Google vs. eBay: All Out War!

I regularly read stories about how Yahoo and Microsoft are ganging up on Google. Whether its the recent announcement of instant messenger compatibility, or the simple fact that Yahoo and MSN are both spends tens of millions of dollars promoting and revamping their search engine marketing offers, there is a lot made of the increasingly bitter fight between these three giants.

My sense, however, is that the real struggle is between Google and eBay. Let’s face it, as much as Yahoo and MSN try, the battle for search (or search engine marketing) is over. Google owns something like a 56% market share, has smarter people, and has amazing brand recognition – such that irregardless of how bad Google’s search might become, consumers will still perceive it is the #1 search engine.

So I think that Google has (rightly) concluded that it is game over when it comes to online search. The focus now is on figuring out the next high margin online business to enter into. There are basically two choices – pure ecommerce a la Amazon, or the “online marketplace model” of eBay. Considering the impressively low (or nonexistent) margins for Amazon, there is actually only one choice – eBay.

How Google is Attacking eBay

Google hasn’t been too stealthy about how they intend to beat eBay. The strategy is quite simple: build competitive products, attract users by pricing the products well-below eBay rates (or even free), and leverage Google’s bully-pulpit – that is, the massive traffic and market share of the Google search empire – to virtually require people to use Google’s products at least as a complement to eBay’s rival products. Let’s look at a few examples of how Google has used this strategy to date:

1. Froogle – Competitor to eBay’s Shopping.com; Offered for free (compared to CPC pricing for Shopping.com); Promoted with one of only five links on the Google homepage. Clearly, if you are selling products online, you would be dumb not to use Froogle. Note that Google monetizes Froogle via its AdSense contextual marketing product (which, ironically, is also how Shopping.com generates a lot of its revenue). Suffice to say, with this monetization in place, Google can forever give Froogle away and forever cause Shopping.com’s margins to compress as a result.

2. Google Base – Competitor to Craigslist and eBay; Offered for free (compared to listing fee and sales commission on eBay and flat fees on certain categories on Craigslist); Promoted by requiring Froogle users to enter their products into Google Base first before they can show up on Froogle. Google Base is definitely a product that Google has yet to perfect and in its current iteration it is a blip on the radar compared to eBay or Craigslist (note: eBay has a 25% stake in Craigslist). That being said, the fact that Google rushed this product onto the market and is continuing to promote it via Froogle indicates that they have not yet given up on the dream of competing with eBay/Craigslist for the ‘classifieds/marketplace’ market online.

3. GTalk – Competitor to eBay’s Skype; Offered for free (Skype charges for some services); Promoted by integrating it into Gmail. Here’s an example of a product that will probably never make Google much money, but could be very effective in reducing eBay’s ability to monetize its $4 billion acquisition of Skype. After all, why pay for Skype when Google is free?

4. Google Checkout – Competitor to PayPal; Offer for free up to a user’s current AdWords spend with Google (PayPal charges a percentage of the sale price); Promoted by giving users a special “shopping cart” logo on all of their Google AdWords placements on Google. As I noted in my last column, the shopping cart logo on AdWords really gives eCommerce sites no choice but to use Google Checkout. And since it is free, there’s actually a strong incentive for advertisers to push purchasers toward Google Checkout as opposed to eBay’s PayPal.

5. Quality Score – Google’s recent update to its “Quality Score” algorithm was allegedly made to ferret out “made for AdSense” (or MFA) arbitrage sites participating on the AdWords network. It turns out that these MFA sites aren’t the only sites that were targeted by the Quality Score update. In fact, Google is directly attacking “incentive sites” like “FreeIpods.com” and removing these from AdWords (or more specifically, raising their minimum bids to $5 or $10, effectively making it impossible to advertise at all). The rational behind eliminating incentive sites is “bad user experience” and “frequent user complaints.” Of course, no one really knows if Google really received lots of complaints about incentive sites, we just have to trust Google’s word on this point.

But let’s play this scenario out a little further. Google has just removed sites that are either MFAs or have “bad user experience.” What other sites could possibly be included in one of those categories? Recall that Shopping.com has publicly stated in its SEC filings (prior to being acquired by eBay) that something like 40% of its revenue comes from AdSense ads on its site. In other words, Shopping.com could very easily be classified as an “MFA” and removed from AdWords by Google.

Similarly, eBay is famous for buying millions of seemingly irrelevant terms like “Nuclear Bomb” and “Belly Button Lint.” Surely there have been tons of user complaints about the poor user experience of clicking on an ad on Google, being sent to eBay, and not being able to purchase the aforementioned nuclear bomb the user had his heart set on. I don’t think it would be a reach for Google to conclude that many of eBay’s ads create a bad user experience and therefore should be banned from AdWords.

And since so much of the Internet’s traffic flows through Google (something like 56%), if Google did indeed prevent eBay and Shopping.com from advertising on AdWords, this would have a very meaningfully negative impact on these companies’ ability to drive new customers to their sites. Food for thought.

How eBay is Responding

eBay has some really nice businesses with high margins – in particular eBay itself and PayPal. Both of these businesses are near monopolies, and both have withstood attacks from strong competitors in the past (Yahoo Auctions, Overstock, and even eBay’s version of PayPal before they just acquired PayPal itself). So eBay is used to the attention and has successfully responded in the past.

