AdWords has become a black box beyond the means of many small advertisers. To help some advertisers automate their accounts tools like free conversion tracking and CPA based bidding have came about. But all the tools that help enhance the perceived value of search ads and the value of conversions does nothing for brand ads or the other ads people see before searching and buying.
Content ads, which were relatively expensive when AdSense first came out, have seen their price drop over the years as
- advertisers adjusted content bids downward
- smart pricing reduces prices (again, again, and again)
- quality scores that drives out arbitrage ads
- the clickable region has got smaller
The value of many publishing based business models has aggressively eroded as
- publishing markets get saturated
- AdSense has replaced direct ad sales for many sites
- Google keeps discounting the price (and perceived value) of non-search ads
- Google's search based ads get conversion credit for demand created by other ads
Google claims their success is just because they are simply better than the competition and they have been doing search longer (that second claim is untrue - Yahoo! owns Inktomi and AltaVista, which have both been doing search longer than Google). The truth is they have a huge advantage in network effects, have advertising believe that their inventory is worth more than it is, and that other online ads are worth less than they are. It is going to be hard to create a viable competitor unless the metrics for measuring value are changed.
Microsoft's answer to this is called Engagement Mapping, yet another black box, but one that aims to share part of the ad credit with display ads (clicked or not) instead of tying most of the ad value to the search based conversion. Publishers would clearly benefit from this, but if it is hard to get advertisers to buy AdSense ads on Google (where Google essentially giving away the ads) how hard will it be to get advertisers to buy in on this? Perhaps big brands will use it, but smaller companies will not be interested.
If Microsoft does not own a big piece of the search market, another big hurdle is how will they advertisers trust this model without giving Microsoft their analytics data?
How might this pricing model change online publishing (for better or worse)?
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