Forum Moderators: martinibuster
eCPM
The main factor used by the Google Algo is probably eCPM: ads are assigned in descending order by the eCPM achieved, historically, on your site. This is to give you, the publisher, ‘the best overall return’.
Eg: suppose you have a single skyscraper on a page, with 4 ad slots. Starting with the the first (best) ad slot, the Googlebot gives it to the ad that, according to the ad history on your site, yields the highest eCPM (not the highest bid, note). Then it does the same for the 2nd slot, and ditto with the 3rd and 4th slots.
How an individual ad's eCPM is calculated
The ads’ eCPMs can be calculated as the sum of all the click values, times 1000, divided by the number of impressions. But this can also be viewed, more usefully, as: $AverageEPC x CTR x 10
However, the CTR used is not the CTR you see on your report: you see the CTR for the 4 ad slots put together; but Google keeps and uses the CTR for each individual ad. Therefore, of those 4 ads, the top slot CTR is probably much higher than the bottom slot.
Eg: suppose you have 4 advertisers (competing for space in the single skyscraper), each bidding 50c, and your reports show a click through rate of 8% for that page. The four ads might have a CTR of 4%, 2%, 1% and 1% each, which means that the top ad achieves an eCPM of $20 (.5 x 4 x 10) and the bottom ad achieves an eCPM of $5 (.5 x 1 x 10).
How an MFA gets in with a high eCPM
Then, along comes an MFA with a low, discounted bid (say, 10c, discounted because of a low conversion rate). As it is a new ad (to you), without any track record on your site, the Googlebot takes the CTR from its’ search and other sites (say, 7%, because MFAs use clever, sometimes dishonest, wording to get high CTRs). This means it has an eCPM of $7 (.1 x 7 x 10).
Therefore, although the MFA is bidding much lower than your other advertisers, it wins the third slot because the ad’s individual eCPM is higher than two of your advertisers.
How MFAs spread
Once it is appearing on your site, and achieving a high CTR, it suppresses the smartprice on that page and your site (because it has low conversions) causing the value of your top advertisers’ clicks to drop. Gradually the MFA creeps up the page and other MFAs start to invade the page as well.
The solution
The way to prevent this happening, in this example, is to reduce the number of ads on the page to two and price the MFA off your site. You could use, say, a vertical banner instead of the skyscraper and putting it in a hotspot to keep the CTR high.
Eg: if you maintain an overall 8% on the page, the top ad might have a CTR of 5% and the bottom one 3%, giving eCPMs of $25 and $15. This puts the price of the ad slots out of reach of the MFAs.
I think the calculations involved are actually much more complicated than I've explained. But hopefully it illustrates the general principle and the benefit of reducing the number of ad slots when the average EPC is low (by comparison with adwords rates).
I hope this is helpful. And in your battle against MFAs, may the force be with you
On the subject of minimum click price helping arbitrage, that is a point I don't think we had fully considered. Whilst it's true that this could be a scenario, there are other scenario's. I'm guessing that Google have thought them through before we have, so that's why we aren't too likely to get it.
If a lot of publishers took up the option to have psa's or no ads rather than cheap arbitrage clicks, then the side effect is that balance shifts. Cheap ads will still be in the system, but the only major place for them to be shown is on Google search. Imagine the only place for cheap ads being on their own search pages? They would soon realise just how useless arbitrage clicks are. This shifting of balance in this scenario basically puts a great big pile of poo not just in Google's back yard, but right in fromt of the TV just before Neighbours starts:) If that ever happened, they would soon sort the problem.
As I said, Google probably have thought of this scenario already and choose to try and sort it out without minimum click value.
There is NO reason why at least one of these options shouldn't be given to publishers.
IMO failure to at least offer one of these just shows how little respect google has for publishers in the content network.
minimum click price helping arbitrage, that is a point I don't think we had fully considered. Whilst it's true that this could be a scenario, there are other scenario's.
Maybe I am missing something here - today we all do have a fixed price limit for ads, that's $0.00 - we allow Google to place ads that can be very cheap (or even "free" in the case of PSAs) to show up on our pages.