As far as I can tell, eBay is responding to Google in three ways today, with a fourth that I predict will occur in the next 1-2 years:

1. Block Google products wherever possible: eBay has made it clear that Google Checkout is not welcome on eBay. This is clearly a defensive strategy. At the end of the day, the only impact it has on Google is that Google can’t make money off eBay transactions through Google Checkout. Of course, considering the fact that Google Checkout will be mostly free for the majority of its users (most of whom already use AdWords), this strategy is mostly a way to protect PayPal revenue than it is to impact Google Checkout revenue.

It should be noted that there are two ways that banning Google Checkout could seriously backfire for eBay. First, it could anger eBay users who would like to save money by using Google Checkout instead of PayPal. Second, it could be grounds for allegations of anti-competitive behavior (read: an anti-trust lawsuit). This point is particularly relevant to my point #4 below.

2. Introduce competitive products to AdWords: eBay recently announced that it is launching a competitor to AdWords called “eBay AdText”. eBay may try to leverage its existing relationships with tens of thousands of loyal eBay sellers to get these folks to replace AdSense on their Web sites with AdText. Perhaps taking a page out of Google’s checkout scheme, I wouldn’t be surprised to see eBay basically give sellers some sort of discount or free listings on eBay in exchange for using AdText instead of AdSense.

Ultimately, for this strategy to work, the overall package eBay proposes to its sellers has to result in more revenue or eCPM than AdSense. Initially, this will be difficult, since eBay’s optimization algorithm will probably be much weaker than AdSense’s right out of the gate. Nonetheless, I do think that attacking AdSense is a viable strategy. In the end, Web site owners only care about the bottom line – if eBay can combine discounts on eBay with an algorithm close to on par with AdSense, the results might be better economics than Google and a big blow to the Google Machine.

3. Gang Up on Google: eBay recently announced a wide-ranging deal with Yahoo to provide co-branded toolbars (competitive with Google Toolbar), combined advertising strategies (competitive with AdWords), and potentially click-to-call functionality (competitive with GTalk). The deal also made PayPal Yahoo’s exclusive payment provider (competitive with Google Checkout). There’s no doubt that this is a smart move by both Yahoo and eBay.

At one point in time, you could argue that Yahoo and eBay were largely fighting over the same space – in particular, eBay’s “buy it now” functionality and Yahoo’s “stores” seemed destined to clash over dominance in the small business “marketplace” space. I think both of these companies now realize that the “enemy of my enemy is my friend” and trading blows doesn’t make much sense now. There is a far greater menace out there.

And there’s no reason to think that this is the last partnership eBay is pursuing. You would think that similar negotiations must be in the works with Microsoft (MSN) and AskJeeves (or all of IAC, for that matter). The fact that Google has been rattling cages in Redmond with ominous announcements of Excel-killers, support of FireFox (Internet Explorer killer), and potential online operating systems has probably only accelerated discussions.

4. Anti-Trust? If Google simply dominated search, I’m not sure that this would be much of an issue. Google, however, has made it clear that they are using their dominance in search to force their way into other lucrative areas, like comparison shopping, online classifieds, and online payment processing. At some point, Google is going to piss enough big companies off that the Department of Justice (DOJ) is going to start getting pressure to curb Google’s growth.

Considering the fact that eBay’s business lines are all in Google’s sights, it wouldn’t surprise me at all if eBay has already started some discussions with the DOJ on this point. There is, however, one problem that needs to be mentioned; in many ways, eBay is a monopoly in its own right. And in many ways, eBay using their own monopoly power to their advantage, as seen in their blockage of Google Checkout on eBay. Imagine if instead of Google Checkout it was “Blogation Checkout” – a small Mom and Pop company trying to compete with PayPal. I think eBay might be in trouble.

The bottom line, though, is that eBay does need to be careful about throwing stones at glass houses here. It’s hard to complain about anti-competitive behavior when you are exhibiting that very behavior.

And the Winner is?

Right now, I have to say that Google is winning this battle. The way I see it, eBay’s moves to date have been entirely defensive and are mostly directed at preserving its own revenue instead of biting into Google’s (I am withholding judgement on eBay’s AdSense killer and partnership with Yahoo. These moves do suggest an offensive is being mounted, but it is too early to say whether these will have any success). Google, on the other hand, has only seen its market share increase in its core business (search) and has launched a slew of products that leverage search to gain traction in eBay’s businesses. Based on what I have seen to date, Google’s efforts will bear some fruit. Google Checkout will be a success, Froogle already has some market share, and Google Base will someday attract a loyal following. All of this adds to Google’s bottom line at eBay’s expense. Do I think Google will destroy eBay and PayPal? Of course not. But if this war continues along its current trajectory, my guess is that eBay will be the company in the end that will cry uncle first.

Tags: ebay versus google, ebay adtext, google checkout, paypal, gtalk, skype, craigslist, google base, froogle, shopping.com, antitrust

 

Google vs. eBay: All Out War!

I regularly read stories about how Yahoo and Microsoft are ganging up on Google. Whether its the recent announcement of instant messenger compatibility, or the simple fact that Yahoo and MSN are both spends tens of millions of dollars promoting and revamping their search engine marketing offers, there is a lot made of the increasingly bitter fight between these three giants.

My sense, however, is that the real struggle is between Google and eBay. Let’s face it, as much as Yahoo and MSN try, the battle for search (or search engine marketing) is over. Google owns something like a 56% market share, has smarter people, and has amazing brand recognition – such that irregardless of how bad Google’s search might become, consumers will still perceive it is the #1 search engine.

