Forum Moderators: martinibuster
Some things to remember before continuing to read this post (It’s a LONG post).
When a visitor clicks on an AdSense ad they are LEAVING the publisher’s site. The AdWords advertiser has already benefited by receiving traffic he would not have had otherwise! The only case this is not true is the case of the MFA (Made for AdSense) website.
When a visitor leaves my site(s) via an AdSense ad, I have escorted my visitor into YOUR front door! It’s like me bringing someone into a car dealership, the sale is now up to the salesman, MAN, I walked my customer into your DOOR! The only time this is not beneficial to the car dealership is if I had kidnapped the person I am escorting! (MFA = kidnapped!)
Disclaimer: This is a brainstorming post. Many of the claims are made from my memory of the way Adsense used to work and how it has evolved. If EFV is lurking, perhaps he can validate my memory. I am both an Adsense Publisher and Adwords Advertiser.
Terms:
Discounting
Quality Score
Minimum Bid
http://adwords.google.com/support/bin/answer.py?answer=6326
Your maximum cost-per-click (CPC) is the highest amount that you are willing to pay for a click on your ad. You can set a maximum CPC at the keyword- or ad group-level. The AdWords Discounter automatically reduces this amount so that the actual CPC you are charged is just one cent more than the minimum necessary to keep your position on the page.
Google’s first mistake, the Ad CPC discounter (“Smart Pricing”). (Also known as the “second price auction model”)
When you go to an auction, usually, the highest bidder wins, right? It’s mostly true with Google’s current Adwords system, BUT, what’s annoying is the highest bidder only has to pay about 1 penny more than the second highest bidder’s bid. This is the Google Discounting system and it was the first “smart pricing” enhancement, THIS WAS A HUGE MISTAKE, and why Google has backed themselves into a bad system. Had they introduced Quality Scoring and Minimum Bid metrics first, perhaps MFA’s wouldn’t exist. In many cases, not all, “Discounting” has made advertising to cheap, enticing the MFAer!
Originally in Adsense (for us poor suckers in the content network) the highest bidder actually had to pay his bid for his click! When Google introduced Discounting (“Smart Pricing”) content network publishers had their biggest drop in earnings, ever, and advertisers got the biggest discount ever, and that discount propagated throughout the entire PPC industry, what a break for Advertisers AND, A BREAKTHROUGH FOR MFA’ers and arbitragers.
Discounting is silly, with the other metrics in place first, quality score and minimum bids, Google would not need discounting.
Why did Google introduce Discounting? CLICK FRAUD! Basically they were saying look Advertisers we know your getting ripped off by click fraud so we are going to drastically discount your CPC price, basically shafting the second place bidder. Imagine being at a real auction and learning the guy that had closed the door on you winning your prize ONLY PAID A PENNY MORE THAN YOUR BID! I would be upset! But that’s what Google did, at first, to compensate Advertisers for click fraud.
As a publisher I was upset. Here were advertisers that were willing to pay (and were paying) top price for top placement and Google says, oh here, you just have to pay one penny more than this other poor sucker (because Google screwed up, not the content network).
With quality score and minimum bids in place, GOOGLE SHOULD GET RID OF DISCOUNTING! Advertisers should pay their maximum bid for a click, just like at the real auctions of the world.
There are those that claim “Discounting” saves advertisers the hassle of monitoring their bids so closely. But this is only truly helpful if the advertiser is not concerned about which position his ad shows up in. If the advertiser is concerned about position they have to monitor their bid all the time anyway!
Don’t forget the highest bid isn’t the highest bid
http://adwords.google.com/support/bin/answer.py?hl=en&answer=21384
Yes, for content sites. With Google's smart pricing, we'll automatically adjust the price of a content click. If we find that an ad on a content site is less likely to produce results, we may reduce the cost of your ad below the minimum bid assigned to it.
Can I run on any keyword as long as I pay a high enough CPC?
Not necessarily. While we'll show ads for keywords as long as you pay the minimum bid, your keyword is still at risk to stop performing and showing ads. We place a lot of weight on the quality of your keywords. So if we find that your keyword is not performing well, the Quality Score of your keyword will decrease, increasing your minimum bid. In addition, your position on a search results page may drop. If there's a more relevant keyword running against yours - even at a lower price - it will likely outrank your ad. The best way to ensure a high ad placement is to increase both your ad's quality and maximum CPC.
