Management and Valuation of Advertisement-Supported Web Sites.

Author List: Dewan, Rajiv M.; Freimer, Marshall L.; Zhang, Jie (Jennifer);
Journal of Management Information Systems, 2002, Volume 19, Issue 3, Page 87-98.
A key decision by the manager of an advertisement-supported Web site is the balance between content and advertising. Content is costly but attracts viewers, whereas advertisement generates revenues but repels viewers. The period-by-period balancing decision is further complicated by the growth and diffusion nature of Web site viewership. This decision problem is modeled as a control problem that captures the essence of the business model of such Web sites. Using this model we show that it may be optimal for the Web site to initially have negative cash flows from having fewer advertisements and more content. This is more than compensated for by future profits from the Web site. We use the solution to the control problem to also develop a forward-looking measure of Web traffic called the 'discounted total traffic.' We empirically examine this new measure and find that it better predicts market capitalization than backward-looking measures like page views.
Keywords: advertising policy; content management; market capitalization; Web traffic
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#33 0.289 web site sites content usability page status pages metrics browsing design use web-based guidelines results implications portal loyalty navigability addition
#191 0.155 model models process analysis paper management support used environment decision provides based develop use using help literature mathematical presented formulation
#267 0.104 options real investment option investments model valuation technology value analysis uncertainty portfolio models using context intuitive managerial regret uncertain case
#182 0.101 percent sales average economic growth increasing total using number million percentage evidence analyze approximately does business flow annual book daily
#114 0.079 performance firm measures metrics value relationship firms results objective relationships firm's organizational traffic measure market study improve accounting measuring aggregate
#31 0.061 problem problems solution solving problem-solving solutions reasoning heuristic theorizing rules solve general generating complex example formulation heuristics effective given finding