For Quality, Profit, or Both

One view of why quality might not have been the only motive.

[pdivi]

I’ve noticed that the main situation being discussed here is one where bids get increased from, say, $.10 to $10. While that very well might be the most common situation, my personal experience is different. I recently spoke to a competitor and her experience is roughly the same as mine. And neither of our experiences point to quality as the main driver behind our minimum bid hikes. I’d like to know if there are more of us out there.

Background: The segment of the affected sites has about 8-10 major competitors. Due to the nature of what we sell, sites are content-rich (usually hundreds of information pages). No one would convert without the information, so it is simply a requirement for everyone in the segment. I imagine the profit per sale looks close to identical for all of us, and that all of us have annual Adwords billing in the mid-6-figure+ range.

Both my competitor and I saw our minimum bids pushed to a point that put us right about at a breakeven CPA. That entailed a 20-100% increase on most keywords. Some went slightly past the profit threshold and were axed, some remained at/under the profit threshold and were kept. Net, Google billed more from both of us.

How could Google have known our profit? Easy…some dope could have given it to them through Google Analytics, or Google could have derived it by watching our bid history, which surely shows thresholds where we back off from increasing bids.

From a profit maximization standpoint, the move makes a lot of sense. But we can’t find the connection to quality.

Here are the perspectives we discussed:
- If Google determined our quality was substandard, they’d want us off their network, and would make the bids prohibitive, not on the margin of profitable.
- If Google was simply trying to incent us towards higher quality by increasing the cost of poor quality, they would have (or at least should have) given some direction on how to achieve it. Since we don’t know what to do, Google can’t get what it wants. At best, the strategy was flawed by poor execution.

…or there’s the obvious explanation that, in our particular case, the move was about increasing profit, not quality.

I’m interested in hearing if anyone else out there had a similar experience.

And for the Who Moved My Cheese / I [heart] Google crowd:
It is entirely within Google’s right to raise prices to increase their profit. They owe me no explanation. I continually review my prices to make sure I’m not ‘leaving too much on the table’ for the consumer, and I expect Google would do the same. I am only here to dissect the situation so I can figure out how to take it forward.

[europeforvisitors]

- If Google determined our quality was substandard, they’d want us off their network, and would make the bids prohibitive, not on the margin of profitable.

But Google doesn't have to purge all nonconforming advertisers from the network to improve the user experience. It needs only to purge enough to make a noticeable improvement. And most nonconforming advertisers probably won't make a profit at the minimum bids that have created such a furor in this forum.

- If Google was simply trying to incent us towards higher quality by increasing the cost of poor quality, they would have (or at least should have) given some direction on how to achieve it. Since we don’t know what to do, Google can’t get what it wants.

Google prefers "organic" pages on the search side; why not for landing pages, too? Maybe Google wants to discourage SEO-like "what can I get away with" or "what will work best with Google's algorithm" thinking and behavior.

[pdivi]

Google prefers "organic" pages on the search side; why not for landing pages, too?

I get your point. I think the nature of the universe of Adwords landing pages is so vastly different from that of the broader WWW that you can't easily map the concerns of one to the other. I'm specifically referring to differences in factors like cost of false positives, cost of false negatives, incentive/return for duping the system, and scale (and the potential for human review in one vs. the other).

But more briefly, I think Adwords would be less prone to trickery for the same reason why Adsense publishers tend to stay in-line; you can get booted from the system if Google catches you cheating, and it's a hassle involving pseudonyms, new credit cards, and whatever else to clean the slate. Google can't boot you from the WWW for tricking the SERPS.

[rbacal]

…or there’s the obvious explanation that, in our particular case, the move was about increasing profit, not quality

I think you put forth a perfectly logical argument. I think, though, there are other possible conclusions, and hypotheses, and I suspect there are multiple reasons why google did "it", and did it this particular way.

Do I think revenue issues are part of this? Sure. But over the long term, not the short term. (one reason it was done now, BTW).

Simple explanations don't work for this kind of stuff.

I can envision a situation where google did indeed want to get rid of low value advertisers (for a number of reasons), but since they are absolutely committed to algorithms, they might have decided they couldn't remove people algorithmically for reasons of both fairness and legal issues. And they probably ARE sincere about the user experience, but it's not that in isolation.

So, they did it this way. With relatively new and imperfect algos.

[skibum]

The more data people keep giving to Google, the more potential there is for this type of thing to happen.

On the consumer side

Tool Bar - G can probably pull up everything a particular toolbar searched for/visited

Google account - G can probably pull up everything that account with your personal info searched for/visited, who you send email to if you have GMail, the contents of the emails you send, if you respond to ads in your email

Tool Bar + Google Account - Google potentially has a record of everything you as an individual do online.

Google Checkout - Google probably knows what you searched for if it was on Google, whether you clicked on a paid or free listing, what you bought, how much you paid and who you bought it from.

On the merchant side

AdWords - Google knows what keywords you target and how much you have historically been willing to pay for them.

Analytics - Depending on how you have it setup, Google knows how much traffic you get, where it comes from, the conversion rates of all of it, how much you money you make from it.

Analytics + Checkout - All the above + who your customers are, how each individual one finds your website, what keywords lead to conversions and how much they are worth to you.

AdWords + Analytics + Checkout - Almost everything about your online business - what keywords you purchase, whether people tend to purchase more from ads or organic listings, who your individual customers are, how much they spend, how they find you.

With a dataset that rich and a cash cow in AdWords, it makes sense to give away the farm to get it. Free analytics that other companies charge big bucks for, free tansactions on checkout if you spend on AdWords, all kinds of "beta" projects that continue to collect info. Who cares if they don't make a dime for the next 5 or ten years? There is probably not other company or entity in the world that has a data set like this rich potentially all tied together.

Depending on how much you use Google, Google probably knows more about your online business than you do and thus far it looks like they will also be your largest supplier of advertising & customers online.

You may end up playing Texas Hold 'em No Limit with an opponent who always knows what is in your hand before you do and can make bets accordingly.

They are well on the way to organizing the worlds' information and potentially collecting all of yours for you personally and your business.

There are probably a lot of factors including some of the above that went into the changes.