This is why arbitrage works. The MFAs can buy clicks cheap and resell them at higher prices.
But if we consider that the CTR on the MFA site is probably never 100% (because of users clicking the back button or closing the window), even a moderate minimum bid price makes MFAs less profitable.
E.g.
a) CTR on MFA is 50%, PPC is $0.05, EPC is $0.25 - of 100 clicks (cost: $5.00) the MFA receives 50 clicks on his ads (income: $12.50). Profit is $12.50-$5.00 = $7.50. Not bad for slapping together a few useless pages.
b) CTR on MFA is 50%, PPC is $0.15 (reserve met), EPC is $0.25 - of 100 clicks (cost: $15) the MFA receives 50 clicks (income: $12.50). Profit is $12.50-$15.00 = ($2.50) That's a LOSS! It's NOT PROFITABLE!
Now, for how long will MFAs continue to pour money into Google and into publishers? I guess not for very long, because it simply does not help them.
Maybe I am missing something here - today we all do have a fixed price limit for ads, that's $0.00
I think RonS has identified that we may be talking at cross-purposes, here. By "minimum click value" are you proposing that there is simply one value across all advertisers/publishers, or that each publisher is able to set their own value?
If you are proposing that there is one value across all publishers, then raising the minimum click value from, say, $0.00 to $0.15 will only affect those MFAs that operate at the very bottom of the market, it will hurt bona fide advertisers who use Adsense for pro bono reasons (as Damon has already said), and it might price some genuine advertisers out of the market in some countries where $0.15 is a significant sum of money.
If you are proposing that publishers can set their own minimum value then it would have the opposite effect of what you are describing - it would reduce MFAs risk of making a loss, not increase it. What's 'missing' is that, under the current system you describe, the minimum Adsense bid (of $0.00) is always less than any maximum Adwords bid that the MFA can set. This means that MFAers currently run the risk of making a loss because their selling click price might drop and they have no way of maintaining it.
Introducing a minimum bid feature means that an MFAer can remove completely the risk of making a loss by setting set his/her minimum Adsense bid at a level greater than their maximum Adwords bid, according to their click through rate.
For example, in your scenario (b):
b) CTR on MFA is 50%, PPC is $0.15 (reserve met), EPC is $0.25 - of 100 clicks (cost: $15) the MFA receives 50 clicks (income: $12.50). Profit is $12.50-$15.00 = ($2.50) That's a LOSS! It's NOT PROFITABLE!
If I were that MFAer, the solution is easy - set my Adsense minimum click value to be $0.35. Suddenly, at the press of the submit key, I start showing a $2.50 profit.
As Toomer said, it would be so easy to make a profit from MFAing that many more people would start doing it.
there is simply one value across all advertisers/publishers, or that each publisher is able to set their own value?
The value has to be set individually per publisher (or, considering that X-Mas is just six months away - per channel).
If I were that MFAer, the solution is easy - set my Adsense minimum click value to be $0.35. Suddenly, at the press of the submit key, I start showing a $2.50 profit.
Wait - it's not that easy. If the MFA sets his minimum bid too high, he might not see enough ads. If he's showing a lot of PSAs, then he might not be able to monetize on the traffic either.
See, you had to raise the minimum EPC to $0.35 to get a mere $2.50 return. This ecosystem is much more fragile. Now, if the MFA CTR falls to, let's say, 35%, the MFA is posting a loss of $2.75. (While today, if the CTR drops to 35%, he's still earning a healthy $3.75).
The area where the business becomes profitable is getting much smaller, and it's getting riskier. If the CTR does not work out as expected, the MFA runs immediately into problems.
Using these examples, let's see where MFAs break-even?
1) Without minimum bid (CPC $0.05, EPC $0.25) = CTR 20%, i.e. if the CTR falls below 20%, the MFA is posting a loss.
2) With minimum bid (CPC $0.15, EPC $0.35) = CTR 43% (!), i.e. if the CTR falls below 43%, the MFA is posting a loss.
And even if you say, whoa, then I'll lower my reserve to $0.30, you are facing problems. At CPC $0.15, EPC $0.30, and CTR 50%, you are just breaking even! (Again, in comparison to a situation where a 20% CTR breaks even today).
