Analyzing Location-Based Advertising for Vehicle Service Providers Using Effective Resistances

Abstract

Vehicle service providers can display commercial ads in their vehicles based on passengers' origins and destinations to create a new revenue stream. In this work, we study a vehicle service provider who can generate different ad revenues when displaying ads on different arcs (i.e., origin-destination pairs). The provider needs to ensure the vehicle flow balance at each location, which makes it challenging to analyze the provider's vehicle assignment and pricing decisions for different arcs. For example, the provider's price for its service on an arc depends on the ad revenues on other arcs as well as on the arc in question. To tackle the problem, we show that the traffic network corresponds to an electrical network. When the effective resistance between two locations is small, there are many paths between the two locations and the provider can easily route vehicles between them. We characterize the dependence of an arc's optimal price on any other arc's ad revenue using the effective resistances between these two arcs' origins and destinations. Furthermore, we study the provider's optimal selection of advertisers when it can only display ads for a limited number of advertisers. If each advertiser has one target arc for advertising, the provider should display ads for the advertiser whose target arc has a small effective resistance. We investigate the performance of our advertiser selection strategy based on a real-world dataset. 1 We use an example to estimate the value of the unit ad revenue. According to [1], the average cost per click (CPC) of Youtube ads was around $3.58 in the second quarter of 2018. Based on [14] and [24], the click-through rate (CTR) of an in-stream video ad was around 1.84% (note that this number was achieved without location-based targeting and the actual CTR of an in-vehicle video ad may be higher). When a provider displays 3 in-stream video ads to a user during each time slot (10 minutes), the unit ad revenue is $0.20 (= 3 × 1.84% × $3.58). This value is comparable to a vehicle service provider's net profit when it does not display ads. According to [17], Uber's net profit is around $8.23 per hour per vehicle, which corresponds to $1.37 per time slot per vehicle. 2 When a user takes the vehicle service, the corresponding consumer surplus is the difference between the highest price that the user is willing to pay for the service and the price that it actually pays.Location-Based Advertising 6:3 an associated electrical network. 3 Each location corresponds to a node in the electrical network. If there is a positive traffic demand between two locations, there is a resistor between the two corresponding nodes, and its resistance is determined by the traffic demand and travel time between the two locations. Given the associated electrical network, we can compute the effective resistance between any two nodes. Intuitively, a small effective resistance implies that there are many paths between the two locations and the provider can easily route vehicles between them. Based on the effective re...