AdWords black box darkens

According to Google’s official Inside AdWords blog, Google is now taking into account the landing page behind the ads when evaluating your bids on keywords. Google provides some general guidelines to follow but states that they’re neither hard-and-fast rules nor exhaustive – so when designing your landing pages, guess away.

Google’s pitching this as a way to ensure better user experience, of course – when ads and landing pages aren’t related, that’s a waste of the user’s time. However, I suspect that’s only half the story. The way Google evaluates landing pages sounds like a direct attack on arbitrage attempts, where traffic is bought through minimum-bids on keywords and directed to a page prominently featuring other advertising programs (often contextual ads for a related but more expensive keyword.) Done right, this allows traffic can be bought low and sold high with very little risk – it’s arbitrage in the purest sense. While arbitrage might not be the greatest user experience, it’s useful because it reduces and eventually eliminates inefficiencies in the marketplace caused by irrational bidding. In particular, arbitrage drives out price discrimination, where the same good is sold for two different prices by the same provider. When there’s price discrimination, one buyer’s by definition getting a bad deal.

By evaluating landing pages of would-be arbitrageurs negatively and raising the minimum bids, Google maintains irrational bidding and allows price discrimination to continue, helping its bottom line at the expense of its less-savvy advertisers’. It also makes its system a little bit harder to understand. I wonder – will we ever reach a point where the complexity and opacity of AdWords frustrates the majority of advertisers to the point where they say ‘to hell with it, I’m moving to a system where the third-highest bid always results in the third-highest ad’?

UPDATE: At least one of the good folks at Threadwatch says, independently of anything I’ve written here, “Google’s adwords requirements are getting out of control and opaque; to the point where they’re going to start to piss people off.”