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Monday, January 05, 2004

Jupiter Analyst Calls AdSense a 'House of Cards'

Has Nate Elliott been drinking the same water I do? (Actually, I've switched to a mellower brand now, but others seem to be moving in the opposite direction.) The Jupiter Research analyst just wrote a scathing indictment of Google AdSense, in which he lambastes Google for not allowing advertisers to bid separately on contextual ads. These ads, as advertisers began charging in earnest last August (galvanized by a presentation by Brad Byrd at Search Engine Strategies), are said to have a lower ROI than the regular search listings. Elliott calls for Google to do what Overture just did not 24 hours ago: to decouple the bids on contextual ads from the bids on search network ads (see previous blog entry).

But this isn't necessarily so, in my opinion. As a group, the "content targeting" ads definitely seem to underperform, and a separate bidding system would be a welcomed by most of our clients. But these placements shouldn't be viewed as a class. Some content targeting ads are more "navigational" than others (I believe there is a continuum of how content is presented, and some is more like search, and some demands much higher attention levels and CTR's than others). Thus a low bid on content targeting might prevent the savvy advertiser's ads from showing up on a really prestigious publication that converts well.

Elliott is quite right on the general point, but in the context of a column with AdSense ads hovering above his photo on the ClickZ site and a big Google sponsor banner to his left -- to say nothing of Jupiter's typically understated delivery -- Elliott writes some pretty strong stuff. That's a mite surprising considering that the point could have been made by simply saying "Google, too, should decouple bids on contextual ads." Elliott argues, in part:

Google must create a separate marketplace for bidding on AdSense ads. Contextual advertising will be a very large business. At appropriate prices it can be a very effective advertising tool. Forcing advertisers to pay inflated prices can only stunt the business's growth and hurt Google's reputation as a fair and friendly company.

Wow! What about Overture's forcing advertisers to endure low-quality and/or unethical partner traffic over the years (such at that emanating from Gator)? Anyone who's been observing knows that Google's been considerably more willing to offer opt-outs on its various ad distribution features than their competition has. I guess this just goes to show that when you're an industry leader, your missteps get magnified as customers begin to set the bar very high.

A small part of me suspects that Elliott already knows something and that Google will roll out the me-too feature tomorrow. Another part says that the challenge is much greater than that, and that Google will want to go one or two better than Overture on this front, so it will take months before we see a more powerful set of content targeting features for AdWords advertisers.

I do believe Google will listen to Elliott's (and Byrd's, and my) points about the content targeting program. In some ways it feels like deja vu all over again. I recall posting this rant on December 3, 2002, back when Google was still imposting artificially high "special minimums" on keywords in certain industries:

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.


It did take Google some time to "study" the issue, but soon enough, after tinkering with lowering them, they dropped the minimums entirely.

It's highly unlikely that progress with the top pay-per-click companies' feature sets is frozen in time. Many more small enhancements will be announced by all of them in the coming year. And hey, there are still some pretty good bargains in the pay-per-click ad space if you look closely.

Posted by Andrew Goodman




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