So I think that Google has (rightly) concluded that it is game over when it comes to online search. The focus now is on figuring out the next high margin online business to enter into. There are basically two choices – pure ecommerce a la Amazon, or the “online marketplace model” of eBay. Considering the impressively low (or nonexistent) margins for Amazon, there is actually only one choice – eBay.

How Google is Attacking eBay

Google hasn’t been too stealthy about how they intend to beat eBay. The strategy is quite simple: build competitive products, attract users by pricing the products well-below eBay rates (or even free), and leverage Google’s bully-pulpit – that is, the massive traffic and market share of the Google search empire – to virtually require people to use Google’s products at least as a complement to eBay’s rival products. Let’s look at a few examples of how Google has used this strategy to date:

1. Froogle – Competitor to eBay’s Shopping.com; Offered for free (compared to CPC pricing for Shopping.com); Promoted with one of only five links on the Google homepage. Clearly, if you are selling products online, you would be dumb not to use Froogle. Note that Google monetizes Froogle via its AdSense contextual marketing product (which, ironically, is also how Shopping.com generates a lot of its revenue). Suffice to say, with this monetization in place, Google can forever give Froogle away and forever cause Shopping.com’s margins to compress as a result.

2. Google Base – Competitor to Craigslist and eBay; Offered for free (compared to listing fee and sales commission on eBay and flat fees on certain categories on Craigslist); Promoted by requiring Froogle users to enter their products into Google Base first before they can show up on Froogle. Google Base is definitely a product that Google has yet to perfect and in its current iteration it is a blip on the radar compared to eBay or Craigslist (note: eBay has a 25% stake in Craigslist). That being said, the fact that Google rushed this product onto the market and is continuing to promote it via Froogle indicates that they have not yet given up on the dream of competing with eBay/Craigslist for the ‘classifieds/marketplace’ market online.

3. GTalk – Competitor to eBay’s Skype; Offered for free (Skype charges for some services); Promoted by integrating it into Gmail. Here’s an example of a product that will probably never make Google much money, but could be very effective in reducing eBay’s ability to monetize its $4 billion acquisition of Skype. After all, why pay for Skype when Google is free?

4. Google Checkout – Competitor to PayPal; Offer for free up to a user’s current AdWords spend with Google (PayPal charges a percentage of the sale price); Promoted by giving users a special “shopping cart” logo on all of their Google AdWords placements on Google. As I noted in my last column, the shopping cart logo on AdWords really gives eCommerce sites no choice but to use Google Checkout. And since it is free, there’s actually a strong incentive for advertisers to push purchasers toward Google Checkout as opposed to eBay’s PayPal.

5. Quality Score – Google’s recent update to its “Quality Score” algorithm was allegedly made to ferret out “made for AdSense” (or MFA) arbitrage sites participating on the AdWords network. It turns out that these MFA sites aren’t the only sites that were targeted by the Quality Score update. In fact, Google is directly attacking “incentive sites” like “FreeIpods.com” and removing these from AdWords (or more specifically, raising their minimum bids to $5 or $10, effectively making it impossible to advertise at all). The rational behind eliminating incentive sites is “bad user experience” and “frequent user complaints.” Of course, no one really knows if Google really received lots of complaints about incentive sites, we just have to trust Google’s word on this point.

But let’s play this scenario out a little further. Google has just removed sites that are either MFAs or have “bad user experience.” What other sites could possibly be included in one of those categories? Recall that Shopping.com has publicly stated in its SEC filings (prior to being acquired by eBay) that something like 40% of its revenue comes from AdSense ads on its site. In other words, Shopping.com could very easily be classified as an “MFA” and removed from AdWords by Google.

Similarly, eBay is famous for buying millions of seemingly irrelevant terms like “Nuclear Bomb” and “Belly Button Lint.” Surely there have been tons of user complaints about the poor user experience of clicking on an ad on Google, being sent to eBay, and not being able to purchase the aforementioned nuclear bomb the user had his heart set on. I don’t think it would be a reach for Google to conclude that many of eBay’s ads create a bad user experience and therefore should be banned from AdWords.

And since so much of the Internet’s traffic flows through Google (something like 56%), if Google did indeed prevent eBay and Shopping.com from advertising on AdWords, this would have a very meaningfully negative impact on these companies’ ability to drive new customers to their sites. Food for thought.

How eBay is Responding

eBay has some really nice businesses with high margins – in particular eBay itself and PayPal. Both of these businesses are near monopolies, and both have withstood attacks from strong competitors in the past (Yahoo Auctions, Overstock, and even eBay’s version of PayPal before they just acquired PayPal itself). So eBay is used to the attention and has successfully responded in the past.

As far as I can tell, eBay is responding to Google in three ways today, with a fourth that I predict will occur in the next 1-2 years:

1. Block Google products wherever possible: eBay has made it clear that Google Checkout is not welcome on eBay. This is clearly a defensive strategy. At the end of the day, the only impact it has on Google is that Google can’t make money off eBay transactions through Google Checkout. Of course, considering the fact that Google Checkout will be mostly free for the majority of its users (most of whom already use AdWords), this strategy is mostly a way to protect PayPal revenue than it is to impact Google Checkout revenue.

