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Saturday, June 18, 2005

Bringing New Meaning to the Phrase "Google Cash"

Loose lips have leaked the rumor that Google is planning to offer an online payment service. I guess when you're planning something as big as taking PayPal on, word tends to get out.

No one is confirming this yet.

The timing of this is interesting in light of a possible short-term drop in (or at least slowing of) the revenues Google reaps from the content targeting side of its ad program. I've been convinced for some time that Google would eventually pick an opportune moment to atone for its flawed implementation of the AdSense program, by severely cutting back on the revenues paid to low-quality publisher partners. A revenue hit wouldn't be welcome on Wall Street. And for all of their IPO bravado to the effect that they wouldn't pay attention to short-term market fluctuations, Google management have no doubt come to understand the value of inflated or at least steady stock valuations when they're playing for keeps against fewer, larger, competitors -- primarily Microsoft and Yahoo, but also eBay and Amazon. Pulling the plug on AdSense revenues would be too drastic.

So Google at some point decided to change their approach to how AdSense worked. From a certain angle it looks like a series of incremental steps: "smart pricing," better policing of low-quality partners, a beta test of a publisher exclude feature, etc.

Now, however, with the release of Site Targeting, Google has a whole new approach to content targeting, one that will, at least for awhile, run concurrently with the old approach. The old approach limited control by advertisers over the locations of their ads, but the benefit was relevancy and paying only when someone clicked. The drawback was that clicks were often low-quality or fraudulent.

The new program is CPM-based and allows publishers and advertisers to make a marketplace. From the advertiser standpoint, if you play with the interface, you'll be allowed to pore over big lists of potential sites to show your ads on. I'm sure more than a few long-suffering advertisers are experiencing a perverse glee at seeing lists of their "old friends" -- all those terrible sites that didn't convert -- mixed with lists of high-quality sites they would love to show up on. I predict that a large number of advertisers will vote with their mouse clicks, and really put a dent in those unrecognizable, contentless sites' pocketbooks.

Once the program seems to work, I doubt Google will keep the old one around for too long.

Danny Sullivan and others have long argued that search and content are different, so there is no need or logical sense to having them priced the same or run from the same interface. I tend to agree. Clients who want broader media buying are looking for different things than those who just want search. Those who want both can hire a qualified agency to manage each side appropriately.

Other than trying not to antagonize webmasters who have been making a living off AdSense, I can't think of very many reasons for Google keeping the old version of content targeting around. I think that very soon it will become evident that the old content program is merely being grandfathered for a set amount of time so as not to confuse or upset publishers and advertisers. Phasing out the old program will perhaps lead to a slackening of revenues, as with any painful economic transition. In this case, the transition can be boiled down to moving advertisers dollars from bad publishers to good ones. In the long run, that should strengthen the fundamentals of online advertising and attract more advertisers to the party.

By way of keeping the markets interested in Google's growth story, and eventually finding a potentially huge revenue vein to reinvigorate growth as advertising revenue growth slows, this Google payment processing initiative comes at an opportune time indeed.

Posted by Andrew Goodman




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