Original URL: http://www.theregister.co.uk/2008/09/02/changes_for_adwords/

Google remodels top secret money machine

'Perfect ad' be damned

By Cade Metz

Posted in Financial News, 2nd September 2008 22:59 GMT

Nowadays, even Google is questioning Google's rose-colored portrait of its ever-expanding search advertising monopoly.

The way senior vp Jonathan Rosenberg tells it, Google will gradually tweak its AdWords ad platform until it displays almost no ads. Ad "coverage" on the world's largest search engine has certainly shrunk over the past several months, and when the subject was mooted during July's quarterly earnings call, Rosenberg attributed this steady shrinkage to Google's "continued focus on quality" advertising. "[Google co-founder] Larry [Page] says we'd be better off showing just one ad [per page] - the perfect ad," Rosenberg cooed, indicating that coverage would shrink even further.

But then, in a rare moment of Google candor, the other co-founder told listening reporters and financial analysts that Rosenberg's "perfect ad" nonsense was indeed nonsense. "There is some evidence that we've been a little bit more aggressive in decreasing coverage than we ought to have been," was the word from Sergey Brin. "We've been reexamining some of that."

His candor was fleeting. But with the company's second quarter profits dipping below Wall Street expectations, it looked an awful lot like Brin and company were on the verge of cranking the dial on their AdWords money machine and cooking up added profits for quarters three and four - and beyond. Remember: More coverage means more clicks, and more clicks means more money.

Well, little more than a month later, Google has announced significant changes to its ad platform. Most notably, the company is killing AdWords' much-discussed "minimum bid," a means of discouraging what Google considers "low quality" ads. The changes have yet to reach the web at large. Google is testing the waters with "a very small segment of advertisers." But search engine marketers - and Wall Street analysts - can't help but wonder if this is Google's play for more coverage. And more revenue.

"No more minimum bids?" says Adam Audette, founder of AudetteMedia, a boutique search marketing shop out of Bend, Oregon. "It certainly looks like they'll have more leeway to make more money."

Meanwhile, as Jonathan "Perfect Ad" Rosenberg himself let slip during that shockingly-newsworthy earnings call, Google continues to expand a coverage-happy AdWords beta known as "Automatic Matching." Believe it or not, Auto Match spends your excess ad budget on keyword searches you aren't actually bidding on, and judging from initial tests, it empties your wallet just as pointlessly as expected.

Sergey Brin

Sergey Brin

Testing Auto Match with a seasoned Google advertiser, the Dallas, Texas-based search marketing outfit KeyRelevance saw spending increase 600 per cent on a single ad campaign, and most of that extra dough was spent on keyword searches that had little or nothing to do with the advertiser's products.

"Auto Match decided the account needed help spending money," says Jim Gilbert, the KeyRelevance ad guru who ran the tests. "So it started spending money."

Google insists it's only interested in serving up relevant ads, satisfying both advertisers and web surfers. But this commitment to quality goes only so far. Google is also interested in making lots of money, and as the economy continues to soften, it's worth remembering Mountain View has the power to juice profits whenever it likes. With AdWords controlling 70 per cent of the search advertising market, even the slightest turn of the dial can mean millions.

Minimum Bid: RIP

AdWords serves up text ads in response to Google keywords searches. Google bills it as an auction. You bid for a particular keyword or group of keywords - "leather mask," for instance, or "my little pony" - and if you bid high enough, your ad will appear each time someone searches on those terms. The winning bidder gets the top spot on the page, the second place bidder gets the second spot, and so on. And if your ad actually gets a click, you pay Google a fee somewhere south of that bid.

But this isn't an eBay-style bid-off. Before you bid, Google gives you a "quality score," and if your quality score is low, it may restrict your ability to place ads. In some cases, Google prevents you from bidding at all. In others, it saddles you with a high minimum bid. And even if you can afford that minimum, a low quality score may bar you from top ad spots. You see, Google doesn't determine auction results with bids alone. It calculates ad spots by multiplying your bid and your quality score.

