Why is information easier and cheaper to collect on the internet?

University Degree Business and Administrative studies

Why is information easier and cheaper to collect on the internet?
How does the low cost of information collection make it easier to price software, music etc (i.e. “information goods”.)
How has low cost of information collection altered advertising methods?

With the development of internet, life is replete with all kinds of information goods such as software, eBooks or pieces of music sold online. People now get quite used to buy products without going out home. One of the predominant features of these kinds of goods is they are low or zero incremental costs based on a high fix cost, though. They may be intangible, appearing only with a graph so that people get to know them after using. But they share public good features and easily transmutable as people do not want to pay if they can be free riders.

As the information goods may have zero or very little marginal cost, it becomes easier to price them based on their value, which means the price of the information goods depends on how much customers want to pay for their value instead of cost. This accounts for the existence of price discrimination as the consumers may potentially be charged different amounts. Due to people’s various perception of pricing the information goods, first degree, versioning and bundling are three prevalent examples of price discrimination. Therefore, it’s crucial to know people’s value and preference or interest towards the goods and how much they’d like to pay.

Importantly, online ads methods provide richer information about customers as the information collection cost has been greatly reduced. Online ads not only “tell” sellers how much the customers want to pay, how many customers are interested in, what’s more, they let companies know what type the customer is with not only cheap but richer information, of which customer preference is just one part. The reason for that is online technology made the low cost of information collection possible on Internet. For example, tracking the browsing histories, using the cookies and depending on transaction log files (ex. Google Analytics) all collect rich information from customer cheaply and simultaneously once customer clicks. Sometimes, email tracking will be effective. (Inmon,2001). HTML emails are most prevailing type people use in daily life, which contain the pictures and links to provide further advertising information. If people use plain text emails, the emails could hardly be tracked. With HTML emails, when customer click the links, the ads server may record and know what kind of products a consumer looked, when they opened the emails and what kind of ads or links they followed to click, may even further take statistics from the data to know the portion of people who will be the final purchaser.

Therefore, it will become easier to price these kinds of information goods as firms could collect richer and cheap information from such approaches and large database to know exactly what kind of people are interested in the products, who might be there potential customers, what’s the portion of people who will purchase the goods after effective ads reaches them and how they could take targeted marking from their particular preferences. It take much advantage from the information collection from the internet and EC so that they have more merits than traditional one-way and mass marking ads methods, which ended ...

This is a preview of the whole essay

My personal experience is that my email box is full of ads alerts and promotion information hit by the Nationalexpress.co.uk after I attend a survey when I bought the train ticket online. At the moment I bought a train ticket, the window popped up is an easy 4 questioned survey about the frequency and regular destinations etc. Then I kept receive “great offer” from Nationalexpress. When I open the first several emails about further promotions they offered, I only looked at the route from Bristol to London. The regular reservation for the train tickets are made between Bristol and London. Then I found the emails later on are mainly about the offers about Bristol and London including some sightseeing around the cities and two for one vouchers. It even recommended me to book in a three month advance in holiday time such as before Christmas and Easter. From my experience, I assert that Naionalexpress has use the email tracking to keep my preference info and my regular booking information so that it could send me the targeted offers to my email address instead of mass marketing. It may benefit from many advantages to raise its sales by online advertising instead of one-way TV, Radio or newspaper advertising.

The low cost of information collection trigger many company experience the transformation from Traditional ads to online ads when they make the advertisement and marketing. There are significant difference between traditional ad methods and online ads. Traditional ads methods including TV, radio, magazine and newspaper may have advantages of intrusive impact allowing some targeting. However, they are mainly one-way contact and usually they have very low response rates. They have disadvantages as mass marketing while online advertising acts as an interactive one.

