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- Past: They tried to show ads always, even when there was minimal keyword bidding competition, meaning that they would show plenty of ads, even the low CPC ones.
- Now: They are trying to push up minimum CPC, meaning that even in low competiton scenarios, they will tend to show only high CPC ads, decreasing the frequency of the low CPC ads. Sometimes not even presenting a single ad (even in situations in which there are bidders, low CPC bidders though).
You would think: Hey! Google is about maximizing revenue, therefore, they can do this in order to "convince" low CPC bidders that they should increase their minimum CPC, thus providing the revenue maximization that any business wants. The problem is that in classic economic theory, you can only do this when a monopolist controls supply. So, my impression is that Google is following this tactic, only because they have the weight of a cuasi-monopoly.
What do you think? Do you have a similar impression?
Now that I think a bit more about this, someone could actually sue Google basing the case on their behaviour. If they are behaving this way, that means that they must have some kind of internal documents that prove this point. People there are clever, they must have realized that the laws of monopoly economics apply to them. Someone must have done some presentation ,calculations, reports on the subject and concluded that they needed to tweak the Adwords algo to achieve this "monopoly maximization" situation.
These documents and the above mentioned practice, can actually prove in court that Google is a monopoly and order the payment of fines or the splitting of the company.
[edited by: carlitos at 4:02 pm (utc) on Oct. 27, 2009]
Figure it out. If you bid 10 cents for an ad with a CTR of 10%, for 1000 impressions, that's 100 clicks earning Google $10. If someone else bids 30 cents but with a poorer ad getting a 2% CTR, that's only 20 clicks in 1000 earning only $6 for Google.
It's not Google driving prices up. We are doing it to ourselves with poor quality ads and increasing our bids to be in higher position. Yet, Google earns less when we do that. That's why they invented QS.
Sometimes they don't show any ads on keywords because QS on those KWs is historically very low for everyone that has advertised on them (when I say QS, read CTR in this scenario), indicating advertiser relevance on those keywords is very low - therefore reducing user experience. They effectively cut off advertising on a KW to protect user experience, even though it costs them revenue.