It should be noted that there are two ways that banning Google Checkout could seriously backfire for eBay. First, it could anger eBay users who would like to save money by using Google Checkout instead of PayPal. Second, it could be grounds for allegations of anti-competitive behavior (read: an anti-trust lawsuit). This point is particularly relevant to my point #4 below.

2. Introduce competitive products to AdWords: eBay recently announced that it is launching a competitor to AdWords called “eBay AdText”. eBay may try to leverage its existing relationships with tens of thousands of loyal eBay sellers to get these folks to replace AdSense on their Web sites with AdText. Perhaps taking a page out of Google’s checkout scheme, I wouldn’t be surprised to see eBay basically give sellers some sort of discount or free listings on eBay in exchange for using AdText instead of AdSense.

Ultimately, for this strategy to work, the overall package eBay proposes to its sellers has to result in more revenue or eCPM than AdSense. Initially, this will be difficult, since eBay’s optimization algorithm will probably be much weaker than AdSense’s right out of the gate. Nonetheless, I do think that attacking AdSense is a viable strategy. In the end, Web site owners only care about the bottom line – if eBay can combine discounts on eBay with an algorithm close to on par with AdSense, the results might be better economics than Google and a big blow to the Google Machine.

3. Gang Up on Google: eBay recently announced a wide-ranging deal with Yahoo to provide co-branded toolbars (competitive with Google Toolbar), combined advertising strategies (competitive with AdWords), and potentially click-to-call functionality (competitive with GTalk). The deal also made PayPal Yahoo’s exclusive payment provider (competitive with Google Checkout). There’s no doubt that this is a smart move by both Yahoo and eBay.

At one point in time, you could argue that Yahoo and eBay were largely fighting over the same space – in particular, eBay’s “buy it now” functionality and Yahoo’s “stores” seemed destined to clash over dominance in the small business “marketplace” space. I think both of these companies now realize that the “enemy of my enemy is my friend” and trading blows doesn’t make much sense now. There is a far greater menace out there.

And there’s no reason to think that this is the last partnership eBay is pursuing. You would think that similar negotiations must be in the works with Microsoft (MSN) and AskJeeves (or all of IAC, for that matter). The fact that Google has been rattling cages in Redmond with ominous announcements of Excel-killers, support of FireFox (Internet Explorer killer), and potential online operating systems has probably only accelerated discussions.

4. Anti-Trust? If Google simply dominated search, I’m not sure that this would be much of an issue. Google, however, has made it clear that they are using their dominance in search to force their way into other lucrative areas, like comparison shopping, online classifieds, and online payment processing. At some point, Google is going to piss enough big companies off that the Department of Justice (DOJ) is going to start getting pressure to curb Google’s growth.

Considering the fact that eBay’s business lines are all in Google’s sights, it wouldn’t surprise me at all if eBay has already started some discussions with the DOJ on this point. There is, however, one problem that needs to be mentioned; in many ways, eBay is a monopoly in its own right. And in many ways, eBay using their own monopoly power to their advantage, as seen in their blockage of Google Checkout on eBay. Imagine if instead of Google Checkout it was “Blogation Checkout” – a small Mom and Pop company trying to compete with PayPal. I think eBay might be in trouble.

The bottom line, though, is that eBay does need to be careful about throwing stones at glass houses here. It’s hard to complain about anti-competitive behavior when you are exhibiting that very behavior.

And the Winner is?

Right now, I have to say that Google is winning this battle. The way I see it, eBay’s moves to date have been entirely defensive and are mostly directed at preserving its own revenue instead of biting into Google’s (I am withholding judgement on eBay’s AdSense killer and partnership with Yahoo. These moves do suggest an offensive is being mounted, but it is too early to say whether these will have any success). Google, on the other hand, has only seen its market share increase in its core business (search) and has launched a slew of products that leverage search to gain traction in eBay’s businesses. Based on what I have seen to date, Google’s efforts will bear some fruit. Google Checkout will be a success, Froogle already has some market share, and Google Base will someday attract a loyal following. All of this adds to Google’s bottom line at eBay’s expense. Do I think Google will destroy eBay and PayPal? Of course not. But if this war continues along its current trajectory, my guess is that eBay will be the company in the end that will cry uncle first.

Tags: ebay versus google, ebay adtext, google checkout, paypal, gtalk, skype, craigslist, google base, froogle, shopping.com, antitrust

 

Do AdWords Users Have Any Choice But to Use Google Checkout?

Any fashionistas out there may be surprised to learn that I have a famous fashion uncle – his name is Donald Pliner and he makes very cool shoes for both women and men (if you’re interested in checking out his shoes and supporting this blog, use this affiliate link and buy some of his shoes!). In any event, I always check up on my Uncle Donald via Google News and simply Google searches. On a recent search of “Donald Pliner” I found these AdWords ads:

As you can see from the image on the right, the BlueFly.com advertisement looks a little different than all the other ads, due to the prominent red shopping cart to the left of the URL. This cart, of course, represents the Google Checkout feature – the rival product to PayPal.

I have no idea whether this works as good or better than PayPal. My guess is that it is probably a bit buggy at the moment (in line with most Google betas), and that over time it will become a pretty useful feature.

The actual functionality, however, is irrelevant to this post. What’s more important is that the shopping cart clearly helps BlueFly stand out from the crowd. Some searchers will probably conclude that a shopping cart means that you can buy online and therefore all other companies in the search results cannot process online orders. The end result is probably a windfall for BlueFly – higher click-throughs, lower CPCs, and a huge competitive advantage.

