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Tuesday, December 03, 2002

AdWords Keyword Adoption Even Slower than I Thought! Are Distorted Minimum Bids to Blame?

Stumbling on a Sprinks sponsored ads pop-up box while surfing About.com made me realize just how surprisingly slow Google has been to sell its keyword inventory. The Sprinks box that popped up was associated with the Volleyball site at About.com (I had been looking for something else entirely, but clicked through to this site from a Google search). There were eight advertisers for volleyball-related products. Hmm, I thought. That's quite a hefty bid for the first-ranking ad considering how poorly (in my experience) Sprinks converts to sales. So I did some checking. There are over 30 Overture ads for the term "volleyball." There are over 20 FindWhat ads for this term, for heaven's sakes! So to see how Google AdWords were coming along, I looked at AOL Search, and did a search on Google itself, under the term "volleyball" (OK, I also threw in "beach volleyball" and "nude beach volleyball" for good measure).

And how many advertisers show up on AOL Search or Google for the terms "volleyball," "beach volleyball," and "nude beach volleyball"? None, nada, zip. I wonder if Google's sales force is being too polite. Perhaps it's time to go for the jugular, and approach these advertisers more directly, even if at one or two removes. I know Google will figure it out, but I'm surprised at the slow pace of advertiser adoption. AdWords has much bigger reach and considerably higher quality traffic than Sprinks or FindWhat, yet many advertisers are unaware of this.

You know what's probably causing some of this advertiser reluctance? Google is still perceived as a search engine, and many companies still think they deserve to get all their traffic from the regular search results (viz. Bob Massa). This is shortsighted, in my opinion. Those same advertisers will overpay for Overture keywords, but don't even bid on comparable Google AdWords keywords that are available for much less. Doesn't make sense.

Another reason for the reluctance is tied to Google's prohibitive "bid minimums" - which are often much higher than the formal five cent minimum. That skewing of the marketplace (artificially and arbitrarily setting prices high, rather than leaving them low to attract early entrants and letting the auction process mark prices up) does Google no favors in the long run, and hurts advertisers in the short run, because it deters them from giving Google AdWords a fair shake to see if it performs well.

Real estate agents know this principle well (just ask any home buyer who recently bid 15% over market on a home). In a hot market, instead of trying to squeeze people by setting a prohibitive price, you generate action on a property by setting it a bit lower. When all those bidders get to see what a great property it is, they start fighting amongst themselves, mind games take over, and the seller makes out like a bandit. IMHO, Google should create action on its keyword properties by dropping the artificial keyword bid minimums immediately. With all minimums set at the true minimum of five cents, some advertisers will get ridiculous bargains and ridiculously good ROI from their ads, which will create positive word of mouth.

Anecdotally, Google has already had to move in this direction in markets like Japan. Bid minimums are still high there, but they were even higher at the beginning (probably Overture's presence there had something to do with it). So nothing says they're incapable of seeing the light and allowing market forces to operate for the benefit of all participants.

None of Google's direct competitors (Overture, FindWhat) have distorted their minimum bids the way Google has (although Sprinks, Business.com, IndustryBrains, and others have set high fixed prices per click - on Business.com, it's an average of 61 cents).

I think I speak for all advertisers when I say "let Google AdWords be a true auction where the market sets prices on its own." In keyword areas where Google has left the minimum at five cents, the market seems to be working perfectly well.

Posted by Andrew Goodman




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