The Idiot Tax, The Free Will Tax, Charity Tax, and Opacity Tax: Four Charges You Pay When Advertising on AdWords

We search engine marketers spend our days rigorously study reams of data and repeatedly testing new ad text and landing pages, all in the hopes of improving the performance of our paid search campaigns. Ultimately, we do all of this work in attempt to predict and control the outcome of our campaigns. If we have a high level of confidence that a certain keyword, ad text, and landing page, placed at a certain time of day in a certain geography is going to convert, we are at an advantage over any competitor who has not done such calculations.

But we all understand that we can’t control everything. Economists call these “externalities” – these are”taxes” on our AdWords spending that we not only have no control over, but that in theory just shouldn’t exist at all. I’ve identified four such forces that cut into our profits and are virtually impossible to counter.

The Idiot Tax
I credit Chris over at SearchQuant for this one. What happens when a dumb advertiser spends way too much on a keyword that they shouldn’t be buying in the first place? Well, in the long term, this advertiser loses a lot of money and either quits AdWords or goes out of business. But while that advertiser is live on Google, he is costing you and me – the ‘smart’ advertisers – money. If we are paying $2 a click for a keyword and a dumb advertiser comes in and bids $2.50, to maintain our position, we need to bid more (just assume CTR and Quality Score are equal).

Google makes it very easy for advertisers to join AdWords, and I don’t blame them for their incredible user interface and instructional tools. At the same time, however, Google also encourages stupidity, through “innovations” like “automated matching” and misleading marketing messages on AdWords. There’s really no way for us to prevent this, we end up having to grin and bear it.

The Free Will Tax
We can’t stop consumers from clicking our ads even though the ad text clearly states that we are not selling what they are looking for. Do you know what the number one search on Google is – it’s the word “Google.” My friends, we are still in the early days of the Internet and consumers are still figuring this whole Web thing out. Even the most targeted keyword with the most targeted ad text (indeed, I’ve tried ad text that say things like “Serious buyers only, please!” and it still doesn’t work) are not enough.

Of course, it doesn’t help that Google continues to expand the definition of “broad match”, so much so that I have repeatedly wondered whether keywords even matter anymore. Combine confused consumers with Google’s broad-broad-broad match and advertisers end up with a lot of useless clicks.

The Charity Tax
Google Grants is “a unique in-kind donation program awarding free AdWords advertising to select charitable organizations. Charities can apply to the program and receive thousands of dollars a month in free advertising on AdWords. Again, I applaud Google for providing free marketing dollars for non-profits to promote their organizations.

Of course, for the rest of us, this only increases the competition for keywords. Google gets a nice tax write-off and simultaneously increases the bids for their paid advertisers (in their defense, the Google Grant rules limit bids to a maximum of $1 CPC, so the impact is somewhat limited). As an aside, Google Grant recipients can only advertise on Google directly, not on Google’s search partners or the content network, so Google ends up basically losing nothing on the proposition!

The Opacity Tax
A few weeks ago Google opened their “conversion optimizer” tool to all AdWords advertisers. The response from the blogosphere was overwhelmingly positive. In particular, bloggers were excited by the notion that Google would be using data not available to mere mortals in their optimization decisions. As David Szetela noted in a Search Engine Watch post:

Google says (and we trust them, right?) that the bid optimization algorithms take into consideration data that only Google can possibly have. Google knows the conversion history for most of the search terms in your campaign — across many advertisers. So they know with better precision than anyone how likely it is that your keyword will trigger a conversion (when associated with a proper ad and landing page, of course).

On the one hand, any tool that uses tons of data to automatically optimize by campaigns to my CPA targets is great, I can’t complain. On the other hand, the fact that Google apparently has valuable data that it isn’t sharing with its advertisers begs the question: why not? In the example that David is using above, we are talking about anonymous and aggregated data across thousands of clients – there are no confidentiality problems about releasing that data to advertisers.

And as I’ve discussed many times on this blog, Google could do a better job of providing granular conversion information in their reporting – for example, the “date stamp” of a conversion – but they have thus far chosen not to (I know that frequent reader CalTrainWreck will agree with me on this point).

Savvy search engine marketers love data and know how to use it – by not providing us this information Google is effectively forcing us to act inefficiently, which ultimately means more money for them.

What Did I Miss?
I had started to write a long dystopian diatribe about a future where giant advertisers are the only AdWords customers (and where they don’t even know they are being taxed), but it sounded too grumpy and perhaps a bit paranoid. I’m sure you have experienced other “hidden taxes” when advertising on Google – drop my a comment on this post and let me know what I’ve missed!

