Market Based Control

Wired magazine recently ran an article about the use of auctions to allocate advertising space on Google searches.   One interesting fact is that [tag]Google[/tag] runs a real-time auction for advertising slots each and every time a search is undertaken — in other words, millions of [tag]auctions[/tag] per day!

“But as the business grew, Kamangar and Veach decided to price the slots on the side of the page by means of an auction. Not an eBay-style auction that unfolds over days or minutes as bids are raised or abandoned, but a huge marketplace of virtual auctions in which sealed bids are submitted in advance and winners are determined algorithmically in fractions of a second. Google hoped that millions of small and medium companies would take part in the market, so it was essential that the process be self-service. Advertisers bid on search terms, or keywords, but instead of bidding on the price per impression, they were bidding on a price they were willing to pay each time a user clicked on the ad. (The bid would be accompanied by a budget of how many clicks the advertiser was willing to pay for.) The new system was called AdWords Select . . .”