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Google's "tip" dance

December 20, 2006

Earlier this month, Isaac Garcia, the CEO of Central Desktop, set off a mini-kerfuffle when he charged Google with rigging ad placements to favor its own ads. On his blog, he listed a long series of common keywords, from spreadsheet to calendar to blog, that featured an ad for a Google service at the top of the results page. "What this tells me," he wrote, "is if you are trying to advertise a product that is competitive to Google, then you'll never be able to receive the Top Ad Position, no matter how much money you bid and spend."

Garcia's angry post got Google's dander up. A Google marketer known only as Walter H defended Google's practices, explaining on the company's AdWords blog that Google's ads are treated no differently from anyone else's:

our ads are created and managed under the exact same guidelines, principles, practices and algorithms as the ads of any other advertiser. Likewise, we use the very same tools and account interface ... the potential to show up in the top spots above the search results is the same for Google's ads as it is for any other. We rely on the AdWords system to let relevancy and usefulness to our users be the driving force behind our ad placement. As such, we do not intentionally try to secure a top position. In fact, we generally aim for a more 'conservative' position.

Google's Matt Cutts chimed in, ridiculing Garcia on his blog. "Case closed," Cutts declared.

Not quite.

Today, less than two weeks after Google's display of high-horsemanship, Philipp Lenssen reports that the search giant has begun running, at the top of its results list for any search containing the word "blog" or "calendar," a promotional tag line "pimping" (to use Lenssen's term) its Blogger and Calendar products. (For an example, google "yahoo calendar.") These ads, which are not running through the AdWords system and which Google coyly calls "tips," appear in the same spot that top-ranked AdWords ads appear. Says Lenssen:

Teehee. Google recently emphasized they need to pay the same budgets as everyone else to advertise on Google using AdWords. What they might not have told us is that Google might simply not use AdWords in the first place ... and instead, display a graphical “tip” Onebox on top of the organic results.

So much for the pristine integrity of the search results page. And so much for Walter H's earnest assertion that "our ads are created and managed under the exact same guidelines, principles, practices and algorithms as the ads of any other advertiser. Likewise, we use the very same tools and account interface."

I'm eagerly awaiting a further clarification from Mr. H.

UPDATE (12/30): Matt Cutts criticizes his employer for its tip ads. More criticism comes from Blake Ross, Don MacAskill, and Andrew Orlowski. Still no word from Mr. H.

Comments

Still believe that Google was playing fair in getting its search result placement.

If Google wants to create it's own in-house ad placements, that's fine by me. But it remains probable that AdWords placements are played on a level field.

Posted by: pwb [TypeKey Profile Page] at December 21, 2006 04:42 AM

Monopoly presents the economic theorist with a dilemma. In theory, the only way for a firm to become a monopoly, outside government sponsorship, is to win the loyalty of consumers by lowering prices and creating a more useful product than competitors. Would-be monopolists are a positive force in capitalistic systems because they have an incentive to bestow such benefits on consumers, in hope of later charging high, monopolistic prices. Paradoxically, if firms have a real chance at becoming a monopoly, the economy is in danger from monopolies that charge higher prices. The ideal economic system for the consumer, then, would cajole producers into thinking that they have a chance at obtaining a monopoly without actually giving them the chance. This is, of course, unworkable, but the apologist for monopolies contends that a system with a real chance of monopoly is the best we can achieve in a less-than-ideal world. The danger of prospective competitors and substitute products would keep prices down, they claim, and that the benefits conferred in pursuit of monopoly outweigh the marginally higher prices that set in after the monopoly is achieved. Does history justify this economic theory?

Posted by: wren [TypeKey Profile Page] at December 21, 2006 10:16 AM

pwb - Google's assertion that they are "using the very same tools and account interface" does not mean that the playing field is level. Google can bid any amount they want to reach the top spot, because they don't have to actually pay that amount (they are merely shuffling money between internal accounts).

