Have you ever wondered how and why a search engine like Google can find information. On the first video you will find how the Google search engine conducts a search and how it ranks different pages and makes the choice of what will be introduced at the top of the search findings. Basically it is all about conducting a social search. You for example ask a friend where is the best local restaurant, but you also ask whom he would ask the same question. This creates a networks and the key question is then whom should you listen to the most i.e. whom will you give top rank.The search algorithm used by Google is known as Page rank.
You might want to look at other video´s on the Internet and on e.g. YouTube. One example is https://www.youtube.com/watch?v=LVV_93mBfSU
Pricing advertisement using auctioning
When selling advertising Google conducts an auction. All of the bidders who will want to be found with a certain search word will place their bids. We all know how a bottom up auction works: everybody takes part and the price is gradually raised. With an auction like Google advertising, bidders will have to give their bids prior to the auction. This is known as a sealed bid auction. What is their best strategy? What would your strategy be? Should they guess how much they should pay?
One approach is to simply calculate and estimate how many click throughs will lead to a single purchase. Then you need to know and what are you willing to invest in advertising to receive a single deal. After all of this estimation and counting, you know how much you can pay for a singe deal. The next question is should you bid this true value? Or should you be opportunistic and bid less? There is a simple answer to this question. Have a look at this video on auctions.
This video will show you how Google auctions the advertising slots. This is known as a generalised second price auction (look it up also on e.g. wikipedia)
The generalised second price auction although used by Google is an adaption and approximation of the Vickery-Clark-Groves mechanism (VCG). In the VCG mechanism the best strategy is for the bidder to reveal his or her true value. This video will explain how the price to be paid is calculated in the VCG mechanism.
The Digital Landscape 