What? The quality score allows a more highly skilled copy/ad writer to win the highest ad position! Well why not you say? Well, MFA’s and arbitrager’s can say anything they want in their ads, the ads can be lies, deceptions, etc. So if they MFAer writes a good ad and reports a good conversion rate, his ad may rank higher in the auction process even if his bid is LOWER! Ah, welcome to the world of MFAing! Smart pricing again facilitates the MFA entrepreneur.
Google blames the content sites:
http://adwords.google.com/support/bin/answer.py?answer=16726
CPC pricing is available for all AdWords online campaigns. CPM pricing is available only for campaigns that don't target Google search or search partners.
Why is the above true? Why no CPM ads on the search network?
Google tries to convince the Advertisers everythings OK.
The Review byDr. Tuzhilin
http://googleblog.blogspot.com/pdf/Tuzhilin_Report.pdf
The actual amount of money paid when the user clicks on an ad is determined by the
lowest cost needed to maintain the clicked ad’s position on the results page and is usually
less than the maximal CPC specified by the advertiser. Although the algorithm is known,
the advertiser does not know a priori how much the click on the ad will actually cost
because this depends on the actions of other bidders which are unknown to the advertiser
beforehand. However, it is lower than the maximal CPC that the advertiser is willing to
pay.
This conversion data is limited to what the advertiser decided to
provide to Google and is not as rich as the clickstream data collected by advertisers
themselves on their websites. Also, many advertisers decide to opt out from providing
this conversion data.(MY BOLD!) In this case, Google does not have any conversion information and
therefore does not know what happened after a visitor clicked on the ad.
It’s really important understand that the maximum bid is the only true indicator of the value of the keywords and the ultimate position the “ad” is afforded. The reason for second price auctions existing is determining the value of an item of unknown value. The Adwords advertiser has a very good idea of the value of his conversion, granted the value of the click is a little harder to determine, but unless it is fraud, it definitely has value regardless of the source.
Google posits this example in their blog:
http://www.google.com/adwords/learningcenter/text/18989.html#19013
Because contextually targeted ads on our content network sometimes return lower conversion numbers than ads on Google.com search results pages, clicks from the content network use "smart pricing" adjustments. Google's smart pricing technology automatically lowers the cost of content clicks based on the referring site, to maximize the return on investment for advertisers.
If our data shows that clicks from a particular content page are less likely to return results, our system automatically reduces the price the advertiser pays for those clicks. The AdWords system takes the work out of CPC bidding, helping to ensure strong return on investment no matter where your ads appear. Smart pricing adjustments are automatically reflected in the average CPC for content targeting shown in the Campaign Management interface.
For example, let’s say you advertise digital cameras. Your ad appears on two different pages – one that reviews digital cameras and another that offers photography tips. Since users are more likely to click on your ad beside digital camera reviews (and thus convert into more sales), Google doesn’t discount these ads. However, Google determines that clicks from the page of photography tips convert into sales less frequently and therefore charges you less per click.
Google has made the quote above become true. By trying to solve the click fraud problem by using “Discounting” they have devalued the content network. What they should have done is implement “Quality” and “Minimum Bids” first and there would have been no need for “Discounting”.
Regarding cameras:
What difference does it make who escorts a potential customer into a car dealers door. Getting the customer into the door has significant value! It’s a loss to the site that takes the click, the site is losing a visitor! That has significant value, whether or not the car dealer makes the sale! If the car dealer doesn’t make the sale it’s 90% his fault! It’s not the fault of the marketer that walked the potential customer into the door of the dealer!
Google bring back the “true” maximum bid
The second place bidder should actually pay one cent less than the maximum bid for a click!
As I said Google implemented the whole system backward and their bidding scheme is therefore BACKWARD too!
Maximum bids truly measure the value of the keywords and their ad position on the page. There won’t be too many bidders bidding too high, higher than the perceived value of the ad position. WHO can afford it! Certainly not the MFAer or arbitrager!
There you go the solution to the content network quality problem, a problem that never existed, just CLICK FRAUD. Also the solution to the MFA arbitrage problem.
OK rip this brainstorm apart!
When a visitor leaves my site(s) via an AdSense ad, I have escorted my visitor into YOUR front door! It’s like me bringing someone into a car dealership, the sale is now up to the salesman, MAN, I walked my customer into your DOOR! The only time this is not beneficial to the car dealership is if I had kidnapped the person I am escorting!
