What GMail Taught Me About Competition, and Why it Makes Me Worry About AdWords

I have a clear recollection of the day I heard about GMail. I was sitting in my office at FindLaw in 2004 when someone sent me an email announcing the GMail launch and the limited number of beta test invites available to the general public. For the next week, I set out on a mission to contact every friend at Google I had until I had secured an invitation. Once accepted, I tried to secure “david@gmail.com” or even “davidr@gmail.com” but these were already gone. Still, I did OK and I felt cool for having an early invite.

At the time, I didn’t think that GMail would ever replace my Yahoo Mail account as my de facto email address. In fact, initially the whole concept of “dynamic tagging” of messages confused and annoyed me (I like to call it “quantum tagging” because the same message can exist in two or more folders at the same time). Over time, however, GMail grew on me. I began to like the interface better, I liked the free POP forwarding, and the huge and free storage size was a big win over Yahoo’s then measly 6MB of storage.

During the same time that GMail was launching, Yahoo was raising prices on Yahoo Mail. If I remember correctly, to get 25MB, you had to pay $20/yr, and for more storage, it was something like $50 a year. And the free version didn’t allow POP forwarding, and hadn’t really been updated for years (and the SPAM filter was pretty bad to boot).

As GMail’s popularity began to grow, the folks at Yahoo Mail slowly realized that their “pay for less” servic” was no match for Google’s “get it all for free” competitor. In a matter of months, Yahoo significantly increased their storage size, improve their SPAM filtering, and set in motion a new look and feel for Yahoo Mail that was basically a direct copy of Microsoft’s Outlook program.

For me at any rate, Yahoo’s response to GMail came too late. By the time Yahoo had matched most of Google’s features, I had migrated most of my email traffic over to GMail. Indeed, although GMail has only been around for four years, the service now boasts 51 million subscribers, compared to Yahoo Mail’s 250 million. So yes, Yahoo is still in the lead, but I suspect that many of those 50 million users on GMail are former Yahoo users like me. And when you consider the fact that Yahoo had to reduce or eliminate their pricing for most users as a response to GMail, it’s clear that GMail has had a majorly negative impact on Yahoo Mail.

The story of an upstart entering a market and forcing its established competitors to improve services and reduce prices is nothing new. Indeed, books like The Innovators’ Dilemma can spout case study after case study on the concept of “disruptive technology“. From a legal perspective, this is one of the primary arguments in favor of antitrust legislation. Let’s face it, companies with huge market share (whether to the point of an actual monopoly or not), don’t have much incentive to innovate, be customer-friendly, or be competitive on pricing.

All of this leads me back to AdWords. AdWords is probably not a monopoly from a legal perspective. Unlike something like oil, water, or an operating system, businesses and consumers aren’t forced to use search engine marketing to survive. And there are strong competitors already, such as Yahoo, MSN, and Ask. But even with these competitors, it’s worth considering whether Google really had an incentive to make AdWords better for it’s clients.

But I would argue that Google is not doing as much as it could for its clients because it doesn’t have to. A few examples demonstrate this point.

1. The broadening broad match algorithm. Over the last few years, the “long tail” has become harder and harder to find on Google, mostly due to Google’s expansion of their broad match algorithm. This reduces the opportunity for advertisers to find bargain keywords with few bidders, it reduces overall ad relevancy for searchers, and it of course increases the cost per click for these keywords. The result is bad for advertisers and bad for consumers but good for Google. If Google had major competition like GMail versus Yahoo Mail, I doubt the broad match algorithm would have expanded so quickly and massively.

2. Hiding the negative keyword feature. Google does a lot of UI testing. A recent change to the UI that made it more difficult to find the negative keyword feature seems like a change that could only result in more revenue to Google (as a result of less negative keywords and thus more advertisers showing up on more queries). Again, a benefit to Google, but not to consumers or advertisers.

3. Arbitrary price minimums. Advertising on Google is no longer truly a free auction. Google sets the minimum bid, determines who can bid in what auction (see point #1 above), and in many cases bans advertisers they don’t want in the auction entirely (see point #4 below). Many advertisers complain of having to pay huge minimum CPCs – for their own trademarked keywords! But Google has the traffic they want, so they pay it rather than let their competitors buy those clicks instead. There’s no recourse against price minimums. If Google had more competition, you wonder whether the pendulum would shift and advertisers would move their budgets (perhaps even out of protest) to competitive sites.

