A Closer Look at Google Adwords

zaphle writes "This article describes an interesting experiment with the Google Adwords service; in an effort to fine-tune the price per word, a mirror site was set up, paying a different price per word. I turns out the second site had to pay more in order to reach a similar click-through rate. My questions to the slashdot community: are organizations like Google redefining the law of demand and answer? To what extent does this imply a competitive advantage for larger companies? Do we need an ethical framework to direct companies to make such algorithms open source?"

Comments

Huh?

[antifoidulus]

Do we need an ethical framework to direct companies to make such algorithms open source?
Correct me if I'm mistaken, but I keep on hearing that "open source" is about freedom. Since when is forcing someone to behave in a certain manner considered "freedom"?
Google can do what google wants to do as long as it's within the limits of the law, you don't like it? Start your own damn company that is more ethical.

Re:Huh?

[commodoresloat]

Since when is forcing someone to behave in a certain manner considered "freedom"? Google can do what google wants to do as long as it's within the limits of the law

The law, of course, is about forcing someone to behave in a certain manner; there is always a tradeoff between the decrease in freedom in telling someone what to do and the payoff which may be an increase in freedom. The law restricts your freedom to lock me in a closet without my consent because that leads to a net increase in freedom for me and anyone else you might think about locking up.

Open source licenses like GPL are intended to force people to behave a certain way (decreasing someone's freedom) because its net benefit enhances everyone's freedom. Now, requiring open source in an industry by law is a little different than a license like the GPL -- it's debatable whether the increase in freedom is worth the cost in any particular situation; personally I would not be in favor of mandating open source across the board, though I probably would support mandating open source in public sector agencies for example. But it is overly simplistic to simply take the perspective that you do, that restricting people's behavior with regard to software development, or anything else, is automatically "anti-freedom."

Re:Huh?

[shmlco]

And speaking of ethics, it's been shown that there are plenty of people out there with none. Should the exact details of the algorithm be public, I have no doubt that hordes of Search Engine Marketers and Optimizers would use that knowledge to game the system.

There are times when secrecy has its benefits...

Re:Huh?

[deetsay]

Correct me if I'm mistaken, but I keep on hearing that "open source" is about freedom.

Correction: "Open source" is buzzword meaning a various bunch of licences that corporations use, that are usually watered down versions of "free software".

Anyway, I also don't see how Google would be more "ethical" if they made their AdWords algorithm/program "free software" or "open source" or anything. A big community of developers looking at it could find the algorithm's faults and be able enhance it for everyone's benefit, but if it's already good enough for Google, then why give it out to others, who would just use it for competing AdWords services? Maybe the poster means that the algorithm should just be made "viewable" to people, while retaining all the rights to using it... The way to implement that would probably be a patent... Are you sure it's not already patented?

Why they can get away with it

[hug_the_penguin]

Google IMO has the best advert service because it's unintrusive and they're ads you want to see because they're context sensitive. To me that makes it more likely you'll be interested in what the ad's selling and you'll want to get it more because the ad doesn't piss you off. Because of this, google can charge whatever they like and most people will pay it.

Cringely answers own question

[NathanBFH]

Cringely, near the end of his article, drones on and on about how he has "no idea what the heck is happening here." But, in fact, he very clearly states what is going on at the beginning of the article:

Google places you higher in the rankings of of paid search results based partly on your volume of click-throughs because, again as Cringely very claearly pointed out, the more people click the more money Google makes.

Why then, Cringely, is it so hard to understand that since the first site has been opperating for what I assume to be months or even years, it would more easily place at the top of the paid search results than the brand new experimental site you created?

Your experiment proves what you already knew: popular click throughs means higher placement for less money. What don't you get?

Re:Cringely answers own question

[pmc]

The point is that the test site (at $1 per click) had similar ad word performance with the original site. When the adwords cost is dropped by a factor of two the effectiveness of the ad drops by an order of magnitude. Which seems a little weird.

