TCS Daily


Competition Comes to the Ad Market

By Jay Currie - March 14, 2005 12:00 AM

Google's website advertising program, Adsense, is about to have some fairly hefty competition. Yahoo is testing a "long tail" ad words scheme.

Markets thrive on competition and Google's first mover domination of the adwords market has been inviting a serious challenge for some time. A billion dollars a quarter is enough money to tempt new entrants.

Google and Yahoo and Microsoft already compete on search word advertising; but on the literally millions of websites which display "ad strips" Google has enjoyed an effective monopoly. Exploiting first mover advantage, Google has its Adsense code on everything from the New York Times to TCS (over to your right) and little blogs and websites which may get all of 20 hits a day.

Google, with its "do no evil" corporate philosophy, has used its virtual monopoly to invent, perfect and, to a degree, police, the emerging market for text based, context sensitive, advertising. While Google was the only game in town publishers and advertisers have been playing by its rules.

The commercially critical "no clicking your own ads" and "no offering inducements for clicks" commandments make perfect sense. However, Google also imposes content rules on its publishers by refusing to accept alcohol, tobacco, pornography, gambling, illegal drug, legal drug advertising. As well, there are rules against displaying ads on adult sites or sites which are controversial - as several bloggers have found out. Plus publishers have to obey rules against disclosing pretty much anything about the program, including how much a publisher makes a month, what clicks on particular ads are worth, and what the click through rate for a given ad or website is.

Break a Google rule and a publishers' Google account can be instantly terminated. Recently Google has started sending a warning email in some cases; but there is no guarantee. In the Googleplex binary, black and white, logic seems to apply.

A company like Google has a perfect right to choose to do business with whomever it wants and on whatever terms it wants. As long as Google pretty much owned the long tail of the pay per click ad business a small publisher had no choice but to accept Google's terms. Google was pretty reasonable about its rules but without competitive pressure it was Google's way or the highway.

The arrival of Yahoo -- and possibly Microsoft -- in the adwords market will be good for publishers and advertisers simply by expanding the range of choices and by fostering innovation through competitive pressures.

What Yahoo can do to compete with Google?

  • Offer Paypal and other overnight funds transfer along with regular cheques. This is, after all, the internet age.

  • Make the publisher shareout transparent.

  • Recognize that despite the groovy technology involved in placing context sensitive advertising on webpages, the actual role of an ad strip provider analogous to a very well automated advertising agency. Typically an advertising agency charges 15-20% of the ad buy. This compares rather unfavorably with the current 60-80% spread it appears Google is charging.

  • By narrowing the spread between what advertisers are paying and what publishers are getting Yahoo would attract high quality publishers who are chafing under Google's restrictions and relatively low payout rates.

  • Reward quality publishers. While there will be an army of sales people out trying to get Adsense advertisers to switch to Yahoo, the real struggle will likely be for the tens of thousands of small to very small publishers who actually make the Adsense model work.

  • Offer advertisers at least one alternative to the pure "keyword bid" model. A flat fee for a set number of clicks might be more attractive to some advertisers. As well, while selling "page views" or "impressions" has fallen out of fashion, these are reasonable metrics for certain sorts of ad campaigns.

Choice brings change and there is no question that the keyword/adsense/adwords market could use a little competitive instability.

Jay Currie is a frequent TCS contributor and can be read at www.reviewing.blogspot.com.

Editor's note: After the original publication of this article on March 14, TCS received a very pleasant email from Google's trademark lawyer alerting us that "Adwords" is a trademark of Google and they want to keep it that way. The Googleplex would be happy with "keyword advertising" for the generic, which seems fair to us.

In an entirely unrelated development, Google has rolled out a beta electronic funds transfer option for at least some US customers, demonstrating once again the benefits of competition.

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