4. Selective Persecution of Quality Score. Jay Weintraub recently wrote a compelling and heart-felt post about a friend of his who suddenly saw his entire AdWords campaign shut down – not because of any violation he had committed, but because he was associated with another advertiser who had committed some wrong-doing in Google’s eyes. As Jay recounts in his post:

The arrogance, lack of information, and unwillingness to help by Google employees who find themselves in the position of power and more frustratingly the almost unquestioning trust in their system’s correctness in dispensing sentencing. Without a doubt, you are presumed Guilty, but you will not be allowed to prove your innocence.

Google can shut people down at will because they know that there is nowhere else for these people to advertise. It’s somewhat ironic, but Google can “act badly” because they are “so good” at delivering great traffic. Still, in five minutes I am can find you ten examples of ads showing up on Google that are clear violations of Quality Score. Type in “nursing degree” and check out how many times a single advertiser is showing up on the same query (not just double serving, but quadruple serving). Or take a look at the number of advertisers showing up on the keyword “free ipod.”

Why do some people get banned for linking to bad neighborhoods while others openly flaunt the rules for months on end with no consequences. As Jay notes, when you advertise on Google, you play by Google’s rules, and not all the rules are explained to you in the first place!

5. AdSense improvement. A few years ago AdSense was horrible. Most savvy advertisers avoided it like the bubonic plague. At some point last year, however, it suddenly became much, much better. Indeed (as I will be discussing in greater detail in the next print edition of Search Marketing Standard) some people now believe that the Content network in many cases is better than AdWords itself!

Why did AdSense improve? Was it altruism on the part of Google’s product managers? Of course not. It improved because several smart competitors started to take away market share from Google through their innovation. In particular, competitors like Quigo AdSonar, IndustryBrains, and Kanoodle provided better targeting, more transparency, and an overall better value proposition for both advertisers and publishers.

As big publishers (ESPN.com, BankRate.com, SFGate, etc) started to leave AdSense, AdSense was forced to change for the better. Today AdSense is finally useful for both publishers and advertisers.

Conclusion: Waiting for a GMail alternative to AdWords

Companies with dominant market share don’t change unless they have to. Why rock the boat when the money is pouring in? Yahoo Mail was a product that Yahoo executives clearly thought was a mature market-leader – one which could only grow revenue by charging customers more and more for usage. AdWords is now in the same situation. Having captured something like 60% of the search market, I’m sure that Google executives spend most of their time thinking about how to increase monetization per search, rather than increasing performance for advertisers.

That mindset – as with the mindset of Yahoo Mail managers – will only change once a GMail-like competitor comes along to challenge Google’s dominance. Just as Quigo and Industry Brains forced AdSense to revamp their platform, AdWords needs their “Avis” (“we try harder“) to stimulate improvement. Until then, we search engine marketers have no choice but to accept our daily bread from Google and wait for the day when we do have a choice.

 

Dear Jerry Yang and Steve Ballmer . . .

Dear Jerry and Steve,

I’m writing on behalf of the tens of thousands of people who make their living as search engine marketing professionals. The potential of a Microsoft acquisition of Yahoo would no doubt have a major impact on my life and so many others’ and I want to give you a few ideas on how you should move forward once (if?) the acquisition is finalized.

First off, let me just say that the combination of Microsoft and Yahoo will no doubt motivate search marketers to spend more time optimizing your properties than they currently do. This is a classic case of the sum of the whole being greater than the individual parts (known in German as “gestalt”). It’s currently not worth spending 5% of my time to optimize Microsoft and 5% on Yahoo, but if I can spend 10% of my time to optimize across both networks at once, that makes sense. So expect me and other SEMers to increase our keywords, ad text, and overall spend once the acquisition is approved.

That’s the good news. But now let me tell the potentially bad news. I’m sure that there are many engineers and product managers at both of your companies who are very proud of the tools and user interfaces that currently exist within Microsoft AdCenter and Yahoo Search Marketing. Many of these people will no doubt advocate strongly for their tools to remain active after the acquisition, at the expense of the other company’s tools. In other words, Yahoo engineers will argue for YSM tools, and MSN engineers will argue for AdCenter tools.

Lets be really clear and a little bit crass about both YSM and AdCenter: both suck. I mean this in a relative sense – relative to Google AdWords. AdWords is at least 10 times easier, more powerful, and faster than either YSM or AdCenter. I appreciate the effort both of your companies have undertaken to build your own platforms, but at this point it’s time to just admit that your tools aren’t up to snuff. Any attempt to combine the best of YSM and AdCenter is a mistake. You should either ask Google if you can license their technology, or just outright copy it ASAP.

Here’s a historical analogy that might help you understand what I’m saying. Prior to World War II, the Polish cavalry was renown for their skill and bravery. In September 1939, the German army invaded – with tanks and airplanes. Despite the skill of the Polish cavalry, they were no match for the Germans and were quickly destroyed. You guys are like two commanders of cavalry – even if you choose your absolute best riders (tools) on the best horses (UI), you have no chance against even the most inept tank unit.

