How many times have you searched for something on Google and found, in the shaded “Sponsored Link” box at the top of the list of results, an ad for a product offered by … Google? It happens fairly frequently for me, and every time I see it, it strikes me as odd somehow. Can a company sponsor itself? Is it fair to let the auctioneer bid in an auction? The answers, apparently, are “yes” and “yes.”<\/p>\n
Google’s AdWords auction is a pretty interesting auction, anyway. Google doesn’t act simply as an honest broker, with no interest in either the seller’s or the buyer’s fortunes. It’s the auctioneer, but it’s also the seller. And sometimes, as noted above, it’s a buyer, too. The way the auction works is a bit funky as well. Even if you bid the most for a keyword, you don’t necessarily “win.” Google adds some special secret algorithm sauce to the auction results to determine the actual order in which the ads appear. (The goal is to increase the relevance of the ads to the user. Or, to put it a different way, the goal is to maximize the likelihood that a viewer will click on an ad and hence to maximize overall ad revenues.)<\/p>\n
So, at times, Google is the auctioneer, the seller, a bidder, and it gets to fiddle with the results without divulging to other bidders exactly how it’s fiddling with them.<\/p>\n
A couple of days ago, Isaac Garcia, the CEO of CentralDesktop, a maker of online collaboration tools for businesses and an AdWords customer, wrote an angry post<\/a> about Google’s advertising practices. Google recently bought JotSpot, a competitor to CentralDesktop, and that has, for good reason, made Garcia a little more sensitive than he used to be. CentralDesktop pays Google to advertise on its search pages, and now it’s also competing with Google.<\/p>\n Garcia lists a number of common keywords related to CentralDesktop’s product where he found Google holding the top ad spot on the results page. I did my own searches on the keywords, and I didn’t find Google at the top on every one, but I did find Google holding the top ad spot for: intranet, spreadsheet, documents, calendar, word processor, email, video, instant messenger, blog, photo sharing, online groups, and maps. If you’re in the online collaboration tools business, those are some pretty powerful keywords.<\/p>\n Garcia’s conclusion: “Google cheats.” He says, “What this tells me 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.”<\/p>\n I don’t see any evidence that Google “cheats,” which I take to mean “consciously rigs the results for its own benefit.” And the statement “you’ll never be able to receive the Top Ad Position, no matter how much money you bid and spend” is demonstrably false, as Philipp Lenssen notes<\/a>.<\/p>\n But Garcia’s charge, and the subsequent discussion of it in the blogosphere, got under Google’s skin, and, yesterday, the company responded (without mentioning Garcia by name). A certain “Walter H.” (does Google actually try to be Kafkaesque?) from Google Marketing wrote<\/a> on the AdWords blog:<\/p>\n 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 … there are no special buttons to push or levers to pull that give our internal account managers special treatment or leverage. Quality Score is automatically evaluated in the same way for our keywords as it is for any advertiser’s keywords. Likewise, 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.<\/p><\/blockquote>\n I’m sure that’s all true, but it’s also disingenuous. Even though Garcia overstated his case, he’s right to be concerned. There’s something fishy here. Whether Google bids “fairly” or “unfairly” in these auctions, the fact is that it’s playing with the house’s money. Whether it bids a buck or a hundred bucks on a keyword doesn’t make much difference to it, because the cash is just going from its back pocket to its front pocket. And if the auctioneer can bid as much as he wants without actually incurring any cost, that has to distort the prices being paid by all the other bidders, who are paying real money. I don’t see how it could be anything but inflationary – whether or not the auctioneer actually secures the top ad spot – and the party that benefits from keyword price inflation is Google. (I’m sure the effects are fairly complex and that I’m oversimplifying here. I’d like to see what an expert in the economics of auctions would say about the consequences of Google bidding for its own products in its own auctions.)<\/p>\n Garcia writes:<\/p>\n In the beginning, AdWords was hailed as the revolutionary platform that enabled small start-ups, mom and pop stores and businesses all around the world to ‘compete fairly in an open market bid system.’ It was written that “small businesses can now compete evenly with big business – it levels the playing field.” But that\u2019s not entirely true. Is it?<\/p><\/blockquote>\n Well, no, it isn’t. In the cases when the auctioneer is bidding, the auctioneer has the advantage.<\/p>\n Unfortunately, it’s difficult to judge the real costs or other effects of that advantage because Google doesn’t disclose the data needed to do the analysis. It’s all locked up in the big black AdWords box. If I were competing with Google and also bidding against it for ads in its AdWords auction, I’d be a little wary of that box, too.<\/p>\n UPDATE: Zoli Erdos<\/a> and Donna Bogatin<\/a> have both raised similar questions.<\/p>\n\n
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