Google, Yahoo, MSN to PPC advertisers: keep raising bids, grow our gross margins

The self-interest motivated genius of the pioneering Google ad sales model is Google’s success in instituting an opaque, competitive bidding system designed for continuous advertiser self-initiated increases to their own advertising rates.

The most revolutionary aspect of Pay Per Click (PPC) advertising is not the “accountability” or “ROI” that the search ad networks tout to advertisers, it is advertisers’ radical departure from their traditional, self-interest motivated, ROI-fueled advertising purchase behavior of negotiating down media advertising rates.

Sophisticated analytical models are not necessary to conclude that the lower an advertiser pays for a specific advertising placement, the higher the ROI will be for that particular placement.

The self-interest motivated genius of the pioneering Google ad sales model is not what Google deems to be a “democratic” ad buying auction platform, it is Google’s success in instituting an opaque, competitive bidding system designed for continuous advertiser self-initiated increases to their own advertising rates.

Google has enveloped its advertiser un-friendly ad auction system in vaunted “Google Speak” phraseology which seeks to render Google profit motives into advertiser empowerment and user satisfaction.

Google Philosophy, Point 6 says:

You can make money without doing evil.

Google's maximization group works with advertisers to improve clickthrough rates over the life of a campaign, because high clickthrough rates are an indication that ads are relevant to a user's interests.

Google, however, does not fully disclose all of its motivations for driving high click through rates; the Google profit machine, of course, is dependent upon driving high click through rates, given that Google is only paid for AdWords if an ad it places is clicked on by a user.

Yahoo and MSN are in the process of relaunching their own PPC search advertising auction systems to emulate the Google advertiser un-friendly, opaque auction model; Yahoo with its Panama platform and MSN with its adCenter platform.

In a May 8 New York Times article, “Yahoo Is Unleashing a New Way to Turn Ad Clicks Into Ka-Ching,” Yahoo’s Panama project is presented as a hoped for Yahoo match to Google’s ability to maximize advertiser ad spend:

Google found a way to predict the popularity of ads in order to put the ones that would bring in the most dollars on top.

Yahoo is quoted:

a graph will show how many more clicks they can expect for each increased bid.

‘One of the primary complaints we get is users can't explain to their bosses what they could get for spending the next $1,000," said Steve Mitgang, the Yahoo senior vice president who oversaw the development of Project Panama. ‘Now they can take this to their bosses to justify spending more.’

MSN adCenter publicly presented a “pay more for a click” business development strategy at the Search Engine Strategies Conference, as I present in “MSN adCenter to advertisers: ‘pay more for a click’”:

Doug Stotland, Group Product Manager, adCenter, MSN Search, advised advertisers yesterday that they have the ‘capacity to pay more for a click’…

Stotland warned that advertisers can be on either the ‘winning side, or losing side.’

Stotland’s recommendation to be on the winning side: pay more for clicks.

During the Q & A following Stotland’s presentation I asked him if MSN also recommends strategies for advertisers to increase ROI by paying less for clicks, rather than paying more.

Stotland reiterated the adCenter “adopt to rising CPC” philosophy, so I suggested that a possible scenario for lower ad prices leading to higher ROI for an advertiser might include targeting ad placement in lower page positions, or on pages 2, 3, 4 of user search results.

Stotland indicated that adCenter does not put forth such a scenario to advertisers.

At Google CEO Eric Schmidt’s Q & A with the press at the Search Engine Strategies conference, I engaged Schmidt in a debate on the likelihood of continued advertiser acceptance of rising PPC costs, as I recount in "Google CEO Eric Schmidt on recession, competition: Google makes more money":

I suggested to Schmidt that his belief in advertisers’ willingness to continuously bid up the prices they pay for participation in AdWords might soon be tested…

I asked Schmidt if he was concerned that there might not come a day when advertisers object that Google’s out-sized gross margins are achieved at the advertisers’ expense and, subsequently, decide to revert to advertising purchase behavior more aligned with their own interests, that is to bid down prices to achieve higher ROI.

Schmidt’s response: NO.

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