Google is making far more money from advertising on its own sites than on its partner sites.
Since 2004, advertising revenue growth from Google sites has jumped by 24 percent to over 62 percent of total revenues.
Isn't there a conflict of interest here? Google has grown revenues to its sites at a far greater rate than on its partner sites.
Please check my reasoning:
Google makes almost all of its revenues from its two ad networks:
-AdWords: Customers advertise on Google web sites.
-AdSense: Customers advertise on Google partner sites, which includes many media companies.
In 2004 when it went public, Google's revenue was about evenly split between AdWords and AdSense.
Since then, the revenue mix has tilted far toward Google's advantage where inhouse sites have captured 24 percent more revenue to 62 percent of total.
And this makes perfect sense: that Google to expand this part of its business because Google makes far more money from its own sites than from partner sites.
It is better for Google's shareholders that it boost its own sites because:
-Google gives back about 80 per cent of AdSense revenues to its partners.
-It keeps all of its AdWords money.
And this is where Google has a mammoth conflict of interest. Consider this:
Which of its advertising networks should Google invest in?
-A dollar invested in its AdWords business produces far more profit than a dollar invested in AdSense, its partner network.
-Management has a fiduciary duty to its shareholders to maximize profits.
-Google can boost overall profits by undercutting AdSense at anytime it wants. It could do this by offering a discount on AdWords compared with AdSense. Even a generous 20 percent discount on AdWords would be more profitable for Google than the corresponding loss of business through AdSense partners.
-Google can undercut AdSense in other ways, and is already doing it, by investing in technology that improves AdWords conversions over AdSense. Google can apply technologies to its own sites that make them more efficient at selling ads. It can't do that with partner sites. And partner sites don't have the resources to improve their advertising conversions at a similar pace.
Which means ad revenues for media companies from Google will continue to fall because Google is more efficient at converting ads into sales.
Media companies that partner with Google in its AdSense program do it because they don't know what else to do. The economics of a partnership with Google are poor and the relationship is unsustainable because of the inherent conflict of interest, imho.
Why Would GOOG Maintain AdSense?
-There are strategic purposes, it forces media companies in its network to compete with its far more profitable business model which weakens them as potential competitors.
-Also, it keeps third-party sites out of rival ad networks.
-AdSense is a great "cookie jar" because if GOOG ever needs to meet its numbers for its quarter, it can seek to push more ads through its own sites rather than through partners.
Will media companies recognise this conflict of interest sooner than later?
Is there a conflict of interest for Goog?