In this paper, we propose a dynamic optimisation model to maximise a web publisher's online display advertising revenues. Our model dynamically selects which advertising requests to accept and dynamically delivers the promised advertising impressions to viewers so as to maximise revenue, accounting for uncertainty in advertising requests and website traffic. After characterising the structural properties of our model, we propose a Certainty Equivalent Control heuristic and then show with a real case study that our optimisation-based method outperforms common practices. These results highlight the importance of accounting for the opportunity cost of capacity allocation in advertisement contract negotiation for globally maximising online publishers’ revenues.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
Araman, V. F. and Fridgeirsdottir, K. (2008) Revenue Management for Online Advertising. London Business School. Working Paper.
Araman, V. F. and Popescu, I. (2007) Stochastic Revenue Management Models for Media Broadcasting. Working Paper.
Bain and Company. (2008) Bain/IAB Digital Pricing Research, http://www.iab.net/media/file/Bain_IAB_Digital_Pricing_Research.pdf.
Baye, M. R. and Morgan, J. (2000) A simple model of advertising and subscription fees. Economics Letters 69 (3): 345–351.
Bertsimas, D. and Popescu, I. (2003) Revenue management in a dynamic network environment. Transportation Science 37 (3): 257–277.
Bertsimas, D. and Tsitsiklis, J. N. (1997) Introduction to Linear Optimization. Belmont, MA: Athena Scientific.
Bollapragada, S., Cheng, H., Phillips, M., Sarbiras, M., Schoks, M., Gibbs, T. and Humphreville, M. (2002) NBC's optimization systems increase revenues and productivity. Interfaces 32 (1): 47–60.
Booz Allen Hamilton. (2007) HD Marketing 2010: Sharpening the conversations, http://www.boozallen.com/media/file/HD_Marketing_2010.pdf.
Boyd, S. and Vandenberghe, L. (2004) Convex Optimization. Cambridge, UK: Cambridge University Press.
Cao, J., Cleveland, W. S., Lin, D. and Sun, D. X. (2002) Internet traffic tends toward Poisson and independent as the load increases. In: C. Holmes, D. Denison, M. Hansen, B. Yu, B. Mallick (eds.) Nonlinear Estimation and Classification. New York: Springer.
Chickering, D. M. and Heckerman, D. (2003) Targeted advertising on the web with inventory management. Interfaces 33 (5): 71–77.
Fridgeirsdottir, K. and Najafi-Asadolahi, S. (2008a) Revenue Management for Online Advertising with Advertising Networks. London Business School. Working Paper.
Fridgeirsdottir, K. and Najafi-Asadolahi, S. (2008b) Revenue Management for Online Advertising: Pay-Per-Click Pricing. London Business School. Working Paper.
Hof, R. D. (2008) Yahoo is counting on Apex. Business Week, 18 September.
IAB Internet Advertising Revenue Report. (2007) Interactive Advertising Bureau, http://www.iab.net/media/file/IAB_PwC_2007_full_year.pdf.
Kimms, A. and Muller-Bungart, M. (2007) Revenue management for broadcasting commercials: The channel's problem of selecting and scheduling the advertisements to be aired. International Journal of Revenue Management 1 (1): 28–44.
Kumar, S., Jacob, V. S. and Sriskandarajah, C. (2006) Scheduling advertisements on a web page to maximize revenue. European Journal of Operational Research 173 (3): 1067–1089.
Kumar, S. and Sethi, S. P. (2008) Dynamic pricing and advertising for web content providers. European Journal of Operational Research, (to appear).
Levy, H. (1992) Stochastic dominance and expected utility: Survey and analysis. Management Science 38 (4): 555–593.
Mangani, A. (2004) Online advertising: Pay-per-view versus pay-per-click. Journal of Pricing and Revenue Management 4 (1): 295–302.
Nemhauser, G. L., Wolsey, L. A. and Fisher, M. L. (1978) An analysis of approximations for maximizing submodular set functions – I. Mathematical Programming 14 (1): 265–294.
Prasad, A., Mahajan, V. and Bronnenberg, B. (2003) Advertising versus pay-per-view in electronic media. International Journal of Research in Marketing 20 (1): 13–30.
Roels, G. and Skowrup, T. (2008) Break.com. UCLA Anderson School of Management Case Study.
Rusmevichientong, P. and Williamson, D. P. (2006) An Adaptive Algorithm for Selecting Profitable Keywords for Search-Based Advertising Services, In: Proceedings of the Seventh ACM Conference on Electronic Commerce, June 11–15, Ann Arbor, Michigam, USA, pp. 260–269.
Talluri, K. T., and van Ryzin, G. J. (2004) The Theory and Practice of Revenue Management. Norwell, MA: Kluwer Academic Press.
Turner, J., Scheller-Wolf, A. A. and Tayur, S. R. (2008) Scheduling Of Dynamic In-Game Advertising. Carnegie Mellon. Working Paper.
Wolsey, L. A. (1989) Submodularity and valid inequalities in capacitated fixed charge networks. Operations Research Letters 8 (3): 119–124.
About this article
Cite this article
Roels, G., Fridgeirsdottir, K. Dynamic revenue management for online display advertising. J Revenue Pricing Manag 8, 452–466 (2009). https://doi.org/10.1057/rpm.2009.10
- revenue management
- online advertising
- dynamic programming
- linear programming