The cost of the ad to Google is the lost revenue by not having a true paying ad on the page. That means they lose the revenue of the lowest-ranking ad on the page (the ad that Google "pushes off" the page).

So, in effect, Google receives the number 1 spot while paying much less than those real customers on the same page. How is that a level playing field?

Posted by: finn [TypeKey Profile Page] at December 21, 2006 10:29 AM

finn, that's not quite how it works. Via "transfer pricing", a company actually buys services from itself. So while it's a wash to Google Inc, a marketing manager depletes budget and AdWords generates revenue. But Google loses out on cash flow, as you note.

Posted by: pwb [TypeKey Profile Page] at December 21, 2006 05:10 PM

Yes, Google's money may travel from the right pocket to the left, so it is a supposed wash. But many have pointed out that Google loses cash on those few keywords that it "unfairly bundles" with its search "operating system", because it loses the revenue that otherwise would have been spent by someone else with a "calendar" ad. But so what?

That sounds like a concern until you realize that there are a hundred Google products, tops? And how many different products are being advertised on Google? Tens of thousands? Hundreds of thousands? More?

While I have no idea of the actual numbers, I would think that the amount of money that they are losing by advertising their own products is tremendously insigificant when compared to their total advertising income.

Furthermore, consider that the increased traffic to Google, via one of these advertised services such as Google Calendar, has the potential to increase advertising income, not only in the short but also in the long term. I seems very reasonable to conclude that, if you look at this in terms of opportunity cost, it actually costs Google more NOT to advertise their own products, even if they have to forgo a few trinkets of income in the meantime.

Posted by: JG [TypeKey Profile Page] at December 21, 2006 07:15 PM

And pwb: So what if it depletes an internal marketing manager's budget? As long as it continues to drive traffic, Google might continue increasing that manager's budget. Google evaluates its products and features by the amount of usage they get. If a Google product gets used more, then it might just earn a higher advertising budget. (And of course a higher advertising budget continues its ability to push usage.) Effectively, this may translate to unlimited budget, as long as the clicks keep coming.

Posted by: JG [TypeKey Profile Page] at December 21, 2006 08:19 PM

Even if I perfectly understand your point, these are not "ads" by Google standards: they are information about a service that Google daems relevant to your query, very much like when looking for a math formulas you get its result, or when you search for two cities, you get flight price quotes --- a third area, not new, previously described as a beta service. Offering this launching platform to new, niche or unknown services was interesting.

As an economist, I would say that is this increase the consumer welfare on the short run, as it drives them to a service that is often better (suited); on the long run the question of free competitive entry remains crucial. In that matter, I believe that buying any promising start-up is more damaging that this.

I would respectfully correct pwb about monopolies: with little scale economics (not the case in most digital business, indeed), you can have a monopoly with a very competitive price (and innovative feature), provided he anticipates any increase (slow-down) will make new entrants come compete on his market.

As explained earlier, I would follow him and disagree with finn about "playing with the bank's money": Google has no interest in paying an unfair price for first spot. However, as they ads are more clicked on, they service paid for with better targeted ads, and many other aspects favor them, they can be ready to pay more than most their competitors for the same ad.

Posted by: Bertil [TypeKey Profile Page] at December 22, 2006 01:02 AM

That's why I called it a "Silent Monopoly" Bertil.

I also believe that the story gets more interesting (and alarming) when you consider Google's products account for 4 of the first 5 listings/results/ads (whatever you want to call them).

From a real estate perspective Google Products account for a disproportionatly high percentage of screen real estate. At lower resolutions of 800X600 or 1024 X 768, Google accounts for more than 50% of the screen real estate.

Sure, its an even playing field. Sure it is.

Posted by: IsaacGarcia [TypeKey Profile Page] at December 22, 2006 02:32 AM

> That's why I called it a "Silent Monopoly" Bertil.

What do you mean by "that"? I mentioned several aspects of the problem. And where have you called them that way? I can't see your name below other comments.

Posted by: Bertil [TypeKey Profile Page] at December 29, 2006 07:05 PM

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