This isn't necessarily always true. It could be I'm a place where people are talking about cars, and I have escorted someone from my place into your place, where my visitor, who's now your visitor, expects another place where people are talking about cars.
I have NOT delivered you a buying customer. A potential one, very possibly. But it's not the same as if the person walked into your dealership, being truly in the market for a car.
That's an example of a poor conversion.
I have NOT delivered you a buying customer. A potential one, very possibly. But it's not the same as if the person walked into your dealership, being truly in the market for a car.That's an example of a poor conversion.
More like the advertiser didn't write good ad copy to let them know what to expect when reaching the site... I have seen such poorly written ads, it's a wonder they have ever received any conversions.
If the car dealer doesn’t make the sale it’s 90% his fault! It’s not the fault of the marketer that walked the potential customer into the door of the dealer!
Let's say that you're an advertiser who's selling upscale Ferrari accessories. Is a click worth as much if it comes from Ferrarisucks.com or TeenAutoRacingGamers.com as it is if it comes from FerrariRichOwnersAssociation.org? Probably not, and if you're paying full retail for clicks from every Tom, Dick, and Harry's Web page that shows ads for the keyword "Ferrari," you aren't likely to stick with AdSense.
For what it's worth, AdSense revenues have more than quadrupled since smart pricing was introduced, despite the fact that both Google and publishers earn less from discounted clicks.
To clarify terms:
1. Discounting
Lowering the amount paid by the highest bidder to the second highest bid. Also known as the “second price auction model”
2. Quality
Some type of measure of the overall value of the ad to the Adwords/Adsense system.
3. Smartpricing.
A means of reducing the price paid based on the perceived quality of the ad. Before or after the discount!
Smartpricing can be applied with or without Discounting!
Is a click worth as much if it comes from Ferrarisucks.com or TeenAutoRacingGamers.com as it is if it comes from FerrariRichOwnersAssociation.org? Probably not, .....
If I were buying a Ferrari one site I would be sure to stop at is Ferrarisucks.com! So of course clicks have different values, but again it's important to realize that the loss of a visitor is a fundamental transfer of value in itself! This is why Google should not have "Discounted" in the first place, they should have raised the price paid by the second bidder to one penny below the first, AND THEN smartpriced! This is where I say Google evolved into this convoluted backward design. They implemented DISCOUNTING first and then thought about QUALITY and SMARTPRICING.
I'll repeat again the point of the post is really DISCOUNTING (not truly smartpricing) has encouraged MFA sites! To clarify DISCOUNTING is reducing the highest bidders price to the next highest bidders price. I could not have made the title of the post "Discounting caused.....", no one would have understood the term.
Google could still "Smartprice" but SmartPrice without first "discounting"!
It's the discounting that has made it very easy to create MFA sites! Granted without discounting an Advertiser could make a very high bid with a terrible ad and own the keywords, but quality and smartpricing alone would have still taken care of this without "Discounting". Because of discounting a MFAer can make very low bids and still make money arbitraging for virtually any terms that are not extremely competitive, and of course there's plenty of those!
So why don't you enter this in the AdWords forum, and get the advertiser's opinions?
FYI. Google has all this tricky stuff in Adwords to force minimum bids higher. Adwords advertisers are constantly harassed to push up their minimum bids so their ads will show. "Smartpricing" without "Discounting" would eliminate much of this complexity, and inconvenience for Advertisers.
I fully agree with your analysis.
However, I think the presence of MFAs, and the problems from this presence, are not as much an issue any longer as it was in 2006 and 2007 where real Adsense MFAs, other arbitrageurs, and parked domains where advertised in an unbelievable fashion. During these years, MFAs were a true problem.
But today I notice that true MFAs without value have virtually disappeared, or at least pushed down strongly by Google. Today I see a lot of affiliate-driven sites that still have (or can have) a value to the visitor.
In my view, the real problem today is the intransparency of Google's system. What does each click pay, which clicks are counted, and where do they lead to?
1) All audiences are not the same, and...
2) In a vast automated network where an ad's impressions and clicks may be allocated over hundreds or even thousands of sites, there needs to be a mechanism to compensate for the fact that all audiences are not the same.
