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November 2005

Two recent posts on the economics of blog advertising

There have been two interesting posts recently about the economics of blog advertising.

An academic, Starling Hunter III, reaches three conclusions:

(1) the number of weekly page views (WPV) is a much stronger predictor of weekly ad revenue and price than are either the number of inbound links or the number of blogs providing those links

(2) the number of ads has a negative impact on ad price and a largely positive effect on ad revenue, and

(3) the political orientation of the blog matters: on average left-of-center blogs significantly out-earn their right-of-center counterparts.

Finding #1 is the least surprising. Advertisers would like to pay for results, but lacking information on that, they seem to frequently pay for eyeballs. And the number of inbound links has problems as a measure of blog quality.

Finding #2 asserts that the demand for blog advertising is price-elastic. Given the reasonable number of substitutes, that wouldn't be surprising. But managing the ad prices on my wife's and my blogs, it seems to me that there is a significant segment of the market that is quite price-inelastic.

The trick, as always, is identifying that segment.

Finding #3 is interesting, but is almost certainly distorted by outliers. doesn't seem to me to be statistically reliable or economically large. I thank Prof. Hunter for pointing out the results are not driven by outliers.

Blogger Nic Duquette asks "What's Your Blog Worth?" and answers by applying regression analysis to Blogads data. He makes a couple of assumptions that tend to understate blog income. He annualizes the Blogad hosts' listed three-month rate. But most sites offer a substantial discount for longer insertions and if other blogs are like my wife's and mine, most of the ads are placed for just 1 week. He also has to ignore income from sources other than Blogads.

On the other hand, I don't understand at all why he multiplies three-month pageviews by 91, and then further multiplies by 5/7.

But his regression model forecasts that a blog with 500,000 weekday pageviews would earn over $200,000/year. Mrs. Newmark and I would, I think, quit our other jobs and blog full time on that amount.

Only about 495,000 pageviews/day to go.

Hedge Fund Guy sneers at one of the hot new things in business, Risk Management.

Risk management as a stand-alone business function is kind of pathetic. Lots of high-minded rhetoric, but very little impact. In practice risk management is mainly a PR exercise, sort of like economics departments from the 70’s and 80’s. Both house lots of PhDs highly influenced by economic theory, who eagerly share ideas in print and conferences. And just as economics departments were generally irrelevant to decision makers when they were at their high water mark 25 years ago, so too is Risk Management.

He notes that Enron used to brag about its department of Risk Assessment and Control.