Some pretty useful insights from this presentation by Hal Varian, Google’s Chief Economist. He puts forward a very basic model for profit maximization for advertisers: the value per click should be more than the incremental cost per click – there’s a simple explanation to his formula as well. He also mentions Bid Simulator, a tool to experiment with different bids, which can help advertisers assess how much they should pay (I wasn’t aware of it before though it’s been in existence for a couple of years), and in hard numbers shows the value of search to users.
Advertising on Google has had its share of issues, and rightly so, with algorithms giving more importance to search engine relevance than their real relevance, which is of course aided by advertising and content farms. I much prefer using numbers to illustrate value the way this presentation does – scientific advertising, if you will, rather than fake number-pumping for unfair gains.