I'll gladly spell it out for you. Hopefully this will also be useful for the army of attorneys from both Google and the DOJ that should be trying to understand this complex issue about now. Matt's comments being coincident with the Google acquisition of DoubleClick will end up being very unfortunate for Google, I predict.
Here's a detailed scenario: A small town dentist hires a small town webmaster to build a small town dental website. When the website is complete, the dentist asks the webmaster how he should market it online, and he expresses a desire to get ranked in the search engines for the search term "small town dentist."
The webmaster recommends that with his $500 budget he should spend $100 to list his site in four dental directories and the remaining $400 on Google adwords. That way, she says "you will get immediate placement in Google with your paid ads, and hopefully the links from the directories will over time help you get some free traffic from Google and the other search engines too. No guarantees on the free traffic, though." All good Internet marketing advice.
Here's where Google's anti-competitive behavior becomes clear. Compare two different scenarios and their outcomes. One with nofollow on the directories and one without.
Scenario 1: Directory publishers sell listings without nofollow as they have for years.
A year later the dentist reviews his traffic results from his advertising spend. 49% of his traffic came from Adwords, 1% from the directory links, and 50% from free organic search results split up between all the different search engines. Total traffic X. He decides to split his $500 advertising spend the same way the next year, $400 for Google and $100 for directories.
Scenario 2: Google scares directory publishers into putting nofollow on all their outgoing links.
Total traffic in this scenario is half of the first scenerio, or X/2. Looking at the split of traffic, the dentist sees 99.5% of his traffic came from Google Adwords and 0.5% from the directories. He's disappointed in not getting any organic results and the lack of clicks from the directories. He decides to drop the directories the following year and spend his entire $500 budget on Google Adwords, since that's what delivered all the clicks.
In scenario 2 the dentist was clearly harmed by Google's actions as he only received half the traffic to his website due to nofollow being on the directory listings at Google's recommendation. The directory owners are also harmed as the dentist didn't renew his directory listing the following year. And the Internet as a whole is harmed as it's more difficult to find a good "small town dentist" in the organic listings of all the search engines. The only place you can find our "small town dentist" is on Google. Good for Google, they get more money and more market share.
The really evil thing is the dentist believed based on public statements from Google that the directory links would help his organic rankings. Every article he read about Google in the last 5 years said Google ranks based mostly on links. What neither the small town dentist nor the small town webmaster knew was google devised a HIDDEN way to make those advertisements basically worthless. Then Google scared publishers into de-valuing their advertisements by telling them their sites would be banned or penalized from Google if they didn't add nofollow tags to their links.
Clear enough? Google is manipulating the online advertising market far more than link advertisement buyers are manipulating Google.
[edited by: rekitty at 9:17 pm (utc) on April 20, 2007]