So is AdWords the best UI ever? No, of course not. But it’s far and away the best SEM interface out there today – by leaps and bounds. I’m sure it will hurt to admit defeat in this respect, but I guarantee you that the financial rewards will be well worth it. I can’t tell you how many SEMers I talk to who wish they could spend more money on your platforms, but either don’t understand how to use your systems, or have gotten so frustrated that they’ve just given up.

If you are a glass half-full person, this is actually really good news. Think about it: this acquisition is an opportunity to start anew. You can bulldozer through all the corporate politics and do something that will be a financial windfall. This acquisition will look like the greatest thing since, well, AdWords! Combine the added incentive of managing both Yahoo and Microsoft in one interface with a new interface that makes you competitive against AdWords and you’ve created a real powerhouse.

For the record, I’ve sat through a lot of focus groups with your companies over the last eight years. And every time anyone asks me for my opinion about a user interface or tool, I always look straight into the double mirror and say (very slowly): “C-o-p-y A-d-W-o-r-d-s.” I’m sure I’ve annoyed a lot of your usability people with this statement, but the truth often hurts. In any event, best of luck with the acquisition – feel free to drop me a line if I wasn’t clear on anything in this letter!

F4E,

David

 

Grading Google’s Goods

Man does Google have a lot of products. From mapping the surface of Mars to selling radio ads, Google is everywhere. And with the stock price currently hovering around $515, I guess all of these products that they keep rolling out must driving a lot of revenue, right? Well, some do, but others can only be classified as fun engineering projects that are a long ways away from every generating a cent for the Big G.

I figured it would be fun to grade Google’s various products and services on two factors – first, the current revenue they bring in, and second, the potential for revenue in the future. The scores from both of these factors will then be combined to give each product one overall grade.

For the record, I’m not grading on a curve, and due to the shear number of products Google offers, I’m not even going to justify any of my grades! That being said, if you really want to know the explanation for a grade, wait until after class and then write a comment to this blog.

So, without further ado, Blogation’s Google Grades (Grades are ordered as followed – current, future, overall):

Valedictorians:
AdSense: A, B+, A-
AdWords: A+, A+, A+
Blogger: A-, A-, A-
Domain Park: A, B+, A-
Gmail: A-, A, A
Toolbar: A, A, A

Dean’s List:
Analytics: B+, B+, B+
Base: C, B+, B
Checkout: B, A-, B+
Enterprise Search: B, B, B
Finance: B-, B, B
iGoogle: C, B-, B-
Maps: B, A-, B+
PageCreator: C-, A, B+
Talk: B, B+, B+

Extra Study Hall Time Needed
Adwords Audio: C, C+, C+
Calendar: C, C+, C+
Desktop: C-, B-, C+
Docs & Spreadsheets: C, B-, C+
Earth: B-, C+, C+
Groups: C, C, C
PPA: D, C, C-
Picassa: C-, C+, C
News: D-, C, C-

Detention
AdWords Print: D-, D-, D-
Orkut: D, D-, D-
Web Accelerator: D, D-, D

Overall GPA: 2.65 (C+)

C+ sounds pretty harsh (OK, fine, I’ll give them a C++) but remember that this is the overall score – Google’s great products are brought down by the struggling class clowns.

 

Why Google is No Ordinary Tuk-Tuk

I’m currently on a short holiday in Phuket, Thailand. Walk around Patong Beach in Phuket for a half-hour and you’ll be mobbed by vendor after vendor trying to sell you one of three things: tailored suits, Thai massages, and tuk-tuk (little taxi) rides. The local t-shirt sellers have caught on to how annoying this can be, as you can now buy a t-shirt that says “No, I don’t want a f*cking suit, massage, or tuk-tuk.”

Now I don’t really need a suit, but I do admit that the concept of getting a custom-tailored suit for under $100 is pretty attractive to me. Problem is, I have no way of telling all the suit-hawkers apart. They all start with the same come-on (“Hello Boss. Where are you from? How long have you been in Phuket? Please come and have a look at my store”), they all have nice looking suits in the window, and they all charge about the same amount. I could probably spend a week researching the subject, interviewing tailors, asking locals for recommendations, and I doubt I would be any closer to really differentiating any of these tailors.

In short, it’s a commodity market, where price is really the only thing that separates the different choices. I suspect, however, that at one point in time, Phuket’s tailor (and massage, and tuk-tuk) markets were not so commoditized and saturated. Maybe 20 years ago, some tailor from India decided to give Phuket a try and had amazing success. Every week he had a new crop of Australian and Singaporean tourists who loved the idea of coming back with a nice wardrobe.

