Web advertising is booming. The latest figures indicate a quarterly revenue approaching $5 billion and all trends point to a robust growth.
Internet Advertising Trend (Uses IAB.net data)
Advertising might be larger than B2C ecommerce already. Here is a rough way of measuring that: a comparison of the revenue of Google and Yahoo! on the one hand and that of Amazon and eBay on the other (figures in thousands). Except for Q4 of last year where holiday season gives commerce an edge, Google and Yahoo win out.
It should come as no surprise to this audience that Google occupies a central place in the world of online advertising. Google is the new advertising marketplace.
Yet, there is very little objective analysis available to marketers, analysts and observers on Google's advertising system. Google's materials on its advertising system are, largely, promotional in nature. The purpose of this article, then, is to provide a report card of Google's advertising system -- giving credit where it is due while pointing out areas where Google does not do that well.
Let's take a look at Google's report card, focusing mostly on AdSense.
Google has built an advertising marketplace on the principle of opacity. Everybody involved is provided with a modicum of information rather than the complete picture. In doing so, the company creates an atmosphere that asks all involved to simply trust it. While Google might argue that this is needed to minimize opportunism by all involved, this is a dangerous way to run a marketplace.
Here is a top 10 list of what Google does not reveal.
- Google does not tell advertisers where exactly their ad will get placed.
- Google does not tell some publishers why exactly they shut them down.
- Google does not share any network-level performance figures.
- Google does not provide any information about how overall click rates have changed over time.
- Google does not share any information on who clicked on the ads.
- Google does not reveal what leads to higher placement among paid ads.
- Google does not reveal how exactly it evaluates the quality of a text ad, i.e., the Quality Score. According to Google, the formula ”… varies depending on whether it's calculating minimum bids or assigning ad position.”
- Google does not tell advertisers what countries the users come from.
- Google never tells publishers why they got paid a certain amount.
- Google does not publish any research on ad effectiveness.
Context of AdSense ads
Google states that sites that display its ads should not display ”violent content”. I have provided two examples of gun blogs that clearly violate this.
Google claims that its sites should not include any content on the sale or promotion of liquor. Here is an example of a site that is in clear violation of this
Google also claims that its sites should not include any content related to casino or gambling. Here’s one exception
Despite what Google might tell you, its targeting efficiency is not all that great. Since we have no reliable way to test this at a network level, here are a few examples. I found an ad for a JCPenney ”Back to School Sale” on a blog about Taiwan. JCPenney has stores in the U.S. and Puerto Rico only.
Here is another example of poor targeting efficiency. A site where a doctor blogs is being targeted by blog providers rather than medical providers.
What determines this is the equilibrium between content and advertising. If the supply of ad slots (i.e., content spaces) are sufficiently high, then targeting efficiency will be high. If the keyword of choice does not map well with the available content, it will be shunted off to a site that is a poor fit.
The bottom line is that Google's AdSense targeting efficiency is still not very high.
Suitability for large advertisers
At this point, Google has built the quintessential network for small and medium enterprises with small budgets. However, the current bidding system is not suitable for high spenders. Imagine a large company that wants to spend $20 million a quarter online. Marketing managers at this company do not want to stand in line every day bidding for keywords.
Secondly, Google’s inability to direct where its ads are placed is problematic for large advertisers. I provide below a screenshot of ads for Nextel and T-Mobile ringtones that appears on a page with racy content. Large advertisers, generally speaking, tend to not want to be associated with such content and ensuring this is going to be important in the future.
Finally, large advertisers tend to not want to share the stage with small players. At this point, Google does not guarantee this. As a result, big players might end up sharing the stage from a small company from Podunk, USA.
The click is a high-stake moment in the online advertising world right now. It is the moment when money gets transferred from the advertiser to the publisher. While Google provides both advertisers and publishers with some reports, it does not release network-level information.
We need new metrics to evaluate AdSense. At a minimum, it would be useful to have network-level clickthrough rate patterns and trends, network-level targeting efficiency data and network-level ad effectiveness data.
I believe Google has been able to create a business model and a marketplace by providing very little to the participants. We do not know a lot about the marketplace and at a minimum, the advertisers and publishers should demand that Google release more research on a regular basis. After this analysis, I believe that Google is vulnerable and there is probably a new business waiting to start up that will do much better.
Overall grade: B-
Sandeep Krishnamurthy is associate professor of e-commerce and marketing at University of Washington, Bothell. He blogs on search engine marketing, internet advertising and related topics. Read full bio.