Now if you were a competitor of BlueFly, how would you react to this shopping cart? You’d probably get on the phone to your Google rep post haste and demand that you are immediately set up with a Google checkout. In other words, if just a few companies use Google Checkout, all of their competitors on AdWords will have no choice but to also sign up for Checkout.

If you thought that the viral marketing campaign Google used to promote GMail was brilliant, I assure you that this strategy around Google Checkout will be far, far more effective.

Loyal readers of Blogation would probably expect me to launch into one of my typical critiques of Google at this point. And I have to admit, I was about to. I was going to talk about how this was yet another blatant example of Google using its strangle-hold on Internet marketing to force a product or a world view (like Quality Score) on advertisers who have no choice but to accept Google’s will.

In this instance, however, I actually have a little compassion for Google. Google is battling PayPal here and PayPal is about an entrenched competitor as you could possibly ask for (other than, perhaps eBay’s dominance in online auctions). Given the choice between offering PayPal, Google Checkout, or PayPal and Google Checkout, I suspect that most merchants would rather just stick to PayPal, simply because its what 99.9% of users are used to, and there comes a point when too many payment options simply confusers potential purchasers. And just to rub a little bit more dirt in Google’s wounds, eBay has made it more than clear that Google Checkout is not welcome on eBay.

On top of that, I think that the novelty of Google product releases is starting to wear thin. Back in the day, people went bonkers over every little thing Google launched (let’s face it, Google Base really wasn’t the eBay/Craigslist killer it was portrayed to be).

So my guess is that Google Checkout could very easily have been met with a collective yawn from the online community unless Google gave businesses a really good reason to sign up. And getting a competitive advantage in AdWords is a really good reason for most ecommerce companies these days.

Of course, none of this eBay-Google battling is really good for ecommerce sites or for consumers. If you think that letting consumers know that a site accepts online payments is good for user experience, you should probably allow sites with either PayPal or Google Checkout to display a shopping cart logo (or something similar to that on eBay).

But that’s not what’s behind this. This is just one salvo in the big fight that’s already brewing between eBay and Google. One of these days, Google is going to find a way (other than Google Base) to create a true online auction competitor to eBay. And if you think that the shopping cart being used to promote Google Checkout is brash, just imagine how they’ll incent AdWords users to add auctions to their sites. It may be a great opportunity for some of us to fly with Larry and Sergei in their pimped out plane! Hey, maybe all of this competition isn’t so bad after all . . .

 

Do AdWords Users Have Any Choice But to Use Google Checkout?

Any fashionistas out there may be surprised to learn that I have a famous fashion uncle – his name is Donald Pliner and he makes very cool shoes for both women and men (if you’re interested in checking out his shoes and supporting this blog, use this affiliate link and buy some of his shoes!). In any event, I always check up on my Uncle Donald via Google News and simply Google searches. On a recent search of “Donald Pliner” I found these AdWords ads:

As you can see from the image on the right, the BlueFly.com advertisement looks a little different than all the other ads, due to the prominent red shopping cart to the left of the URL. This cart, of course, represents the Google Checkout feature – the rival product to PayPal.

I have no idea whether this works as good or better than PayPal. My guess is that it is probably a bit buggy at the moment (in line with most Google betas), and that over time it will become a pretty useful feature.

The actual functionality, however, is irrelevant to this post. What’s more important is that the shopping cart clearly helps BlueFly stand out from the crowd. Some searchers will probably conclude that a shopping cart means that you can buy online and therefore all other companies in the search results cannot process online orders. The end result is probably a windfall for BlueFly – higher click-throughs, lower CPCs, and a huge competitive advantage.

Now if you were a competitor of BlueFly, how would you react to this shopping cart? You’d probably get on the phone to your Google rep post haste and demand that you are immediately set up with a Google checkout. In other words, if just a few companies use Google Checkout, all of their competitors on AdWords will have no choice but to also sign up for Checkout.

If you thought that the viral marketing campaign Google used to promote GMail was brilliant, I assure you that this strategy around Google Checkout will be far, far more effective.

Loyal readers of Blogation would probably expect me to launch into one of my typical critiques of Google at this point. And I have to admit, I was about to. I was going to talk about how this was yet another blatant example of Google using its strangle-hold on Internet marketing to force a product or a world view (like Quality Score) on advertisers who have no choice but to accept Google’s will.

In this instance, however, I actually have a little compassion for Google. Google is battling PayPal here and PayPal is about an entrenched competitor as you could possibly ask for (other than, perhaps eBay’s dominance in online auctions). Given the choice between offering PayPal, Google Checkout, or PayPal and Google Checkout, I suspect that most merchants would rather just stick to PayPal, simply because its what 99.9% of users are used to, and there comes a point when too many payment options simply confusers potential purchasers. And just to rub a little bit more dirt in Google’s wounds, eBay has made it more than clear that Google Checkout is not welcome on eBay.

On top of that, I think that the novelty of Google product releases is starting to wear thin. Back in the day, people went bonkers over every little thing Google launched (let’s face it, Google Base really wasn’t the eBay/Craigslist killer it was portrayed to be).

So my guess is that Google Checkout could very easily have been met with a collective yawn from the online community unless Google gave businesses a really good reason to sign up. And getting a competitive advantage in AdWords is a really good reason for most ecommerce companies these days.

