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McKinsey Study

McKinsey Study

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Published by: Ciaran O'Kane on Mar 09, 2011
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05/25/2011

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IAB Europe
Consumers driving the digital uptake
September 2010
The economic value of online advertising-based services for consumers
 
3
Consumers driving the digital uptake: The economic value of online advertising-based service for consumers
3
Note and definition
The Internet is an impressive medium by many metrics. In a period of about 10 years, broadband Internethas achieved mass-market levels of penetration, reaching more than 50 percent of households in theOECD countries. In the US, the average amount of time spent on the Internet (accessed by PC) is already about 2 hours per person.
But how valuable are online applications to an Internet subscriber? 
 
This is a differentquestion and a challenging one to answer because users who pay a flat access rate have accessible to thema large array of advertising-based online services that are mostly free to use. IAB Europe commissionedthis white paper from McKinsey & Company to answer this question. The paper is designed to unbundleInternet use into 16 major domains of online advertising-funded applications. The
user value
of onlineservices has been assessed through the concept of 
surplus
, using conjoint techniques.Specifically:1. For the user, the
consumer surplus
 is the value to the consumer of the online services minus any costs associated with using those services (e.g., costs for paid services, the negative value of advertisinginterruption, etc). This consumer surplus is to be contrasted with the
producer surplus
, i.e., the profitderived from delivering the service.2. The
consumer surplus
has been estimated through
conjoint-based market research
. Thismethodology is largely applied in marketing science, and works by deriving the importance of a service tousers rather than asking them to estimate that value directly. The value of online services to Internet userswas derived by creating a hypothetical bundle of attributes (service type, price, advertising interruption),describing how the online service would be used, and asking respondents to rank their usage preferences.Statistical methods are then applied to estimate the relative importance of the various attributes – takinginto account the fact that some attributes may qualify as disturbances. The two disturbances discussed inthis paper are advertising interruption and the collection of private information while Internet services arebeing used. The extent of the disturbance effect is measured by calculating the amount a consumer wouldbe willing to pay to avoid being exposed to advertising formats and to limit private-information collectionwhile using ad-funded Internet services. Advertising formats include video ads, pop-ups, and banners.E-mail-delivered advertising was considered outside of the scope of this paper.McKinsey retains copyright to the report, with right of use extended to IAB Europe alone. Any reference tothis work should involve a request to McKinsey. Its dissemination outside the terms of this note does notcommit McKinsey & Company in any way.The white paper and the underlying analyses have been discussed and reviewed by the IAB Europeanboard. McKinsey thanks IAB Europe and the study sponsors for valuable inputs in the preparation of thiswhite paper.

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