Google AdWords: 11 herbs and spices revealed

Bidding on ignorance

By Cade Metz in San Francisco • Get more from this author

Posted in Applications, 21st January 2009 01:25 GMT

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Google likes its secrets. But there's one secret it likes more than any other. We don't mean Goobuntu. Or the GDrive. Or those Juniper-killing GRouters. We mean the secret that makes the millions, the secret at the heart of the Mountain View money machine.

It's not much of a secret, really. It's right there for all to see. But it's something Google refuses to admit - whether the question comes from from a nagging reporter or a loyal customer. If Google keeps its loyal customers ignorant, Google makes more money. Much more.

Almost all of Google's revenues arrive via AdWords, its flagship advertising program. Billed as an auction, AdWords serves up text ads in response to Google keyword searches. You bid for a particular keyword or group of keywords - "whips and chains," for instance, or "free Adobe Acrobat" - and if you bid high enough, your ad may appear when some unsuspecting web surfer searches on those terms. Then, if they actually click on your ad, you pay Google a fee somewhere south of what you bid (depending on what your competitors are bidding - and Mountain View's mystery algorithms).

Even among seasoned AdWords advertisers, the assumption is that you're bidding for the right to post an ad every time someone searches on your keyword. Or at least most of the time. The wisest advertisers are well aware that Google may tweak ad placements based on the surfer's location. And many speculate that Google is targeting ads based on the surfer's surfing habits. But almost no one - including some of the cleverest search engine marketers we've spoken to - realizes the truth. And that's because Google won't acknowledge it.

The truth is that Mountain View carefully controls the number of impressions each ad receives - presumably as a means of maximizing its own revenue. To wit, if you bid on the keywords "pork dumplings," your ad will likely appear on only a small fraction of "pork dumpling" searches. And you have no way of knowing how small that fraction is.

Drawing on the ad hoc research of a longtime Google advertiser, we made this claim back in July of last year. And it's confirmed by AdGooRoo, an independent outfit that tracks Google ad placements from servers installed across the globe.

"Google is going to display the ads that make them the most total revenue," Rich Stokes, AdGooRoo founder and CEO, tells us. "Every single ad campaign I've seen has at least a handful of keywords - sometimes far more - that are only getting three to five per cent of the coverage [impressions]."

In other words, advertisers aren't bidding for what they think they're bidding for. And Google has rigged its ad system so that it's dominated by only a handful of advertisers. According to the latest numbers from AdGooRoo, three per cent of Google's advertisers receive 80 per cent of all ad impressions.

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