At least, that's the way it works now. With an official post to the Official Inside AdWords blog, Google says it will soon revamp the quality score.

First off, AdWords will now calculate this mystery number in real time, as the searcher is searching. According to Google, this will better match ads to particular queries. "AdWords will use the most accurate, specific, and up-to-date performance information when determining whether an ad should be displayed," the blog reads.

"Your ads will be more likely to show when they're relevant and less likely to show when they're not. This means that Google users are apt to see better ads while you, as an advertiser, should receive leads which are more highly qualified."

At the same time, AdWords will no longer bar "low quality" ads from particular keyword auctions, and it will do away with the minimum bid. Instead, it will give you a "first page bid," estimating what it would take to land your ad on the first page of search results.

The way Google tells it, all this will improve its ability to geo-target ads. To wit, your real-time quality score may go up or down depending on where the searcher is searching from. But in dropping the barriers that so often prevented advertisers from even joining an auction, Google may be expanding coverage as well, slipping more ads into its less-coveted ad spots.

Google Promotes Lonely Cheating Wives

An AdWords Ad

But who knows? As always, Google keeps the particulars hidden. "We can guess that Google wants to increase its revenues and that's what's going to happen," says Brian Carter, an AdWords consultant with the South Carolina-based search engine marketer Fuel Interactive, "but judging from the information we have, it's really hard to say."

At the very least, the changes will result in more advertisers placing bids. And Google reserves the right to do whatever it likes with those extra bidders. Place them on a page. Or not.

In other words, Google has even greater freedom to turn that dial.

Auto Match Revealed

Automatic Match is a more obvious turn of the dial. This AdWords beta - which debuted in February with a handful of advertisers and has since expanded to who knows how many more - automatically spends budgeted ad dollars you aren't spending on your own.

"Automatic Matching automatically extends your campaign's reach by using surplus budget to serve your ads on relevant search queries that are not already triggered by your keyword lists," reads Google's initial email to beta testers.

That's right, Auto Match automatically spends your unused budget on keyword searches you aren't actually bidding on. According to Google, it only chooses relevant searches. But tests from KeyRelevance tell a different story.

With his seasoned advertiser, Jim Gilbert setup bidding on the keywords "wedding table decorations." And he designated this bid as a "phrase match," meaning he only wanted an ad placed if someone searched on all three of those words, in that order (with or without additional keywords).

But the account wasn't spending its daily budget, and when Auto Match kicked in, it started placing ads against all sorts of other keyword combinations.

Some of these suited his advertiser, including "wedding table decor," "decorations for wedding tables," "wedding cake table decorations," and "wedding table ideas." But many more did not, including "party table numbers," "chocolate wedding favors," "chocolate lollipops," "Hersheys," "wedding flowers," and "wedding gowns."

With Auto Match turned on, spending on this single ad group increased roughly 600 per cent. And in the end, more than 70 per cent of the traffic generated by the ad group was a complete waste. "I'll give it credit for being somewhat accurate," Gilbert says. "But most of the matches were pure trash."

Gilbert can turn Auto Match off. But it's turned on by default. The question is whether Google will keep this default when it rolls things out to the web at large.

Google Auto Match

Auto Match: On by default

Yes, Auto Match is a beta. And yes, Google may improve its ad matching abilities before the program goes web-wide. But this sort of thing is never an exact science, and there's no denying that Google is attempting to wrest even more control from advertisers - while ensuring additional spending.

When Sergey Brin hinted that Google would soon expand its ad coverage, he didn't say the company wanted more dollars. He said that the company was concerned that web surfers weren't seeing enough ads: "Our ads are an important addition, quality wise, to our pages. They're a very important source of information."

But the truth is a little different. When you type the words "chocolate lollipop," do you want an ad for wedding table decorations? ®