Google AdWords: What Goes Up, Must Stay Up
An interesting article at I, Cringely detailing an experiment by one of his friends who makes a living off of advertising through Google’s AdWords program. What his friend did was setup an clone of a site of his that already existed and used the exact same ads, but changed the price per click of the ads.
The first thing he wanted to study was the impact of paying more or less for AdWords. He knew that paying more would result in higher placement — especially given that both the ads and the AdWords would be identical between the two sites. What he didn’t know, however, was whether a slight increase in cost-per-word would more than pay for itself in increased sales, or whether a slight decrease would go effectively unnoticed, thereby increasing his profit margins.
His old site with the same ads had been running successfully for a year paying at the relatively low rate of $0.10 per word (the AdWords minimum is $0.05 per word) and generating about 15,000 clicks-through per day. But for the new site, he started out paying $1.00 per word for exactly the same words. Based on everything he had read about AdWords (remember nobody actually SPEAKS to Google about these things — the service is totally automated from Google’s end), he expected his ad to move higher in the rankings and, hopefully, to make more sales as a result. And that’s exactly what happened, though not to the extent that he would have liked.
Buying AdWords at $1.00 versus $0.10, his ads DID move higher on the page and his revenue was increased, though not by enough to justify going all the way to $1.00 with its associated higher cost basis.
All the while, of course, the essentially identical original web site was churning along, still entirely dependent on AdWords, still carrying identical ads for identical products as the test site, and still generating an average of 15,000 click-throughs per day.
Now it was time to drop the per-word price a bit on the test site to see whether he could increase his profit margins after paying too much at $1.00. So he set the new per-word price at $0.40 — still four times as much as he was paying per word through his main site.
And his clicks-through dropped from 15,000+ to 1,200 per day.
Not easy to figure out why this would be happening but there is a theory behind it.
He believes the Google AdWords algorithm tries to do many things and one of those is to encourage advertisers to pay more for words. By modifying something that in turn modifies the results, Google is effectively encouraging advertisers to change their behavior.
Now we will never know if this is true because Google will not release their algorithms, but if everyone does similar testing it would be interesting to see if they all got the same results. If they did I am sure Google would chalk it up to mere coincidence. From a business standpoint you can see why Google would want to add this “functionality” into their system because it keep prices high. However, this is truly one of the most unethical things I have heard of coming from a large and respected company like Google.
What do I think? Well I wouldn’t hold anything against Google not to do something like this. They are a public company now and their fiscal numbers are what’s most important to them. With Yahoo and MSN in the contextual advertising market you can understand why Google would be sweating some bullets since the majority of their income is derived from advertising. Maybe if you own some stock you should be selling right about now.
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2 opinions for Google AdWords: What Goes Up, Must Stay Up
jody
Sep 30, 2005 at 1:39 pm
Nice. It’s studies like these which truly help the general ecomony. This type of evil can only help Y and MSN become bigger and better than G.
Tee
Nov 13, 2005 at 12:39 pm
Google’s Adwords (Bait and “inactivateâ€)
Google claims that you can bid on keywords starting at $.01. The truth is that google strategically labels some words “inactiveâ€. In order to “activate†the word the advertiser has to bid an amount that pleases google — in my case this amount was $.15 (even though there were no other ads at this word or competing bids for it!) the effect:
1). Google forces me to pay fifteen times the minimum stated or advertise at googles “active†words (where, conveniently for google) demand has driven up the price. It gets worse!
2). By forcing me to advertise where others do, google has diminished the quality of my ad by the number of other advertisers there. (Where I could have had the only ad I now share prospects with others.)
3). These prospects now have an opportunity to browse. In other words they click-thru my ad (and yours) but do not purchase. More ad sales for google — less merchandise sales for me!
Google (Big Brother) claims that this is necessary to ensure a positive surfing experience for mankind and to protect us from pernicious ads. However, I was never harmed by clicking a misplaced ad. To the contrary, the advertiser was! What better discipline exists? Besides, isn’t this supposed to be the venue of google’s editorial staff?
P.S. If Google is so concerned about the editorial “quality” of my adwords why do they allow (let alone) default to “Broad Matching?”
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