beren - 4:00 am on Aug 5, 2004 (gmt 0)

AdSense started about a year ago, and in hindsight it’s apparent that Google made some mistakes. (Of course, mention that and people scream “have you seen how much money they make from AdSense?”, which is true, but bear with me).

Google put themselves in the middle between advertisers and publishers, but to thrive there, they had to strike a balance between ad buyers and sellers. Market makers of any type have to strike a balance. This is true for investment banks dealing in bonds, and for organizations that sell ads. If there are too many buyers or sellers, you have to adjust the price.

The problem with AdSense was that at the beginning it was too slanted in favor of the publishers. The system was set up so advertisers were in the content network unless they explicitly opted out and the bid prices were the same bids for the search network. These prices were too high given the lower conversion rates from content site traffic and there was all that fraud. Advertisers soon learned that ads on the content network were substantially less desirable than search network.

Go back and read the WebmasterWorld AdSense forum posts from the first few months of AdSense operation. People were amazed at how much money they were making. They couldn’t believe it. They were overjoyed. This is a sign of how far Google miscalculated in slanting toward the publishers.

Every month, they complain more and more about how AdSense isn’t as good as it used to be, how their checks are declining, how Google is screwing them. Google isn’t screwing them, of course, just flushing out the system partly in response to unenthusiastic advertisers.

Now go read the AdWords forum posts from the past 8 months or so. Advertisers keep advising each other to opt out of content match. Every week or so, someone starts a thread saying “Hey, I’m new to AdWords. Got any tips for me?” And the rest of us tell the newbie “opt out of the content network, at least until you have some experience with search ads.” And every couple weeks someone starts a thread complaining about low conversion rates, and we advise him or her to turn off the content network.

Only a very small percentage of AdWords advertisers participate at Webmasterworld, but it’s likely that this is indicative of the wider feeling throughout the Internet community.

So it seems that over the past few months Google has been trying to win back the hearts of advertisers to its content network.

So we had “smart pricing”, a euphemism for lower costs for AdSense ads than search ads. Now we have a rebate.

The best thing they could do to increase advertiser confidence it to make the system more transparent, so that everyone know who’s getting paid what. I don’t think they will do that, though.

I do think there’s a chance they will segment their publishers into quality sites and other sites, and allow advertisers to opt into the quality sites only. But it might be a year before that happens.