For what it's worth, I've noticed a big increase in average EPC over the last year, which suggests that smart-pricing discounts aren't necessarily a terrible thing for publishers and may actually be helping publishers (at least some publishers) by making the content network more attractive to leery advertisers. My concern is with clickthrough rate, which has declined in recent months even though the quality of the ads that I'm seeing is just fine. Maybe Google is doing a better job of filtering accidental or multiple clicks (which is good for advertisers even if it isn't good for me), or maybe the recession is making consumers' trigger fingers less twitchy. Either way, the problem that I see has nothing to do with smart pricing; it's with audience behavior.
AdSense revenues have more than quadrupled since smart pricing was introduced, despite the fact that both Google and publishers earn less from discounted clicks.
Well the amount of people using Adsense has dramatically increased as well.
If Google wants to fix their Adsense system, a lot more manual reviews on both publishers and advertisers would help. However, as long as the money keeps rolling in they won't change a thing.
If Google wants to fix their Adsense system, a lot more manual reviews on both publishers and advertisers would help.
Google is a company that's built around automation and scalability, but just as important, a system that relied heavily on manual reviews would need to exclude smaller publishers and advertisers for cost reasons alone.
[adwords.google.com...]
Your maximum cost-per-click (CPC) is the highest amount that you are willing to pay for a click on your ad. You can set a maximum CPC at the keyword- or ad group-level. The AdWords Discounter automatically reduces this amount so that the actual CPC you are charged is just one cent more than the minimum necessary to keep your position on the page.
I'll repeat, before Google "Smart Prices" they discount the highest bidders bid to the second highest bid, then they Smart Price from there. This is a needless complexity that causes many problems throughout the entire system. Why not just "Smart Price" from the highest bid?
It's the "discounting" that has made Adwords minimum bids a nightmare for Advertisers. They are constantly surprised to find their ads simply not running at all. This causes a loss of sales and revenue for all till the advertiser discovers their ads are no longer being displayed. Wondering why your earnings and CTR jump up and down? Advertisers truly don't know what to bid (they did before discounting!).
The complexity of the Adwords system and it's minimum bids may be driving Advertisers to other suppliers. Eliminating the initial discount, but still maintaining smartpricing, would vastly simplify the system for everyone and create more consistent conversions for advertisers and therefore more earnings for all.
The complexity of the Adwords system and it's minimum bids may be driving Advertisers to other suppliers.
Maybe, but over hundreds of clients, I ain't seeing it. I agree with you wholeheartedly that AdWords passed the point of being a tool that the average business owner could use a long time ago (and I keep telling Google this endlessly, although it's in my best interest that it stay complicated)
But the advertisers aren't going elsewhere. Nobody else has the reach. I am turning away prospective clients every week, because I just don't have enough time. The clients I do have are mostly all increasing their budgets (except for the one who's retiring) Every time we get a call from someone who wants a new or improved website, they ask about advertising in Google.
But today I notice that true MFAs without value have virtually disappeared, or at least pushed down strongly by Google. Today I see a lot of affiliate-driven sites that still have (or can have) a value to the visitor.
Then I don't think you're looking in the right places. It's extraordinarily simple to toss some AdSense on a bunch of syndicated crap articles or RSS feeds and drive traffic to it through AdWords (and it's much easier to do via the Content Network than Search) You can run for months if not a year before AdWords catches up to you, if you know what you're doing. There are companies openly selling this business model as a package, 100 sites at a time.
Without Smart Pricing, you *would* see an advertiser revolt; and in fact, we did. Advertisers were leaving the Content Network in droves. That's why Google has put such a big push on "cleaning it up" and trying to convince the advertisers that it's a good place to be. Once Google had to open up and show us some of the sites where our ads were appearing, a lot of us were horrified, and those who knew what to look for took action.
Google's the pilot here, and the advertisers are the co-pilot. I don't see that changing anytime soon.
The complexity of the Adwords system and it's minimum bids may be driving Advertisers to other suppliers.
Or it may be forcing smaller advertisers to avoid search ads and contextual text ads completely. Joe the Real Plumber and Barb the B&B owner need something that's as easy to buy as a classified ad.
Then I don't think you're looking in the right places. It's extraordinarily simple to toss some AdSense on a bunch of syndicated crap articles or RSS feeds and drive traffic to it through AdWords
That may be. I am looking at the ads that (apparently) show on our sites, as per the preview tool. Compared to the stuff I saw in 2006 and 2007, things have improved. But I do believe you when you say things have not improved.