There are two possible explanations here. The first is that by a pure fluke the tester managed to pick the adwords cost/click that exactly compensated for the newness of the site (as the performance of the test site and the adwords site was the same) and that when the price was reduced the ad went into a twilight zone of uselessness. The second is that google, as part of the algorithm to place adwords, punishes people who reduce their adwords cost/click.

I think the first is pretty unlikely.

The test that needs done is to start a third trial site at $0.40 and look at that - if it shows similar effectiveness as the $1 test site and $0.10 original site, then that would demonstrate reasonably convincingly that Google punishes people who reduce their adwords cost/click.

Re:Cringely answers own question

[TallMatthew]

There's another possibility ... depending on the search term used, the placement of the ad in relation to other ads bound to the same search term might have shoved it to the second page of search results.

My experience has been unless you're somewhere near the top of the adwords list on the first page (and you pay more per hit obviously), your hits will plummet precipitously, not necessarily because Google is spiking the algorithm, but because people who conduct searches get what they want in the first few listings and don't see your ad.

Advertising is a free market, not a dictatorship

[gtoomey]

I use Google adwords for various sites. Adwords seems to "reward" longstanding customers with lower rates like other businesses. I see the "minimum bid" changing all the time in relation to the mixture of bids for keywords

If you ask google to justify every detail of their pricing, you may as well demand it of oil companies & every other business.

If you don't like it, dont use it.

I don't see anything wrong with this.

[nettdata]

No, I don't think Google is redefining the "law" of demand and answer... they are just better set up to take full advantage of it.

And I don't see anything wrong with this.

Sure, in some cases, larger companies have a competitive advantage when it comes to this.

Mind you, larger companies also have a competitive advantage when they have a crap-load more money than smaller companies... they can hire a boat-load of top-knotch engineers, spend way more on advertising, etc. Does this mean it's unethical? No. That's the way it works.

Of course, there could be Monopoly issues, but I doubt that they are of issue in this case.

So, do we need an ethical framework? No. The smaller company needs a better negotiator to enter into the agreement and get the better rate and the service they want.

Why?

[Chris Bradshaw]

I don't see why this would be necessary... It's important to remember that the company paying to put their ads up is fully capable of seeing where their business is coming from (http referer:), even down to the very search terms used to find thier site, or the contrary... The ball is in the advertisers court to research and fine-tune their site, as well as cultivate a good relationship with Google in order to generate the best results. If we look at cable television for a comaprison of ad services, you have way more information at your disposal in the online marketplace than you do anywhere else, and the let's face it, the free market has and always will be a cut-throat arena where things are not always fair. As long as paid search terms stay out of the "true" search results, then "GAME ON" as far as I'm concerned.

I'm assuming that the lawsuit posted earlier this week was what prompted this - which by the way, in my opinion is total nonsense and has a snowballs chance in hell of winning in court.

Re:Hmm...

[xtracto]

I agree, I think what he saw was just the result of the typical supply/demand theory. The demand/supply combination of that specific word stated an average value for it. He payed $0.10 for a steak of 15,000 hits per day.

When he increased the price to $1.00 he also changed the demand, so of course all the "market" (for that specific word) was modified, until his demand changes where assimilated by the market. When he lowered again the price, the supply/demand was not the initial one, and that was the reason of the changes in the number of clicks. With the new combination, $0.40 per click was "worth" 1200 clicks.

The only missing piece is (and was not clear for me from the article) if the original site clicks decreased after doing the price change.

Just follow the money...

[JanMark]

I think Google puts a stiff penalty on lowering your price-per-click. I am sure most advertisers will (sooner of later) try is they can lower their rice-per-click. Google's algorithm will start to give them bad ratings immediately and most will be back to the old price in no time. The few that accept the hit in click troughs, will cost Google some money, but the ones that go back to the higher price will more than make up for that. Just do the math...