And maybe in his euphoria about his business success, he told a few fellow tailors in India and Hong Kong. A few of them came over and were successful too. Then a few more. And so on. Suddenly, there’s a tailor on every block. I wonder if that original tailor is still in business anymore.

Back in 2002 – the early days of paid search – a similar thing happened. Overture started really doing well, so a bunch of would-be Overtures entered the market – Google AdWords, Sprinks, Ah-Ha, BlowSearch, 7Search, Kanoodle, FindWhat, ePilot, Mamma.com, Infospace, GenieKnows, and many more tried to make some bank on the PPC gold rush.

For a while, a lot of these companies did quite well. As this was a pretty new concept, few advertisers were savvy enough to differentiate the quality traffic from the crappy traffic. It seemed pretty cool to get 10,000 clicks from Kanoodle for a few cents a click – surely that was a good marketing buy.

But unlike the tailors and tut-tut drivers of Phuket, the paid search market is not a black box. Over time, it became clear to advertisers that some search engines had great traffic (Google, Overture) and most had horrible traffic. Slowly but surely, the Overture-wannabes packed up and went home.

Google, of course, has remained. Why – because it has the quality traffic (the GlenGarry leads!). Having quality traffic is like having a tailor store or tuk-tuk stand in front of the biggest, fanciest hotel, with no competition for miles. You just sit back and watch the money come in.

Interestingly, it took Google a while to realize that they should actually promote the quality of their traffic. Google use to provide advertisers with little more information than the number of clicks and impressions they’d received. From that information, it’s hard to tell Google apart from ePilot.

In the last few years, however, Google has lead the charge toward PPC transparency. They make it easy to bundle Google Analytics with your paid search campaign, they offer conversion tracking, negative keywords, site exclusion, and most recently “search query” and “placement” results (so you can block bad AdSense publishers and bad broad-match keyword extensions).

This is not Google’s attempt at advertiser altruism – it’s a smart, calculated business move. If you have the best traffic, you should flaunt it. And that’s what Google is doing.

Somewhere on Phuket Island, there are some tuk-tuk drivers who are truly amazing. They could probably give me an Insider’s tour of Phuket Island that I would never forget. If I could find them, I’d pay double or triple the going rate. Unlike measuring online advertising quality, it’s next to impossible to add transparency to the tuk-tuk market.

 

Google’s Sneaky Addition to Quality Score

Most Google advertisers have now become accustomed to messages at the top of their AdWords interface notifying them that one or more of their keywords is “inactive for search.” Sometimes, this is to be expected, such as when you are bidding under $.10 for almost any keyword. In other cases, though, it’s clearly the result of the dreaded and oft-baffling “quality score.”

Google has tweaked the quality score algorithm continually over the last year or so. This is not to be expected, since – as Google should know by now – SEO or SEM blackhats will work ’round the clock to come up with end-arounds to any algorithm.

I noticed a very slight change to the AdWords UI about two weeks ago that is clearly yet another attempt to thwart quality score optimizers. If you click on the “tools” tab at the top of the AdWords UI, then select “Advanced Search” and finally “Find and Edit Max CPCs” you’ll get to a nifty tool that allows you to make mass bid changes across your entire account.

In the olden days (read: March), you could use this tool and filter the results based on whether a keyword was active or inactive. In other words, you could find all your inactive keywords and – if you wanted – in one stroke increase all inactive bids to the minimum CPC.

As a white-hat SEM, I found this to be useful in identifying keywords that had slipped just below the inactive bid threshold. So I would increase all bids that were only a penny or two away from the minimum CPC.

Now, however, Google has changed the tool. Instead of being able to choose either or both inactive and active keywords, there is just one choice “active and inactive for search.” In addition to the strange grammar (I mean, outside of quantum physics, I didn’t think keywords could reside in two states at once), this basically means that you have no choice but to search all of your keywords at once.

The result? Clever SEMs can no longer use this tool to quickly combat quality score penalties at the lowest cost possible.

For the record, I haven’t dug into the AdWords Editor or the AdWords API to see whether the same rule applies. I would doubt that Google could prevent this in the API, as it is so customizable. That being the case, you can sort of look at this as a “regressive tax” against the small advertisers who don’t have the luxury of building their own API integration.

Alternatively, it may be the case that Google has concluded that most black-hats don’t have the resources (or the patience) to build API integration and so cutting off quality-score end-around tools in the UI will solve 99% of their problems.

Whatever the rationale, this move – albeit quite minor – is yet another salvo in Google’s all out war against black-hat SEMers (um, unless they are typo-squatting on the Google Domain Park . . .).

 

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 . . .