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Saturday, March 01, 2008

Wall Street Doesn't Get It (Part I)

If you're an outsider looking to come up to speed on what's going on in the world of online advertising - particularly with regard to the complex machinations of the paid search algorithms which line search engine companies' pockets - look no further than this post by Magid Abraham and James Lamberti of comScore.

This detailed explanation of click monetization
is intended to act as a corrective to rampant misinterpretations of the recent comScore report showing tepid growth in total paid clicks, which led to $20 billion being shaved off Google's stock market valuation. In particular, note that the "ad coverage index" at Google has continued to drop - most recently, from 52% to 48%. This means that Google is deliberately monetizing fewer queries, to increase user satisfaction with search engines.

Rarely do you see a piece of writing that so deeply and incisively delves into the economics of this world. It stacked up well with the recent panel I was on, Decrypting Quality Scores, where experts from the search engines - most notably Google's Nick Fox - joined agency side folk (like me) in explaining the ins and outs of the engines' "ad quality" initiatives.

The resolve they've shown to take so many ads out of circulation, on purpose, is beyond incrementalism to the point of being worth characterized as "aggressive." And you know what, it worked. Ad revenue continues to rise, paid clicks have slowed, and users still think the search engines are nice places to look. A bold, forward-looking, user-driven initiative was indeed just what was needed to save Google from much steeper stock market plunges - and those would have been justified.

If you get it, you know that Google's financial position is going to be just fine this year and next. The stock market may see it otherwise though, as markets are governed by other considerations, like sentiment and liquidity.

Posted by Andrew Goodman




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