Of course, none of this eBay-Google battling is really good for ecommerce sites or for consumers. If you think that letting consumers know that a site accepts online payments is good for user experience, you should probably allow sites with either PayPal or Google Checkout to display a shopping cart logo (or something similar to that on eBay).

But that’s not what’s behind this. This is just one salvo in the big fight that’s already brewing between eBay and Google. One of these days, Google is going to find a way (other than Google Base) to create a true online auction competitor to eBay. And if you think that the shopping cart being used to promote Google Checkout is brash, just imagine how they’ll incent AdWords users to add auctions to their sites. It may be a great opportunity for some of us to fly with Larry and Sergei in their pimped out plane! Hey, maybe all of this competition isn’t so bad after all . . .

 

Google’s Mixed Messages: Eric Schmidt Says We Are Rational, But the AdWords Team Objects; or Eric Schmidt is a Liar and Google is Playing God!

In my constant effort to get the widest distribution possible for my blog, I figured a controversial headline might just help. Hope it got you interested.

Seriously though, the headline does have some relevance. Let me explain. First, Eric Schmidt gave a speech recently in which he poo-pooed the significance of click fraud. As reported in Search Engine Journal, Mr. Schmidt gave a speech at Stanford in which he noted: “Eventually, the price that the advertiser is willing to pay for the conversion will decline, because the advertiser will realize that these are bad clicks, in other words, the value of the ad declines, so over some amount of time, the system is in-fact, self-correcting. In fact, there is a perfect economic solution which is to let it happen.”

It sounds so mathematical and smart, doesn’t it. Eric (I’m on a first-name basis with him, since I once talked to him at a Google lunch for five minutes) is arguing that search is an efficient market – over time, rational actors will pay exactly what they can afford for a click – no more and no less (assuming there are other bidders below them). A similar analogy would be the stock market. A stock is priced at what the market thinks the stock is worth. Click fraud is to search what an SEC investigation is to a stock – marketers or investors simply bundle the negative impact into the value they are willing to pay.

Sadly for Eric’s theory, in this instance there is quite a chasm between theory and reality. You see, search engine marketing is currently practiced by a combination of rational and irrational actors. The rational actors are the folks that track their keywords, analyze ROI, and adjust bids accordingly. For these folks, the amount they are willing to pay for a click truly is an efficient value.

There are hundreds of thousands of irrational actors who don’t really know whether a click is converting or not. For these folks, many of their clicks may be fraudulent, but as long as the overall result seems to be profitability, ignorance is bliss.

And speaking of ignorance, should we assume that Eric is ignorant to this truth, or rather that he is doing a little political grandstanding? I think you know the answer. Incidentally, I wrote about this “inefficient market” several months ago. Here’s the link.

In other news, Google announced its new “Quality Score” algorithm, apparently designed to stop “MFA” or “Made for AdSense” arbitrage sites. As stated in the official release: “Following that change, advertisers who are not providing useful landing pages to our users will have lower Quality Scores that in turn result in higher minimum bid requirements for their keywords. We realize that some minimum bids may be too high to be cost-effective — indeed, these high minimum bids are our way of motivating advertisers to either improve their landing pages or to simply stop using AdWords for those pages.”

This is one of those things that you can definitely look at as glass half-full or half-empty. From the half-full perspective, you could argue that it makes sense that Google is trying to stop AdSense arbitrage. After all, sending someone to Google to a page full of Google ads certainly does not satisfy user expectations. And since Google’s entire brand is based on relevancy, poor ad relevancy can lead to some serious problems for Google.

The half-empty perspective argues that this is an example of Google playing God. In essence, Google can decide to adjust the algorithm to exclude whoever they want from their advertising network. Right now, they are using that power to exclude AdWords arbitrageurs. And for most SEMers, that’s not a big deal, because it doesn’t impact us.

But what if Google decided that lead generation sites weren’t providing good user experiences, or comparison shopping engines (which are often nothing more than AdWords arbitrage companies if you think about it), or eBay, famous for sending users to totally useless results?

Ultimately, the beauty of PPC marketing is – or rather was – the fact that it was a level playing field. If you could pay more per click, or had a better click-through-rate, or had a better combination of the two, you would show up ahead of your competitors. That could be changing. In Google’s new Quality Score world (which is incidentally being adopted by Yahoo as well), an advertiser that Google deems as ‘low quality’ has no chance of showing up at the top of the listings, irregardless of the amount he is willing to pay or even the frequency in which users click on his ads!

And here’s the most ironic part: a model based on CPC and CTR is – guess what – an efficient model. It assumes that bidders are rational actors and that over time the bid someone is willing to pay will be directly correlated to the ROI that bidder receives from his ad. You would think that an advertisement with “low quality score” would result in low CTR and low conversions, and thus low ROI. In other words, if I am marketing my “blue widgets” on the keyword “red widgets,” few people should click on my ad and even fewer should buy blue widgets from me. This means that over time, I will simply run out of money and stop bidding on the keyword.

In a rational market with rational actors, this is exactly what happens. Thus, if the #1 bidder for a keyword happens to be an AdSense Arbitrage company, this simply means that this company is better able to monetize a keyword than any other company (or is losing a lot of money). Similarly, when you see eBay advertising on “Buy Nuclear Weapons”, you have to conclude that even though that is an irrelevant ad, enough people must be clicking and buying as a result of the ad to make it worth eBay’s while to buy gazillions of keywords.