Online ads are cheaper and information collection is richer about the consumer’s details and preference which transform the way of advertising. Compare to those ads in other flat media, online ads could be 3d and it is possible to know not only how many people purchase the goods, but also the information is growing and Internet gives online advertising accessible to know exactly the portion of the people who are fancy about the goods to which extent, such as what portion of people who open the email, what portion of people actually response to the email and how many people exactly click on that ads and finally how many people who buy it afterwards. Ads can be updated at anytime with minimal cost as cost of information collection has been virtually fully reduced. Online ads are cost-effective ways using the convergence of text, audio, graphics and animations which may cause a large expenditure in traditional ways. Some of its rich formats including services such as MySimon.com enable customers to compare prices and using PDA or cell phone. They are fresh and up-to-date, 24hours 365days.

Of many favorable features of online ads, one also deserves to be emphasized that online ads makes marketing relationship moves from mass marketing towards one-to-one marketing. Amazon sets a good example and provides interpretation of this by Collaborative Filtering. It limits the info which are valuable to them collecting from individuals, which benefits Amazon by getting alleviated from the pressure of increased industry competition which is attributed to full information collection. Collaborative filtering Amazon uses “similar” consumer preference to predict potentials. For example, Amazon will put such advertising sentences as way of effective ads methods as “People who buy this book also looked the following books” or “People who buy this book also buy other related books as follows” This link the book you’ve bought with the results from the collaborative filtering. It’s clever and bright way to make an effective ads alert but not putting too much personal preference information. If Amazon putting too much information from collection, people will be annoyed and fed up thinking that Amazon knows too much about their privacy. The method such as collaborative filtering is preferable as it allow filtering of ads to make market segmentation much more clear. The full information may either ‘frighten off’ the potential customers or create fierce competition by providing too much information as well. The limitation of collaborative filtering will be relative high cost to have such a large database about customer preference. But once a company owns that database, it really contribute a lot to its prediction about how to prevent mass marketing ending up with poor targeting. With large database full of customer information, Amazon knows details from a relatively large sample so that it could be better aware of the preference and better target the segmented market. Therefore, Amazon could be more accurate on making targeted marking and attractive offers to the potential targeted customers.

Among different kinds of online ads, there are various kinds of online ads forms, such as banners, pop-ups, Email ads and search engine ads and etc. Banners were popular, but the click-through rate has been declined as consumers might immune to banners. Nowadays, people avoid clicking on them and get annoyed by them. Display ads have 1-2% click through rates. Email ads from In house lists have 4-5% of people who purchase the goods finally. But firms with purchasing lists only has 0.01-0.02% rate. Search engine has a relatively high rate of 3% -7%. The affiliates has 0.2%-0.4% which is low. From the empirical evidence, less than 1% of people will click through banners indicates that perhaps less than 0.05% will purchase the goods. They are also costly in terms of the low click-throughs rates. On the other hand, some forms of online advertising such as Pop-ups even make people furious and avoiding clicking partially because of contacting virus.

From the figures about, we could see the “search engine” advertising methods proved to be another one effective way of the online ads. Basically, most search engines allow companies to submit their Internet addresses, called URLs for free so that these URLs can be searched electronically. However, looking at how Google make profit buy “Keyword” searching which also called Search-engine ranking (Optimization). Several companies have services that optimize Web content so that a site has better chance of being discovered by a search engine. Google Adwords If a company register Google Adwords, The company's ads will appear beside related search results and people may click that ads so that provide the link to connect to the company's business. Google also charge fees for including URLs at or near the top of the search results or even slightly shadow the first three search result. That’s the way how Google charged firms for “sponsor matching”.

For another example, AdSense is an also advertisement application run by Google. Website owners can enroll in this program to enable text, image, and more recently, video advertisements on their websites. These advertisements are administered by Google and generate revenue on either a per-click or per-impression basis providing content links between the potential consumers (from the searching) and the firms. Google beta tested a cost-per-action service, but discontinued it in October 2008 in favor of a DoubleClick offering.

The low cost of information collection altered advertising methods from which we could see some of them are effective and even create a ‘search engine war” between some big sites such as Google and Yahoo! But some of them are already made people fed up and do not want to use them such as “banners and popups”. They also alter the way we buy products online from the traditional one-way ads and it’s really worth to see how we affected by the online ads by their tremendous and brilliant changes.

1783 words