With more of our time and attention online, digital marketing has become an essential part of business success. Each year, the world spends 57 billion hours on a single website: Google. For MBA students, learning to seize opportunities in this digital environment is more important than ever. This is especially the case in advertising, as we are constantly navigating innovations in the digital marketing ecosystem. With the COVID-19 pandemic pushing more people and businesses to work in “chunks” rather than “atoms,” the need to go digital is urgent.
Today, Google is a technology giant and generates huge profits through online advertising. Last year, in 2021, Google’s advertising revenue reached $209.49 billion. But it wasn’t always obvious that Google would dominate. In 2000, competitors such as Yahoo dominated the search engine market. Since then, the industry has changed tremendously. Google now handles about 2 trillion search queries a year, while Yahoo handles only 33 billion a year.
It is much more difficult in the present to identify the behemoths of the future. As the rise of online search engines, advertising will be affected by emerging ideas such as the metaverse and artificial intelligence. But these concepts still need to mature. It is both a challenge and an opportunity. MBA students wishing to work in marketing, digital strategy, or entrepreneurship will need to possess the skills necessary to shape future winners in this space.
SUPERSTARS VS. UNDERDOGS
Professor Avi Goldfarb is an economist and teaches a course called “Digital Marketing” at the Rotman School of Management. Besides decades of research in this field, he is also the author of several books on topics such as The digital economy and Prediction machines: the simple economics of artificial intelligence. As part of his teaching philosophy, Professor Goldfarb believes that students should be equipped with a framework that helps them understand the opportunities and market of the digital world.
Of particular interest in Goldfarb’s work was how the digital marketplace rewards “superstars” and “underdogs.” The music industry, for example, has been disrupted by falling distribution costs associated with publishing songs online. So the “superstars” would never have to suffer from stock-outs or inventory constraints. Additionally, popular songs became even more popular as they were more accessible online, especially compared to offline alternatives like CDs.
On the other hand, “outsiders” benefit from reduced research costs. Imagine that you, as a consumer, were looking for a guide to extreme ironing (it’s a real sport). It’s so obscure that before the internet you would have no idea how to find such a guide. On the other hand, the author of this guide would also have no way of finding the right customer to make a sale. With online search engines, it is so much easier to search for what we want, regardless of its rarity, and producers of niche products are rewarded in such an environment.
For this reason, “intermediate” products often struggle to compete in the digital world. For new managers, this idea may not be entirely intuitive. But the opportunities of these concepts can be identified and incorporated into management decisions. As a result, marketers and product managers can benefit from positioning their products as “superstar” or “underdog” while avoiding the pitfalls of being something in between.
HOW GOOGLE IS PAID
One of my favorite topics in the digital marketing course was digital pricing. Most search engine advertising is sold through a first-price generalized auction that has been adjusted for the “quality” of the keyword. Search engines only get paid when a user clicks on one of their ads. In this scenario, “quality” is a measure of how much ad revenue that keyword would generate for Google and is combined with the bid price to form an ad rank. The bidder with the highest Ad Rank wins. All this happens in record time. This allows for maximum profit through price discrimination, as companies like Google could charge for individual willingness to pay for each different keyword.
To illustrate this concept, an auction was held in class to demonstrate the process. With the prize being a meal paid for by the teacher, it was a fun way to see the concept come to life. For marketers, search engine ads are often a key part of a company’s digital marketing strategy. Beyond online advertising, auctions are a smart way to set prices that extract maximum value and are an important tool to have for aspiring technology entrepreneurs or management consultants.
TRANSFORMING THEORY INTO PRACTICE
Finally, it is not enough to simply identify opportunities. Understanding the theory will help students become competent digital marketers. To be competitive, Rotman students must demonstrate the value that a technology or strategy could capture and sell those ideas to a leadership team. That’s why they present lesson concepts and case studies every week.
These learner-directed activities allow students to combine classroom concepts with real-world topics to put theory into practice. For example, in one exercise, students identified and presented the opportunities that a small offline business gains when it partners with Shopify, a leading e-commerce platform. Another assignment allowed students to present a new digital product they designed themselves.
For many of us who have relied on e-learning over the past year, the in-person presentation was a welcome opportunity to hone our public speaking skills. Receiving feedback and making improvements based on your reviewed ideas is also a key part of this exercise and an invaluable skill to develop. This is particularly the case when promoting the use of new technologies where knowledge is often lacking and great uncertainty is involved in their use.
As technologies like artificial intelligence disrupt the digital ecosystem, MBA students must capitalize on its opportunities despite its uncertainties. With a focus on both theory and practice, “digital marketing” students learn to become more adaptive and better prepared for the modern workforce.
Dr Peter Zhang, PharmD is a hospital pharmacist and MBA candidate at the University of Toronto’s Rotman School of Management. Through the unique combined Doctor of Pharmacy/MBA program, he explored the intersection between life sciences and business strategy. In addition, he has published research in peer-reviewed academic journals and opined in national media in Canada.