Quality score doesn’t enable a truly efficient market, and it puts too much power in Google’s hands. And with Eric Schmidt arguing that click fraud isn’t a problem because the market is efficient and rational, to me this seems like Google having its cake and eating it too.

Tags: click fraud, mfa, adwords arbitrage, eric schmidt, quality score

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Google’s Mixed Messages: Eric Schmidt Says We Are Rational, But the AdWords Team Objects; or Eric Schmidt is a Liar and Google is Playing God!

In my constant effort to get the widest distribution possible for my blog, I figured a controversial headline might just help. Hope it got you interested.

Seriously though, the headline does have some relevance. Let me explain. First, Eric Schmidt gave a speech recently in which he poo-pooed the significance of click fraud. As reported in Search Engine Journal, Mr. Schmidt gave a speech at Stanford in which he noted: “Eventually, the price that the advertiser is willing to pay for the conversion will decline, because the advertiser will realize that these are bad clicks, in other words, the value of the ad declines, so over some amount of time, the system is in-fact, self-correcting. In fact, there is a perfect economic solution which is to let it happen.”

It sounds so mathematical and smart, doesn’t it. Eric (I’m on a first-name basis with him, since I once talked to him at a Google lunch for five minutes) is arguing that search is an efficient market – over time, rational actors will pay exactly what they can afford for a click – no more and no less (assuming there are other bidders below them). A similar analogy would be the stock market. A stock is priced at what the market thinks the stock is worth. Click fraud is to search what an SEC investigation is to a stock – marketers or investors simply bundle the negative impact into the value they are willing to pay.

Sadly for Eric’s theory, in this instance there is quite a chasm between theory and reality. You see, search engine marketing is currently practiced by a combination of rational and irrational actors. The rational actors are the folks that track their keywords, analyze ROI, and adjust bids accordingly. For these folks, the amount they are willing to pay for a click truly is an efficient value.

There are hundreds of thousands of irrational actors who don’t really know whether a click is converting or not. For these folks, many of their clicks may be fraudulent, but as long as the overall result seems to be profitability, ignorance is bliss.

And speaking of ignorance, should we assume that Eric is ignorant to this truth, or rather that he is doing a little political grandstanding? I think you know the answer. Incidentally, I wrote about this “inefficient market” several months ago. Here’s the link.

In other news, Google announced its new “Quality Score” algorithm, apparently designed to stop “MFA” or “Made for AdSense” arbitrage sites. As stated in the official release: “Following that change, advertisers who are not providing useful landing pages to our users will have lower Quality Scores that in turn result in higher minimum bid requirements for their keywords. We realize that some minimum bids may be too high to be cost-effective — indeed, these high minimum bids are our way of motivating advertisers to either improve their landing pages or to simply stop using AdWords for those pages.”

This is one of those things that you can definitely look at as glass half-full or half-empty. From the half-full perspective, you could argue that it makes sense that Google is trying to stop AdSense arbitrage. After all, sending someone to Google to a page full of Google ads certainly does not satisfy user expectations. And since Google’s entire brand is based on relevancy, poor ad relevancy can lead to some serious problems for Google.

The half-empty perspective argues that this is an example of Google playing God. In essence, Google can decide to adjust the algorithm to exclude whoever they want from their advertising network. Right now, they are using that power to exclude AdWords arbitrageurs. And for most SEMers, that’s not a big deal, because it doesn’t impact us.

But what if Google decided that lead generation sites weren’t providing good user experiences, or comparison shopping engines (which are often nothing more than AdWords arbitrage companies if you think about it), or eBay, famous for sending users to totally useless results?

Ultimately, the beauty of PPC marketing is – or rather was – the fact that it was a level playing field. If you could pay more per click, or had a better click-through-rate, or had a better combination of the two, you would show up ahead of your competitors. That could be changing. In Google’s new Quality Score world (which is incidentally being adopted by Yahoo as well), an advertiser that Google deems as ‘low quality’ has no chance of showing up at the top of the listings, irregardless of the amount he is willing to pay or even the frequency in which users click on his ads!

And here’s the most ironic part: a model based on CPC and CTR is – guess what – an efficient model. It assumes that bidders are rational actors and that over time the bid someone is willing to pay will be directly correlated to the ROI that bidder receives from his ad. You would think that an advertisement with “low quality score” would result in low CTR and low conversions, and thus low ROI. In other words, if I am marketing my “blue widgets” on the keyword “red widgets,” few people should click on my ad and even fewer should buy blue widgets from me. This means that over time, I will simply run out of money and stop bidding on the keyword.

In a rational market with rational actors, this is exactly what happens. Thus, if the #1 bidder for a keyword happens to be an AdSense Arbitrage company, this simply means that this company is better able to monetize a keyword than any other company (or is losing a lot of money). Similarly, when you see eBay advertising on “Buy Nuclear Weapons”, you have to conclude that even though that is an irrelevant ad, enough people must be clicking and buying as a result of the ad to make it worth eBay’s while to buy gazillions of keywords.

Quality score doesn’t enable a truly efficient market, and it puts too much power in Google’s hands. And with Eric Schmidt arguing that click fraud isn’t a problem because the market is efficient and rational, to me this seems like Google having its cake and eating it too.

Tags: click fraud, mfa, adwords arbitrage, eric schmidt, quality score

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How Many Perfect 10s Are There For Page Rank?