Wait - it's not that easy. If the MFA sets his minimum bid too high, he might not see enough ads... If the CTR does not work out as expected, the MFA runs immediately into problems.
These are very minor problems compared to the difficulty of running MFAs under the current system...
There are four key variables involved in determining the profitability for the MFAer:
As to the likelihood of "not seeing enough ads", this is not high. There will always be high paying and low paying ads - so, the MFA's tactics will at worst just reduce the number of ads being displayed. But if my Opening Post theory is correct, that could simply help to increase their income even if CTR falls (by increasing their EPC and smartprice).
I've followed Toomer's path on this - initially I was in favour of the idea, but the more I think about it, the more it could turn out to be a large hole in the foot put there with a firearm.
CPC (what they pay Adwords)
One additional point for the discussion - I doubt MFA'ers limit themselves to only arbitraging within the Google ecosystem ... I'm quite certain that they'd also be trying to arbitrage across systems as well, especially if the incoming clicks are easier. As a matter of fact, I've seen video presentations of software that specifically looks for these spreads across a number of networks. If they can shave a few more cents off their cost - their break-even CTR target drops a bit as well, making the job even easier.
I doubt MFA'ers limit themselves to only arbitraging within the Google ecosystem
Toomer, have you ever thought of becoming an MFAer yourself? You'd make a lot more money at it than if I did - I can think of potential ways of manipulating the system, but your working outside of my box! It hadn't even occurred to me that, for example, YPN might introduce a minimum bid system - that could introduce a whole new dynamic.
You've made a couple of excellent posts that have completely changed my thinking on the topic of minimum bids.
Not all sites rank in the first page of a Google search result and get 1000's of uniques a day..
With my ecommerce site, I use adwords/adsense arbitrage to pay for my advertising costs and sometimes make a profit.. I can arbitrage but not be a MFA...
A better way for all concerned is for Google to draw a line ( set a standard ) for websites eligible to use adsense... It may be a difficult task to manually review all applications but an automated algo may serve the purpose. A minimum score may make a site eligible for adsense, knocking out the pure MFA's.... After all, most sites ( with excellent content ) are also Designed for adsense ( if not made for adsense)..
My view is that the sites we are concerned about are those that don't add any value. For example, if I acquire traffic interested in "widgets", and help them to decide whether they are after a blue, red, green or pink fluffy widget, at which point they click on an ad, then I have added some value. This isn't pure arbitrage, it is adding value by using information and/or expertise to guide the surfer, support their decision-making and qualify the lead. In fact, I have one site that does that type of decision-support, and used Adwords to get it going in the early days.
The sites we are talking about are pure aribitrage, where no value is added, and in fact they detract from the surfers' experience by getting in between surfer and content publisher.
Toomer, have you ever thought of becoming an MFAer yourself?
lol, no ... not to worry there. But I have researched arbitrage a bit - as much like Green_Grass indicated, not all of us are getting 1,000's of uniques per day and need some help in getting the traffic to our sites started. I was quite floored at what I saw.
With some of the software out there that can analyze the spread between what you can pay for an incoming click (maybe a certain keyword is cheapest on Yahoo) and what you can get if someone clicks an ad on your site. They used a mortgage-related example ... and the spread was several dollars. Now I know why I get so much mortgage spam.
Was a bit depressing watching the video, though. In the MFA war, it's like they have machine guns, and we have stone knives and spears. Unfortunately, I believe we're on the losing end of the battle (basically, because we're the Accounts Payable side of things, as far as Google is concerned).
Just my $.02
In fact for a while MFAs left my topic alone but now they cover every niche topic there is. Google has got to do something about them and I can't tell if they want to or not.
They could do it from so many angles. They could refuse to allow them to have adsense on their pages and also block ads from MFAs. They could also squeeze them out of the search results. I wonder if they have succeded in this a little and that is why we are seeing more MFA AdWords ads.
More stats after a few more days...
Fewer ad slots has lower ad and page CTR and eCPM than the wide tower for me so far.
Rgds
Damon
