The #1 Way To Improve Yield Optimization, Thanks Dr. Laffer

Most yield systems 'think' about a graph of their revenue versus impressions andsee a line going up from left to right. The idea is that every single impression has the opportunity to generate income.

This view can only be true if each additional sellable impression is a real person that gives just as much attention to each new ad impression. With the exception of a microscopic minority, this is impossible. We all know that overloading the user with ads means they actually wind up ignoring all of the ads.

In reality, ethical publishers know full well that jamming your pages full of ads, and playing games and inflating page loads doesn’t last. Increasing supply undermines future pricing power and increases the opportunity for others to arbitrage the publisher.

In part, yield optimization is to blame. The real culprit is the second price auction. It’s baked into that auction method and it can’t be removed.

Let’s take another view. If we apply what we know, we know that the publisher’s revenue curve actually shows that if we keep pumping impression production up artificially, the total revenue we can generate through the market goes down.

Graph 2
Graph 2

So, the real question is what is the minimal amount of impressions that will maximize the publisher’s revenue. The curve illustrates that if there are zero ad impressions, there is no revenue—obviously—to the publisher. But if a publisher had no content and just ads, that won't generate revenue either, as there is no longer any incentive for a person to consume that publisher’s media.

If you’re a bit of a policy nerd like me, that sounds like a theory that came in to legend on a napkin “…officials Dick Cheney and Donald Rumsfeld in 1974 in which he reportedly sketched the curve on a napkin to illustrate his argument[1]” This is the legend of the Laffer Curve, an idea that made a big impact on tax policy throughout the 1980s.

To answer the revenue maximization question above we have to figure out the shape of the curve and how close we are to the top. Sounds simple enough right? Now, let’s think about any technologies in advertising that do that? Is there a yield optimization system that does that?

If you are managing media inventory today, can you tell me what dot on the curve above best represents your organization? If you can’t, your organization is managing the world through the lens of the line graph and not the curve.

[1] https://en.wikipedia.org/wiki/Laffer_curve