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Wednesday, November 15, 2006

AdWords Landing Page Quality Score and the History of PPC Price Inflation

Detlev Johnson, in the SearchReturn email newsletter, weighs in on the subject of landing page quality algorithms by turning to a history of paid search price increases: GoTo going from .01 to .05, Google entering the game with a smart auction with a .05 minimum, but then adding high arbitrary minimum bids that we wrote about in Page Zero Advisor (referring to it as "Soviet-style economics," a carefully-chosen phrase that Perry Marshall has recently latched onto and loosely used in his print newsletter, three years later), Google removing the high arbitrary minimum bids nine months later, YSM raising their minimum to .10, algorithms entering the fray and making things less transparent in 2005, with a new method of enforcing high minimum bids on keywords/ads/sites with low quality scores. The landing page quality component came in last December, and is getting more extensive. At Threadwatch, they call this "price gouging"; around the affiliate-osophere, they're calling it Google Slap. Ouch.

I note also that Detlev talks about the possibility of Google's system being so well calibrated that they could use it to hit quarterly targets. That's a concept I first discussed shortly after the new Quality-Based Bidding regime came in. I suggested that Google might even try to keep revenues from racing ahead too fast, while testing the impact of price increases on profit margins... in essence engaging in the "earnings management" they once claimed they'd avoid. They probably don't have to do this - but it's clear that they could, by pulling a lot of "bad" ads of the system and taking a short term revenue hit. That's a huge luxury for Google, because more white space and more relevant ads may mean more satisfied searchers.

Meanwhile, the "official" bottom bid on AdWords is now only .01 again! :) But your cost will be higher. :)

So we've heard all the complaints: Google is gouging, etc. Is this trend in enforcing certain policies through price increases really about increasing Google's revenues, or really about "taking aim" at certain advertisers?

It's obviously a bit of both, but consider this please: the price increase is the main thing, and that has happened over time, on the average click, through a combination of market forces and Google-tweaked "incentives."

So let's be clear about one thing. Every episode of significant price inflation has chased large groups of those "targets" (inefficient affiliates, companies with bad business models) out of the ad space. Even without tying it to a particular policy, the higher pricing has changed the configuration of who uses AdWords and Yahoo Search Marketing. Only someone whose head refuses to see life in terms of trend graphs, and who cannot process the dimension of time, would think this trend is over with. Ad prices are going to continue to drift up until they reach parity with other advertising opportunities, and it means only certain kinds of offers will be able to survive in the system. Larger companies are still only cautiously dipping their toes in here. As they continue to study more ways of benefitting from paid search, click prices will continue to creep up.

The fact that the SE's are pulling low quality (by their definition) stuff off the ad network is an interesting quirk, bound to anger some, but the macro trend is indeed a price increase and who gets left standing when that is done. Extremely high ad pricing is one reason you don't see ads from a Viagra affiliate in Vogue Magazine or next to Desperate Housewives content. As an ad network and publisher Google is not quite Vogue or a TV network in prime time, of course, but again... look at the trend graph.

Talking with a group of mostly affiliate marketers here at Pubcon in Las Vegas, I am surprised to hear that the supposed targeting of affiliates and arbitrageurs by Google is not making the huge waves you might expect. Even at ten cents or twenty cents, much of this contingent got priced out of the paid ad space long ago, and has little or no intention of studying the problem in more depth now that prices continue to drift up. The talk is all about the trends in link buying and hard core SEO tactics. People have "websites," they expect to make more "websites" to pursue various opportunities they've heard exist in various niches, and they do not plan to pay one thin dime driving traffic to those websites (except for working on them constantly, paying for links, attending costly conventions... oh right, so they are paying money to do this, but they refuse to pay it to the search engines).

Anyway, the big time arbitrage group is in rarefied territory. The average player is just not in this space to any significant extent, and has no plans to get in. Most affiliates go the SEO route. PPC prices have been rising for a long time, and the so-called little guy (actually tiny guy who doesn't plan to build a business, just a website) is indeed getting priced out. The price rise is the macro trend. The editorial policies are just that extra push to remind the tiny guy what the purpose and/or effect of the ongoing price rise was in the first place -- obviously to make more money for Google, but also to get rid of them.

Since we've been writing about that phenomenon ever since we published little tidbits on GoTo's rise to 5 cents... we can't help but think that the whole concept of a Google Slap is overblown. Many advertisers survived and thrived after "GoTo slap," and a large number of opportunistic players took their marbles and went to play in another place. That place is mostly SEO.

As for how the quality algorithms actually work, there are clear public statements by Google to that effect in their FAQ's, but let's hope they get clearer. In December I'll follow up on that.

Posted by Andrew Goodman




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