A less nefarious explanation

[sstidman]

Not to burst anybody's tin-foil bubble, but there's possibly another less nefarious explanation to what is going on. As we know, Google wants to keep their Adword algorithm secret. It's quite possible that Google realized long ago that folks could map out their algorithm by simply playing with the input parameters just like Cringely's friend was doing. In order to prevent the inevitable reverse engineering of the algorithm, they might have put in some code to randomize the effectiveness of the results when Google has detected that someone is changing the parameters. If that guy wants to see if Google is really punishing him for lowering his price, he should try setting the price back to $1 and see if things go back to what they were before. I'll bet they won't.

Of course, another possibility is that they have a bug in their code. I've heard that some programmers actually make mistakes sometimes.

Try a third answer.

[shmlco]

Try a third answer. Many factors make up the price a click and and ad placement, including the AGE OF THE SITE. Newer sites, and ads, have been simply found to be less relevant that more established sites and ads. The only way to compensate (to a certain degree) is to pay more.

So start a new site with zero page rank and it will have to pay more to get the same placement, if it can do so at all. Older sites will pay less because they've been around longer, and their ads will have shown themselves to actually have been relevant.

It boils down to a simple axiom: Google rewards relevance.

The Google Business Model

[Motherfucking Shit]

Because of this, google can charge whatever they like and most people will pay it.

They'll also get ripped off.

Here's a common story:

"I put Google AdSense on my website. I earned about $140.00, and Google was just getting ready to send me a check. Then, out of nowhere, Google sent me an email telling me I'd generated 'invalid clicks' and that my AdSense account was terminated, and all of my profits would be returned to the advertisers."

Hundreds, if not thousands, of AdSense displayers just like me have faced this fate. But here's the question to AdWords advertisers. Have you ever seen a "refund" on your AdWords account due to some AdSense advertiser generating "invalid clicks" for your ad? I never did. Google confiscates the money from the AdSense displayer, but does not return the money to the related AdWords advertisers! That is to say, Google keeps the money that the AdWords advertisers paid to display their ads; and also keeps the money that they were supposed to pay out to the AdSense webmasters for displaying those ads.

Google is making a killing on displayed advertisements for a lot of keywords and phrases, without paying out a penny to those who are displaying the ads on their pages. They're arbitrarily cancelling AdSense displayers' accounts for unspecified reasons, and if you try to determine why, you wind up in formletter hell. "Do No Evil," my arse.

I've been on both sides of the fence. I advertised through AdWords, I displayed AdSense ads on my site. And Google decided to kill my AdSense account while I was on vacation, for "invalid clicks," and despite emails requesting details, they wouldn't bother to explain what that meant.

I immediately pulled the AdSense ads from my sites and replaced them with Yahoo Publisher ads. Good news on that front, Yahoo is actually sending me checks. And I can guarantee you that I'll never again spend a penny on any Google service, be it AdWords or any other fee-based product they come up with.

Re:Advertising is a free market, not a dictatorshi

[ScentCone]

But in the oil industry, the price goes up and down and every customer pays the same ammount

But that's just simply not true. Big refineries pay less than small ones. Big distributors pay less than small ones. Smart retailers that commit to longer-term contracts pay less than those living more hand-to-mouth. Prices paid at every level of the oil (and every other commodity) market and distribution chain fluxuate wildly, and the long-term viability and business flow of each player can impact what they pay. Just like Google rewards long-time customers, long-lived established (and relevent) sites, etc.

While not illegal this does not justify a claim of "NOT EVIL"

How is evaluating your customers and striking deals that seem appropriate, according to your own interests, evil? It's not like Google (or search, or advertising in general) is some natural resource or government service that Google is on the hook to spread around evenly in some utopian socialist model... they're a private sector company deliverying a service in a way, and according to methods that they have established. If you think it's Eeeeevil for them to evaluate their customers, looking at the big picture, then all you have to do is spend your money somewhere else. They have competition: Overture, MS, Yahoo, etc.