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When Competitors Aren’t As Smart As You Think They Are

http://www.androidjunkies.com/index.php/2010/03/29/google-deny-app-ad-revenue-sharing/

Recently, Google went public and announced what their revenue share was for people participating in Google Adsense for Content: 68%.

I have to tell you, I have rarely been so disappointed.  When my friends and I talked about the magic of Google’s black box (“They get publishers to sign up and they don’t even tell them how much money they will make!”), we always thought of hundreds of ways that you could micro-optimize.  Ways we assumed Google was doing, because why not tell everyone if it doesn’t matter.

We assumed that Google was tracking the quality of publisher inventory using some sort of aggregated back-end performance (CPA-ish) algorithm.  We assumed they identified clicks that performed poorly.  We assumed that they took all this information about what sites had great performing clicks and what sites had poor performing clicks and then fine-tuned rev share, giving higher payouts to better quality inventory while punishing lower quality inventory.  This would then theoretically have the effect of subsidizing good inventory, resulting in abnormally high payouts, keeping the best inventory in the network, while pushing bad inventory out of the network.

What does bad inventory look like in a CPC campaign?  There are no shortage of gaming sites where you play a mouse-based game that requires you click all over the screen quickly, then they wrap ads all the way around the game.  The result is a lot of bad clicks.  On the one hand, you generate a lot of revenue charging CPCs on this inventory.  (You can typically generate CTRs of 3%+) On the other, none of these clicks result in any time actually on site or resulting in backend conversions.  We always assumed that Google punished these people algorithmically.  We even knew how we would do it.  The algorithms are easy to figure out.  All you need is to not be locked into a rev share with a publisher, but instead have the flexibility to vary a publishers rev share at any time.  Alas, only one company had the clout to do that: Google.

To hear Google’s mea culpa, that they had a straight rev share that they have applied for the last several years without any of this payout optimization reminds you that, while it pays to be paranoid, they are rarely actually after you!

3 Responses to “When Competitors Aren’t As Smart As You Think They Are”

  1. Tim Ogilvie Says:

    I don’t think it’s as disappointing as you think. They definitely do have the adjustable pricing algorithms for publishers. They call it Smart Pricing – we got a lot of insight into how it works at Ask.

    http://adwords.google.com/support/aw/bin/answer.py?hl=en&answer=134761

    So while the revenue share is fixed, they’re manipulating the top line revenue to account for quality.

  2. Brent Halliburton Says:

    Ah, of course, so the advertiser reaps the benefits by paying less for low quality traffic, so Google doesn’t take relatively more money, they just vary the payout to publishers. That limits the upside for high quality pubs, but it is self-limiting because they should be attracting the best bids. Good stuff.

  3. Clement Says:

    Another thing to consider – When Google has some input on the bid (either through Conversion Optimizer or through the newly introduced Enhanced CPC), it can dynamically set the bid based on the historical performance of the publisher.

    So they don’t just have a stick, but they now also have a carrot to incentivize publishers… But the main priority for them was to avoid “poisoning the well” and have advertisers lower their bids because of low quality publishers, reducing the yield on Google properties and on “good” publishers.