Google AdWords Price Fixing

In Google's commentary about their ad deal with Yahoo! they wrote:

This does not let Google raise prices for advertisers. Google does not set the prices manually for ads; rather, advertisers themselves determine prices through an ongoing competitive auction. We have found over years of research that an auction is by far the most efficient way to price search advertising and have no intention of changing that.

Aspects of that statement are categorically untrue, perhaps even lies. In many competitive markets with lots of participants the ad market may set ad price minimums, but Google...

  1. publicly talks about how they tweak the number of ads they display to maximize revenues
  2. uses quality scores that allow them to give friendly businesses discounts
  3. Google not only favors its own ads, but also creates custom ad units that only it can buy

Abitrary Pricing Floors

Google has articles in the media talking about how they tweak dials to optimize revenues. While many competitors have increased the number of ads they show, Google has been showing ads across a smaller portion of their search queries, as shown via this comScore data.

If you do not pay Google enough they simply will not show your ads, even if there are no competitors. I have ads where I am the only bidder and I get a 17% clickthrough rate - and yet there is a 17 cent price on those clicks, rather than a true market floor. Bid too low and your ads simply do not show up - even if you are bidding against nobody.

Preferential Pricing

Getting your account Google slapped is a well known phrase amongst many affiliate marketers. One day your ads are going great, and then the next day every keyword has a minimum bid of $5 or $10 per click.

On the flip side of that, many click arbitrage based business models are only profitable *because* a publisher gained access to a high authority trusted Google partner which allowed cheaper ad prices for the same keywords & ad units.

Google has went as far as publishing information about the types of business models that they do not like. Unlike acceptable business models like reverse billing fraud and infidelity, selling ebooks on sites with ads might merit a low landing page quality score.

Google Only Ad Units

Google products are advertised aggressively across Google's content network. Given that internal Google product benefit from brand awareness, bidding with funny money, and cheaper ad prices (since they don't have to give Google a cut) others with similar business models can not compete.

When Google recently entered the mortgage lead market they gave themselves an ad title of 49 characters, and a dropdown that is not available to other advertisers.

Published: June 13, 2008 by Aaron Wall in google


June 13, 2008 - 2:27am

Well said Aaron!

I am really interested to see what "quality" traffic Yahoo! will send. If it is anything like what they supply through their own network, it will be some bad traffic for Google Advertisers.

I still cannot believe Yahoo! is going this route instead of just killing off their own search partners and cleaning up their network. People always talk about how much ad spend they are giving up when the traffic turns out to be terrible.

June 13, 2008 - 3:05am

Thanks Aaron for the info. This is a very serious matter. But as a publisher what can i do about it? Please, throw some light on this.

June 13, 2008 - 4:01am

Sell ads direct and/or develop other revenue streams outside of Google (like affiliate revenues).

Igor The Troll
June 13, 2008 - 3:21am

Evil Google! Bad, Evil Google.

June 13, 2008 - 6:05am

Remember Aaron its all about "User Experience" according to Google... Unless of course your willing to pay the $5 a click then you are wonderful "User Experience"

Like not wearing the right outfit for the dress code at the local club, but if you slip the bouncer a little extra you can get in the front door.

June 13, 2008 - 3:28pm

I read the Official Google Blog Post and had the same reaction. We too compete against ourselves for a number of keywords only to see the minimum bid amount go up due to "low quality score." The statement, then, made in the post about an auction being the best way to determine ad pricing is highly hypocritical.

June 13, 2008 - 7:00pm

With Google's misrepresentation of a 'free-market' for ad prices and the announcement of their agreement with Yahoo!, the anti-trust scrutiny should be turned up a notch.

Until major advertisers start putting the heat on Google - the govt in the U.S. is likely not going to push the issue.

The tragic part - it leaves MSN to try and take them on. When was the last time we were looking to Bill Gates to provide user friendly tools that were intuitive to the non-tech user?

Is that EPIC video getting closer to being reality?

Is anyone selling Googlezon shirts yet?

June 14, 2008 - 12:56am

Great overview.... as long as they are the big dog we will be bitching but powerless to do anything about it.

June 14, 2008 - 1:22am

Many companies rely on Google to bring them their visitors and sales. What Google giveth, Google taketh away. It's a simple message, but don't rely on one referrer to bring you sales. You need a good product, and a variety of referrers. This means a website with quality, unique content and quality services/products, and a variety of referrers (not just Google). That means building a reputation that is stronger than Google's hand editing team.

June 14, 2008 - 2:01am

Wow thank you so much for this post. Big companies have too much money to burn and often times are so removed from search marketing through the use of agencies and schwag in-house experts, that they will never think to take on Google.

Aaron can you like start a petition or something?

June 14, 2008 - 3:58am

I don't want to start a petition. If people care they can help spread the message organically. But most of the SEO industry is fairly shortsighted.

June 14, 2008 - 5:08pm

I wonder if Google will argue that the reason you still have to pay a high bid price when in fact there are no other Adwords competitors is because you are in fact also competing against the quality of the organic results. They say they are all about relevancy and they may score an ad low compared to the results organically returned.

Of course, if they offer that as a defence then they would be admitting that there search engine business and their adwords business talk to each other, but of course they have assured us they don't!

June 14, 2008 - 11:05pm

Hi Mike
A 17% CTR across a dozen keywords and thousands of clicks is a high clickthrough rate and a lot of data, and since Google decided that my ad was so relevant that they would usually place it above the organic results that suggests that relevancy was not the issue.

I have even seen a third party comment on a blog praising Google for their great relevancy after they clicked on my paid ad!

June 15, 2008 - 5:28am

@ Aaron

That is why I started Google Search unfortunately it did not pick up the steam I had hoped. The goal was to get the word out to consumers, unfortunately with search, unless people think to type in "google sucks" it is difficult to broadcast a message they aren't looking for.

You got any recs?

June 16, 2008 - 5:04am

Hard for me to make any recommendations that are viable, as if I had good ones I would be spreading the word. Almost nobody in the internet marketing community cared about this blog post, which was a pretty clear and straightforward post IMHO. By the time most of them care it will be too little too late.

June 16, 2008 - 5:05am

Google General Counsel Kent Walker is a liar. Recently he was quoted by Reuters saying

"No one's coming in and saying, 'By the way, we're going to set the prices for those ads,'" Walker said.

As mentioned above, Google already publicly admitted to price fixing in their article with the New York Times about the people behind Google's magical money machine.

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