In the fourth and fifth points of Scott Karp’s great writeup of Search Engine Strategies’ recent conference in San Jose, he notes how the search engine pay-per-click advertising systems are increasingly becoming black boxes, to the dismay of search engine marketers. The overall lack of transparency in Google’s AdWords system may impede the adoption of other Google services, like Google Checkout – advertisers don’t want to share conversion data or site analytics with Google, for fear this data will be used against them to raise keyword prices.
Lead generators face similar problems – you want to provide your buyers with quality leads so they’ll keep buying. If you knew which ad campaigns produced leads that converted, you could fine-tune your ad buy to generate more of them. Most lead buyers don’t want to share conversion data, however – they see this data as an easy intermediate step to calculating their ROI, which in turn is an easy intermediate step to raising the cost of their leads.
The solution, for both pay-per-click engines and lead generators, is to assemble enough buyers and then let the market take care of pricing – in theory, enough parties bidding against each other should take the price of keywords or leads to the very same place as an aggressive sales staff armed with full customer financials. And full transparency into pricing and ranking combined with no aggressive price-raising sales staff should remove the fear of sharing conversion data with the platform. So why isn’t Google just letting the market decide? And why is Yahoo moving towards a Google-like opaque system?
If I were competing with Google and Yahoo – if I were MSN, say – I’d introduce a completely transparent and easy-to-understand pricing model, have my marketing materials constantly highlight how you always know exactly what you’re paying for exactly what you’re getting, and build out my network of ad buyers by poaching fed-up clients from my opaque competitors.
Why does this seem obvious to me, but not to the people at Google or Yahoo? I don’t think I’m smarter than they are – so what am I missing? There must be something I’m not considering…
{ 4 comments… read them below or add one }
Fundamentally, they don’t trust the market. Probably with good reason.
A) At Google at least, they are making tons of money already and the problems they have aren’t related to getting more buyers / sellers.
B) Yahoo had such a system and it pretty much lost – in terms of relevancy, overall profit and market share. Of course, it wasn’t totally open (i.e. it has a .10 min bid), but it was close.
Yahoo wasn’t more open. They just didn’t factor in conversion to what ads are served. Right?
They don’t do this because they don’t have to. If MSN were smart, they’d do it. They certainly don’t have margins to protect or enough ppc ad revenue to worry about profit yet. Their problem is share. If they wanted share and this is really a big problem they’d make the margins of publishers and advertisers more transparent.
Greg, my guess would be that as the complexity of the yield equation increases, the more and more clouded the process becomes for the marketer.
Basically it’s click-through * cpc, but the variables that contribute to click-through are increasing rapidly from lots of different data points and a data history that is growing larger (what the consumer has searched for, what ads they have responded to, where they visited in the adsense content network, what time of day it is etc.), such that transparency for marketers has been clouded and they are left to simply make sure they have a positive ROI.
Peter,
I think PPC market share is mainly determined by inventory – i.e. dependent on search quality, brand and toolbar traffic. I don’t think MSN would make serious inroads if they somehow were more transparent.
I think this topic is one of those that the market-sensitive elites like the root markets guys (and myself) would tend to over-emphasize in importance.
The most successful online ad market of all time has never been CLOSE to transparent. Google’s gotten much more opaque over the last 2 years, and yet it completely DOMINATES the others.
That makes me think that this market / pricing transparency thing is over-rated…
Furthermore if MSN or Google did open up more, I think they would be innundated with more spammy ads than ever… Basically Google’s rules and choices do prevent a lot of irrelevant ads from showing up all the time.
Crazy as it sounds, I’m sure Google really doesn’t want to sell all possible ad space to marketers. It would hurt their inventory generation machine…