1/ Let's talk auction based online ad platforms. $GOOG, $FB, $TWTR, $AMZN, $PINS, $YELP, $SNAP. I am long $TWTR, $PINS, $YELP now and have been long $GOOG in the past. My outsider observations, industry experts will likely use different terms.

2/ Direct to consumer widget company A sells $10 widgets & makes $2 gross profit, widget company B sells $10 widgets $1.50 profit. Auction price for ads will settle at $1.50 per conversion.

3/ Company A makes $0.50 on each widget, company B makes $0 on each widget but hopes to convert that widget sale to future widget sales via their email list or via referrals from their high net promoter score. Ad company makes $1.50.

4/ Note that for each widget sold Ad company just made 3x the gross profit that the widget company did. It's also a lot cheaper to make ads than widgets so Ad company has way higher profit margins, returns on capital, etc.

5/ Goal of online Ad companies is to sell widgets via auction process and capture most of the margin. Online ad companies don't sell ads, they sell widgets. Brand/Impression ads goals are the same but less direct, sell widgets. When you see "ads" think "sell widgets".

6/ Ad types ranked by effectiveness
Immediate Intent
Retargeted Intent
Discovery
Brand Awareness

7/ The most effective way to sell widgets is to recognize a user's immediate intent to buy a widget and then direct them to a widget seller. $GOOG and $AMZN are great at this, they know based on my search that I'm ready to buy. Mature ad networks with high intent to sell.

8/ $PINS & $YELP have potential to capture intent. If I make a new $PINS board titled "furniture" there is intent to buy furniture. If I search for a plumber on $YELP I'm about to pay somebody to unclog a drain. When mature these two ad networks will be highly profitable.

9/ Nobody goes to $FB (Facebook, Instagram,Whatsapp, Messenger), non-search/non-appstore $GOOG (Youtube/gmail/etc), $TWTR, $SNAP with intent to purchase. So how do they sell widgets users didn't go there to buy? Retargeting and discovery ads.

10/ Retargeting ads capture intent from somewhere else and then target that intent a place you didn't go for it. Visit Toyota Rav4 website demonstrating intent to buy a Rav4 then later visit Facebook and see ads for Toyota Rav4.

11/ Retargeting isn't as good as immediate intent. Could have bought the widget somewhere else or changed your mind, retargeting weakens the intent signal. Even if you do still have the general intent to buy a widget you weren't thinking about buying widgets when you saw the ad

12/ Retargeting works best for ad platform if they capture intent so they can auction that intent. Sell ads not just to Toyota for Rav4 but to Honda CR-v, Ford Explorer. This is primarily done via cookies.

13/ Retargeting also works by taking targeted ad buys as indication of intent. If Toyota is targeting a person with ads likely Toyota knows this person wants to buy a car. Ad platform starts showing Honda and Ford ads to create an auction for that implied intent.

14/ Discovery ads require the ad platform to know more about you than your spouse. Not just stats like age or location, but what makes you different. Often what makes you different is embarrassing, but ad platforms need to know it for discovery ads to work.

15/ Brand Awareness ads compete with tv and billboard ads; online they can target better. Brand Awareness ads compete with more effective ads. They are just filler and are annoying to the users. % of ads charged by impression instead of per action is a sign of a bad ad network.