Google’s Faces of the Stranger: The Broker

Lest we forget, Google’s most visible, enduring face is still that of the search engine.

During the past two weeks, we took a look at Google’s role as a Banker of information peddling Gmail and photo storage, and then as a Babysitter
shepherding and editing news comments. Yet in this final edition of
this series, we’ll see a more familiar face of Google. We’ll meet the
Broker of the dynamic AdWords market — where the rules change
constantly, just as they notably did last week when Google rewrote some
of its rules for advertisers.

Outside of the trade publications,
the media largely avoided covering Google’s most significant
announcement this month in favor of the lesser updates. Google’s
selling storage and then allowing comments on Google News were fun
fodder for journalists. Yet what about Google’s change to its AdWords
algorithm, which could affect millions of advertisers as well as
Google’s profit margins?

Google used to promote ads to the top
ad position based on their Quality Score (which includes ads’
click-through rates, historical performance, landing page quality, and
other factors) and the actual cost-per-click (CPC) that the advertiser
paid. While the exact algorithm isn’t made public, various sources from
inside and outside Google have hinted that Google has weighed the
Quality Score and CPC roughly equally.

Last week, Google changed
the rules by factoring in an advertiser’s maximum CPC rather than the
actual CPC — in other words, the most the advertiser would be willing
to pay rather than what it actually was paying. Much of Google’s focus
was using this new formula to determine which ads would appear atop
natural search results, as opposed to the righthand side, and the idea
is that only the best ads land that coveted top placement. Or to use a
baseball analogy, it’s like Google’s own farm team system, where the
best performers have a shot at The Show and can just as easily get
called down to the minors if they don’t live up to the scouting report.

Google provided two reasons for the change on its AdWords blog.
One is that advertisers will have more control over their maximum CPC
because “actual CPC is determined, in part, by the bidding behavior of
the advertisers below you… a factor you cannot influence.” Yet
advertisers still don’t have control over others’ maximum CPCs, so
they’re still burdened by external factors. The only way around this is
for Google to completely open up the bidding system with complete
transparency, so that while advertisers wouldn’t have control over
others’ bidding strategies, they would have all the information they’d
need to plan their own campaigns.
   
The other explanation,
which feels very Googly (in a good way) on the surface, is that users
benefit “due to more high quality ads becoming eligible for top
placement, thereby allowing [Google’s] system to choose from a larger
pool of high quality ads…” Yet little actually changes for the users.
The Quality Score was a major factor before and it still will be going
forward, and the maximum CPC is separate from the Quality Score.

One
remote benefit could be that large marketers who can justify the
importance of branding and other factors not directly tied to online
conversions will raise maximum CPCs and gain more of an advantage, and
consumers’ trust in the name brands will increase those ads’
click-through rates. It’s a tenuous line of reasoning on many levels,
and the law of equal and opposite reactions could just as easily take
hold here. If advertisers felt that their returns didn’t merit the cost
of higher maximum CPC bidding, some could lower their maximum CPCs so
they wouldn’t be eligible for the top position, leaving fewer high
quality ads in the running. I’m not expecting that to happen, but it’s
a feasible scenario, and one you won’t read on Google’s blog.

Another
thing the company doesn’t discuss on its blog is how the AdWords
changes will benefit Google. The goal of Google, and of any search
engine, is to increase its revenue per search. By offering one more
catalyst for advertisers to compete for top billing, Google should
prove to be the biggest beneficiary.

That doesn’t make Google
evil. Heck, Billy Joel even writes in the song from which this series’
title was taken, “You may never understand how The Stranger is
inspired, but he isn’t always evil, and he is not always wrong.” In
this case, though, we do have some inkling of Google’s inspiration — a
source that’s no stranger to Google.