Sharing Online Advertising Revenue with Consumers

    Online service providers generate much of their revenue by monetizing user attention. We explore the idea of rewarding users for their attention in a cost-per-conversion system by giving consumers cash-back incentives for making purchases. Consumers using an online service, for example a search engine, are shown advertisements. If a consumer buys something, the advertiser pays a fee to the search engine, and then the search engine provides a cash back payment, or revenue share, to the user. While this increases the utility of users and advertisers, and is potentially beneficial to the search engine in the long term, the impact
on the search engine's immediate revenues are not obvious. We model the effect of revenue sharing by treating conversion (purchase) probability as a function of the net price after discount. Thus any direct loss of per-conversion revenue may be more than o set by an increase in conversion rate. We analyze equilibrium behavior in the resulting three-player game induced among users, advertisers, and service providers in an auction framework. We explore two natural ways to specify revenue share: as a fraction of the search engine's revenue per conversion, or as a fraction of the posted price of an advertiser. We compare revenues and welfares in these situations, and show that the search engine can indeed increase its immediate revenues while providing reduced prices to the user.