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Could a New Algorithm Increase Profits for Search Ad Providers?

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Phys.org has posted a news release from Georgia Tech University in Atlanta about a new computer algorithm, "that could further increase profits for search engine advertising."

From the news release:

Upon examining the Google ad model, Vijay Vazirani, together with his two Georgia Tech Ph.D. students, Aranyak Mehta and Amin Saberi, and Umesh Vazirani, a professor of computer science at Berkeley, realized that always giving the top spot to the highest bidder is not the best strategy for Google. The top bidders might rapidly exhaust their budgets and get dropped from the auction, thus reducing the competition for that keyword.

Google?s profits will be higher, the researchers reasoned, if it somehow weighs both bids and remaining budget when ranking ads. They found a mathematical formula that finds the optimal trade-off between bids and remaining budget, maximizing what the advertisers are spending.

The research team has filed a provisional patent for their work to ensure that the research remains in the public domain. The team continues to explore other applications for their algorithm such as in engineering and for solving other computer science problems.

Btw, the research itself was motivated by a question asked of one of the researchers by Google's former Director of Research, Monika Henzinger, while he was interviewing for a job at the Googleplex last year.

If you want to learn more about the research, here's the full text of the paper: "Adwords and Generalized Online Matching'' NOTE: The paper is in Postscript format. You can use this site to convert to PDF. Also, this excellent overview article: Computer Scientists Optimize Innovative Ad Auction (PDF), is more than worthy of your attention.

The researchers have not yet published their work, but Saberi, now at Stanford, gave a talk on the algorithm that some Google researchers attended. He was subsequently invited to give another talk on the result at Google. [Monika] Henzinger, who originally posed the problem to Saberi, has since taken an academic post at Ecole Polytechnique Fédérale de Lausanne but continues to consult for Google. She requested a video of Saberi?s talk.

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