 

Google Conversion Optimizer: Why Being Average is Good Enough

This week Google launched their Conversion Optimizer, an AdWords tool that enables you to set a cost per action (CPA) goal and let Google bid your keywords against that goal.

Of course, whenever Google launches any new product or feature, it’s going to get lots of press, and this launch is no exception. What Google observers have also learned over the years, however, is that whenever Google launches a product, there’s a reasonably good chance that it will be a dud and quietly fade away over time.

So that’s the question I have regarding Conversion Optimizer. Is this a game-changing addition to AdWords, like AdSense or Desktop Editor, or is this going to end up in the “Where are they now” category, like Google Print Ads or CPM Site-Targeting?

Conversion Optimizer Will Eventually be Good, But Not Yet

My guess is that this one is going to be a winner, but it’s going to take many iterations to before it can take a victory lap. Why? For starters, the word on the street about Conversion Optimizer has been mixed at best so far. Andrew Goodman of Traffick tested it out and didn’t see the value add: “we got worse results with the optimizer “on” than we did with it “off” compared with the same days a week before, and immediately preceding days.” Others, like Jeremy at PPCDiscussions are still in the process of testing it out, but fear the worst (or at least, fear mediocrity).

I have no doubt that both Andrew and Jeremy are spot on in their analysis. Google tends to release tools early (perhaps intentionally) and then uses the massive free feedback from the masses to refine their work in subsequent iterations. So my advice is to tread very cautiously at the moment with this tool – wait until V1.2 comes out in three months and then start playing with it.

What’s interesting about this release – and why I think it will end up being a success – is that it is consistent with Google’s (relatively new) overall strategy of providing transparency and quality. As I have noted before, Google has launched a lot of tools and features recently to help advertisers understand and profit from Google traffic. Examples include Google Analytics, IP-filtering for AdSense, Website Optimizer, and day-parting and geo-targeting functionality. Google believes it has the best traffic, so it’s doing everything it can to flaunt that fact. So I think this launch will get the resources necessary to succeed.

Google Hates Middlemen

Combine Google Analytics, Website Optimizer, AdWords Editor, and Conversion Optimizer and you are getting pretty close to a full-service bid management technology application. This also resonates well with another Google mantra: cut out the middleman. Google tends to dislike anyone that comes between the company and it’s advertisers.

We’ve already seen how Google has reacted to advertising middlemen (via quality score penalties against affiliates), shopping middlemen (quality score penalties against comparison shopping engines), web development middlemen (Google Page Creator) analytics middlemen (Google Analytics), and testing middlemen (Google Web Site Optimizer), so it really comes as no surprise that Google would be working on cutting out the bid management middlemen (Conversion Optimizer and AdWords Editor).

And to be clear, each of these middlemen represent billion dollar markets. Google may be offering these services for free today, but I gotta believe that the long-term goal is not exclusively altruistic.

The Google Philosophy: Average Free Products are Better than Awesome Expensive Products

Now I know that my friends in the bid management world (that means you, SearchQuant!) will be writing comments on this post basically stating the following: Conversion Optimizer, or any of the other free tools Google offers pale in comparison to the breadth and sophistication of the for-pay features that are offered by the existing players. Hence, you can use the free services from Google, but you risk diminished performance as a result.

This, undoubtedly, is true, but I don’t think this is a very good long-term argument for these providers. First, Google will get better. We’ve seen this in Google Analytics, where the product has really improved rapidly in less than a few years. I doubt Google will pass the true Web analytics providers anytime soon, but they have and will continue to narrow the gap.

And this brings up point #2: as the gap narrows, the economic benefits of a for-pay service begin to diminish considerably. If a company has to choose between an awesome $100,000 annual investment and a terrible free investment, most companies will probably suck it up and pay the 1oo grand. But when the decision is between an awesome $100K investment and a pretty good free one, the choice becomes a lot tougher.

I often sit in vendor meetings where the vendor shows me all the absolutely incredible things his tool can do. It’s easy to get caught up in the bells and whistles and imagine yourself using all these features every day and making billions of dollars for your company. But after purchasing some of these awesome tools over the last few years, and using perhaps 5% of the functionality, I’ve realized an important point: you don’t need a Ferrari if all you are doing is driving to the supermarket.

And that to me sums up a lot of Google tools. They are station wagons compared to sports cars, but most companies simply don’t need the performance of a Ferrari. Over time, as Google upgrades from the beater station wagon to a decent Hyundai sedan, I think their free tools are going to gain a lot of traction at the expense of the paid options. Once the paid competition is gone, it will be interesting to see how Google uses it’s middleman position to it’s advantage.