My Google Toolbar tells me that most sites I visit are 4s or 5s in the world of Page Rank. I noticed, however, that when you land on the Google home page, Google gets a 10 out of 10. I guess that’s not surprising – I’m sure Saddam Hussein would have won “Ms. Iraq” if he had wanted to in his day.

But this got me to thinking: what other sites get a perfect 10? I thought I’d start with Google’s competitors. Sure enough, none of the big search engines qualified for the honor. Here are the scores:

Yahoo: 9/10
MSN: 9/10
AOL: 9/10
Ask: 8/10

So my next idea was to look at the leading search engine optimization companies. Surely one of these companies has found the secret sauce to achieve a 10 out 10 ranking, right? Upon further review, however:

iCrossing: 7/10
iProspect: 6/10
SEO-inc: 8/10
BruceClay: 6/10

OK, how about the pure content Web sites – the places filled with oodles of helpful articles or user-generated content?

FindLaw: 8/10
Craigslist: no ranking reported (I think this is because Craigslist recently changed their URL structure.
MySpace: 0/10 (this could be a toolbar issue)

For good measure, I also checked out some Web sites that often claim to have perfect 10s, but in a different sense of the meaning. The results:

Playboy: 0/10
Playgirl: 3/10
Penthouse: 0/10
Perfect 10: 4/10

In the end, I had to actually type in “page rank top 10” into Google, for which I did find a Web site with a list of sites which had received 10s. Among the winners were six for-profit sites:

• Adobe
• Macromedia
• Apple
• The New York Times
• Real Media
• The Stat Counter

Why these sites are the chosen few, I have no idea. I suppose it is a combination of good content, good SEO, and maybe a little luck.

I will say that the last site – Stat Counter – did surprise me. This is a company that apparently gives you free tracking software for your Web site (up to a certain number of visitors, after which they charge you). The site layout is clean and the content seems reasonably good.

Here’s the nut though: on the left frame navigation, it’s pretty clear that Stat Counter is selling links a la Text Link Ads. In other words, folks aren’t paying for a link because they expect a lot of traffic from Stat Counter, but rather because they know the value of a PR 10 link to their own ability to show up highly in the search results. This is pretty surprising, simply because you would think that Google wouldn’t want one of the few PR 10 sites selling off links. And not just any links, mind you, but links to SEO firms (INeedHits, ProBoostGold, WorldSubmit, Axandra, etc).

So what does it take to be a 10? Good content? Software sales? Dumb luck? Aside from simply being Google (that one I get), I’m a little miffed. I do know this: if anyone at Stat Counter wants to link up Blogation on the home page, I’ve got some leftover champagne from my wedding with your name on it . . .

 

How Many Perfect 10s Are There For Page Rank?

My Google Toolbar tells me that most sites I visit are 4s or 5s in the world of Page Rank. I noticed, however, that when you land on the Google home page, Google gets a 10 out of 10. I guess that’s not surprising – I’m sure Saddam Hussein would have won “Ms. Iraq” if he had wanted to in his day.

But this got me to thinking: what other sites get a perfect 10? I thought I’d start with Google’s competitors. Sure enough, none of the big search engines qualified for the honor. Here are the scores:

Yahoo: 9/10
MSN: 9/10
AOL: 9/10
Ask: 8/10

So my next idea was to look at the leading search engine optimization companies. Surely one of these companies has found the secret sauce to achieve a 10 out 10 ranking, right? Upon further review, however:

iCrossing: 7/10
iProspect: 6/10
SEO-inc: 8/10
BruceClay: 6/10

OK, how about the pure content Web sites – the places filled with oodles of helpful articles or user-generated content?

FindLaw: 8/10
Craigslist: no ranking reported (I think this is because Craigslist recently changed their URL structure.
MySpace: 0/10 (this could be a toolbar issue)

For good measure, I also checked out some Web sites that often claim to have perfect 10s, but in a different sense of the meaning. The results:

Playboy: 0/10
Playgirl: 3/10
Penthouse: 0/10
Perfect 10: 4/10

In the end, I had to actually type in “page rank top 10” into Google, for which I did find a Web site with a list of sites which had received 10s. Among the winners were six for-profit sites:

• Adobe
• Macromedia
• Apple
• The New York Times
• Real Media
• The Stat Counter

Why these sites are the chosen few, I have no idea. I suppose it is a combination of good content, good SEO, and maybe a little luck.

I will say that the last site – Stat Counter – did surprise me. This is a company that apparently gives you free tracking software for your Web site (up to a certain number of visitors, after which they charge you). The site layout is clean and the content seems reasonably good.

Here’s the nut though: on the left frame navigation, it’s pretty clear that Stat Counter is selling links a la Text Link Ads. In other words, folks aren’t paying for a link because they expect a lot of traffic from Stat Counter, but rather because they know the value of a PR 10 link to their own ability to show up highly in the search results. This is pretty surprising, simply because you would think that Google wouldn’t want one of the few PR 10 sites selling off links. And not just any links, mind you, but links to SEO firms (INeedHits, ProBoostGold, WorldSubmit, Axandra, etc).

So what does it take to be a 10? Good content? Software sales? Dumb luck? Aside from simply being Google (that one I get), I’m a little miffed. I do know this: if anyone at Stat Counter wants to link up Blogation on the home page, I’ve got some leftover champagne from my wedding with your name on it . . .