Chapter 4 Search Economy
In a digital economy anything that can be digitized i.e. can be represented as stream of bits is information. With ever expansion of technology and benefits of information goods there is an explosion of information. However, to make a meaningful decision we need to extract knowledge from this information.
DATA -> INFORMATION -> KNOWLEDGE -> WISDOM
Therefore, to arrive at meaningful information (i.e. knowledge) one needs to search for it in the ever growing heap of data. Therefore, in this digital world search is going to be very important. In marketing context, search is important becuase of follwing reasons:
- There is information asymmetry among buyers and sellers.
- A key issue that emerges in the context of Internet based selling of search goods involves the optimal level of information to be provided by sellers.
- The efficiency of the market is often determined by the level and quality of the information possessed by the market agents.
Consumers incur various kinds of costs (e.g.,financial, physical, mental, physiological) while searching for information. Therefore, how long or how much consumers will be willing to search for information? Based on utility optimization behavior of rational consumers we can safely say that as long as marginal benefits of information search outweighs marginal cost of information search consumers will tend to search for one extra bit of information.
Example: Assume you use an internet search engine to find instructions for rules of pesäpallo. Entering the keyword `rules of pesäpallo’ return around 50000 results.Assume the monetary value of looking at the 1st, 2nd, 3rd page and so on is 10, 10/2, 10/3, etc. The cost of looking at a page is constant at $2.5 per page. How many pages do you visit?
Solution: For \(n = 4\) the additional gain of visiting the forth page is just equal to the additional cost. Thus it is optimal to visit \(n = 4\) pages.
Many companies started their business based on information search. Immediately marketers realized the potential benefits of advertising on such search platforms. Fierce competition for seeking attention and ever changing search algorithms have led marketers to optimize the effects of their ads on search engines leading to a new field of marketing often called Search Engine Optimization (SEO) and Display Ads.