EY-Parthenon Case: Virtual Marketplace

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Please describe the business model/revenue streams of online marketplaces such as your-new-home.com?

The interviewee should understand here that the core product of online marketplaces is connecting demand and supply and thus generating fee revenues. In addition, he or she should also find out that almost all online business models generate revenues with online advertising.

The focus of the management in this project is advertising sales – but how to quantify these?

In general, sales are a multiplication of quantity and price.

The interviewee could think about various price concepts – e.g. cost per click (CPC – as soon as an end customer clicks on the advertisement) or cost per View / Mille (CPM – as soon as an end customer just views the advertisement). The latter will be considered as a relevant price component in this case.

Regarding the quantity, the applicant should talk about three factors:

1) the number of page views,

2) the average number of ad slots per page that the end customer sees, and

3) the fill rate of the offered advertising slots (not all slots are sold continuously)

On request, the following numbers can be communicated verbally (simplified, therefore, to calculate average)

• Quantity page views in 2017: 900 mn
• Quantity ad slots per page: 3
• Fill rate: 33 %
• CPM cost per mille: € 9

On request share the CPM for the video, which is € 20.

How many sales has your-new-home.com generated in 2017 with online advertising?

How to increase sales?
(in bold calculated options in this case)

• Quantity: Increased Marketing spend (SEO / SEA) to push views
• Quantity: More Ad Slots per page (e.g. 4 instead of 3)
• Price: Simply increasing CPM (difficult due to intense competition)
• Price: Offering higher valued ad slots (e.g. with Videos slots or better Targeting)
• Other pricing models: CPC instead of CPM
• Out of the box: Mobile / App monetization, Key Accounts offerings, …

What is the revenue potential to be realized?

• Both options result in a desired additional revenue of € 2.7 and € 3.3 million respectively
• Theoretically, both options could be implemented in parallel, thus realizing even more revenue
• Increasing the ad slots from 3 to 4 (Option 1), however, could disrupt the core product as end users/visitors are disturbed by the mass of advertisements and move to the competition
  • The exact effect of the respective options could be found out in an A / B test: In an identical period, a test group is shown 4 ad slots instead of 3. The comparison group will continue to be shown only 3 ad slots. As a result, it can be compared whether the visitors of the test group leave the pages faster, for example, or click on fewer pages – making our website less attractive
• Regardless of the test, you would tend to recommend Option 2, as the financial effect is greater, video material from the end-user / site visitor may even be considered more interesting, and no increase in ad slots is necessary