Sep 30th, 2008
Google’s AdWords Downfall
Google has been making some very poor business decisions lately mostly in the way they handle their advertisers in Google AdWords. When I first bought an ad on Google (I believe I was the 3rd person to do so) it was presented to me in a 3-ring binder with a list of keywords that I had to purchase. There was no cherry picking or keyword negatives. I met with my sales executive in their old Mountain View offices and I believe there was about 120 people back then mostly PHD engineers and only a handful of sales people.
I believe the CPM was around $55 initially and we purchased our block of keywords for a one-year contract in order to block out any other competitors in the dating space from appearing on those keywords. Remember that this is pre-AdWords and there was only two ad spots on the page that were both highlighted in pale green and blue. The sponsored ads appeared above the natural results and never to the right side of the page.
We enjoyed this position for quite sometime and the traffic was great and converted well for us. Eventually we were able to refine our keyword lists and the internal estimation system got more accurate in projecting our spend for the next year.
Then came Google AdWords, this meant that we could no longer protect our positions and that the entire marketplace was going to open up in a bid environment. I fought this hard with David Scocco, who I believe was the head of vertical markets at the time. I didn’t understand how they could or would cancel our contract and allow all of our competitors to now come in and fish in our waters when we had build out the opportunity with Google and now our keyword lists were getting shared by other Google sales groups to our competitors.
The sharks then filled in the tank and all of the ad spots were occupied instantly in our category. I then began to understand why Google had introduced this model to let the best advertiser and ads trickle to the top and that we wouldn’t be bullied out of our positions as long as we had a strong CTR and bid. It started out as a bull fight with some of the companies fighting for top position on several keywords but then everyone settled into where the CPA’s were working for them.
Now let’s fast forward to Google’s operations today and how tons of media companies are laying off employees and losing face with their clients because Google has decided to put strict guidelines on trying to increase their dying CTR’s by arbitrarily raising bids to $5, $10 and in some cases $100 levels making them impossible to buy anymore. Most of these keywords are directional searches like “Dell”, “Kayak” or “Match”. There is no longer a landscape of advertisers on those keywords.
Look at the keyword “Dell” a little closer. Don’t you remember searching for this keyword at one point in time and seeing advertisers for Dell accessories, re-furbished Dell’s, Dell coupon codes, Dell printer ink cartridges or even a competing Sony Laptop ad. Do the search today to only yield an official “Dell.com” ad and also Dell.com in the first natural result spot.
How does this benefit the consumer at all? Google is now deciding for us what we were looking for when we did this search instead of letting the marketplace compete with each other to offer us other options. Obviously if I was just looking for Dell.com’s website then I could have easily navigated to it directly or clicked on the top natural result. Google is bleeding money that they used to make on these searches because not-so relevant advertisers had to pay a premium to be on these keywords before. Now they are only making money from the brand itself and the CTR on branded terms is usually in the 0.10 – 0.25 CPC range as they are relevant and click well.
You can do this search across a bunch of different brands and verticals including online education. Do a search for “University of Phoenix” and you’ll see the same thing. The Official UoP ad and UoP listed in the #1 position in natural search. What happened to the competitors of University of Phoenix ads? If I was investigating going to an online university and only knew of UoP then I would like to see other competitors ads in the “Marketplace” area but instead Google has made the decision to protect this brand.
Do a search for “Plenty of Fish” in Google and you’ll see that no one is advertising on that keyword. That is because it will cost you $10 / click to buy a free dating service keyword where your acquisition costs for a user are around $6 which means that if every single click converted you would still be under water.
This keyword gets searched well over a million times a month and Google isn’t making ANY money off of the term but there are plenty of dating companies that would love to “fish” in these waters and buy the term from them.
Now here is where I really think there is a larger issue that needs to be brought to the federal level. Google is protecting a lot of the large brands terms but not vice versa. Do a search for Match.com and then do a search for Perfectmatch.com. Why is there no advertisers on Match.com but there is a full marketplace of advertisers on the Perfectmatch.com trade keyword. How can their “Algorithm” determine that advertisers shouldn’t be able to buy Match.com because it hasn’t historically performed well for advertisers which is what they told me.
Google is intentionally hurting the value of their advertising business to any shareholder by placing these new rules on their paid advertisers and leaving tons of money just sitting on the table. They are bullying small brands and protecting the large brands that don’t need the protection by protecting their trade names and not that of the smaller brands. I have told many of my banker friends to short their stock until they change their evil ways.
-Brian R.
