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Wednesday, March 03, 2004

Contextual Ads, Bidding, and Market Inefficiency


Open Letter to Tim Armstrong, VP of Advertising, Google:

Dear Tim,

Yesterday, at a session at SES, you reportedly claimed that Google has been studying conversion rates on contextual ads for over a year, that they are "about the same" as search ads, and that you have no plans to change the bidding process to allow advertisers to bid separately on the content targeting.

With all due respect, your research is wrong, but more to the point, your principle is wrong. We and our clients know that we want the contextual inventory. We also know that, on average, we can afford to bid only 20-30% as high on these ads. That's simple economics based on *our* conversion data. Until we can bid separately, we either lose money or we shut the ads off. It's unsatisfying and runs counter our usual way of running campaigns. Campaigns that run on the "spend too much, then freak out and turn off" model do not run as well as the "happy consistent spend" sorts of campaigns. What I'm telling you is that we can't get any good momentum going with this program, as much as we'd love to use it more often.

If this is a feature (bidding differently on content targeting) that advertisers shouldn't bother with, then why would your competitor, Overture, have gone ahead and offered it? Because it's what advertisers want, of course. And it's what the market dictates. The market always tells us what to bid. That's why we love AdWords.

I might be just the "bad boy of search" howling in the wilderness, but the other chaps mentioned in the article, my friends Nate Elliott, Brad Byrd, Joshua Stylman, Lance Podell, and audiences full of murmuring SES attendees, seem to agree. Sounds like an advertiser consensus to me.

Best wishes,

Andrew

Posted by Andrew Goodman




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