blog is Acura-worthy for advertising.  Never mind if that's true-- that word "signify" indicates something else going on:  I'm judging the quality of the site by the ads on it.

The writer also suggests that Google, through its AdSense program, earlier retaliated against him with ads for unflattering products after a critical post.

My blog is less than a month old and doesn't attract many visitors yet. By this line of reasoning, Google shouldn't put ads here promoting its Nexus One, which the company (at least) will argue is the best phone known to man. Instead, I should get the ads for the Motorola Rokr and the Ford Edsel.

The writer goes on to argue that ads for more prominent products will also increase the prestige of a site, enticing more loyal readers who will stay longer and click more ads:

It's only a few hours into the Acura ad campaign, but I can tell you the trend: it hasn't increased the number of hits to the site, but it has changed the click through rate.  About 10% more people by this time have clicked through to read posts (in other words, fewer people landed on the homepage and left without clicking on a post.)  I am amazed at this result, but there it is. The presence of an ad for Acura enticed people to stay awhile.

Bigger websites out there should take note.  If you run a stock advice site, make sure your ads are from the big brokerage houses and banks, simply because it looks like they endorsed you.  And if you really want to look like a professional, dump the Etrade ads and get WSJ or Goldman Sachs to advertise with you.

He ends this line of thought by suggesting that perhaps bloggers should even pay to have display advertisements. Or even run fake ads for notable products.

I don't have the blogger's figures, but I would bet that the 10% increase in clickthroughs is the result of a small sample size (it's a 24-hour campaign) and is probably just a fluke.


In advertising, context is much more important than prestige. A motorcycle magazine full of ads from prestigious bridal companies is just as useless as the reverse. Also, to attract a lot of Acura ads, it would be logical to write a lot about Acura.


I'm assuming that AdSense runs ads anywhere that means a minimum quality. I briefly dabbled with the other side of the advertising equation, AdWords, and there is no option that says, "Do not display my ads on crappy blogs" (though you can exclude certain URLs one by one).

Athletes Behaving Badly and Endorsement Insurance

Celebrity endorsements are a high-risk, high-reward venture. A successful spokesman can turn an unknown product into a best seller (think the George Foreman Grill), while a spokesperson mired in scandal can destroy billions in shareholder wealth.

After the Tiger Woods scandal, advertisers have increasingly inquired about insurance for their ad campaigns in case their athletic spokesperson comes under media fire (NYT). But agreeing on what constitutes bad behavior is easier said than done.

In theory, if athletes could guarantee advertisers that they won't do harm to the underlying brands by making bad decisions, they would be rewarded with more lucrative deals. In the real world, advertisers have to factor in how the athlete's image may deteriorate, making the advertisements ineffective or even harmful in promoting their brands. Given the risk, the expected value of an endorsement is lower.

But how should a contract be worded to ensure that an athlete remains on good behavior? Who gets to decide whether the athlete's actions constitute a breach? Logically, the two sides have polarized visions:

Athletes usually prefer that a morals clause gives the company the right to terminate their agreement only when the player is convicted of a felony involving “moral turpitude” or worse, because a conviction could take years and the risk of conviction is relatively low.

Companies, by contrast, want the broadest rights possible to cover “any occurrence” that involves “moral turpitude, or makes any statement or commits any act disparaging of, or reflecting unfavorably upon, the company’s reputation or the company’s products and services,” according to one type of morals clause.

Had Michael Vick been under the former arrangement, he could not have been dropped by advertisers until his dogfighting conviction, which came several months after the news was first released. Had Michael Jordan been under the latter arrangement, he could have been dropped for various controversies over the years (divorce, gambling, Hall of Fame speech), even though he remains one of the world's most marketable people.

Google Autocomplete: Supply Side Effects

Google's suggestions for "snorkel." Click to enlarge.

When you type into Google "go snor," the suggestion pops up "best places to go snorkeling." Snorkeling is hard to spell (I got it wrong the first time), so many people quickly accept the suggestion.

Google Suggest was an experimental feature before being officially launched in August 2008. As the link suggests, the feature clearly has many benefits to users (especially the poor spellers among us).

The real magic, however, is how it cuts down on the seemingly infinite amount of ways to express a given idea. If there are 20 common ways to search for "snorkeling," Suggest might direct most people to the top 15.

Google also suggests phrases for its AdWords advertisers, who bid for the highest placements for a given set of search keywords. Suggest helps Google act as a middleman between searchers and its advertisers, by allowing them to express the same thoughts in mostly the same ways. Otherwise, an advertiser could have bid on the other 19 snorkeling keywords but would have missed out when I typed "go snorkeling"--a phrase it had not accounted for.

Notice that not every snorkeling-related query goes to the same place:

best snor = best snorkeling in the world
snork = snorkel gear
where should i go sn = (Google doesn't have any suggestions at this point)

But again, "best snorkeling in the world" is now a better keyword for Google, as more people are directed to it than otherwise would be.

Are Targeted Ads in Search Useful?

Among the paid results for "Tiger Woods" is a site called PopEater.com (click photo to enlarge).

Two kinds of results appear when you do a Google search: things that Google thinks are important, and things that its advertisers think are important.


Almost always, Google's unpaid hits are better. The company goes to great lengths to avoid manipulation of its search results, and it is the most sophisticated and comprehensive research tool known to man. With enough time, the best content should rise to the top. 


So why do search ads exist and even enjoy moderate success (a link I found through an unpaid Google hit)? One reason may be that people are in a hurry, so if something in the highlighted advertising box catches their eye, they're bound to click it. Or maybe if they're doing a search to try to buy a camera instead of learning how a camera works, camera ads may be more relevant (though reputable camera companies still comprise the first few unpaid hits).


Consider whether you find the paid or unpaid results more relevant for chat, a celebrity, or a book title.


Can you suggest any counterexamples? If so, please feel free to leave a comment.