Online Ad Pros Discuss Google

My article last Friday, Google vs. Microsoft, was picked up by Seeking Alpha and started a discussion between two members of that site who are online advertising professionals. I’ll respond to their comments here.

Jeff Molander of Molander & Associates wrote that he thinks Google is attempting to clean up its AdSense network, most notably with a “Pay-per-action scheme and kicking out the made-for- AdSense crowd.”

This would be a welcome development for all web searchers. Pay-per-click is easily abused because Google gets paid for a click whether it benefits the advertiser or not. Pay-per-click was seen as a major advantage over pay-per-impression because it showed the advertiser that they didn’t pay unless they got results.

However, advertisers like Ron Davis (whom I quoted last Tuesday) and me noticed long ago that even clicks from Google ads don’t necessarily work, and get expensive quickly. A click, it turns out, isn’t much of a result. There are no figures available for how many clicks are from genuinely interested parties and how many are from people clicking ads on their own site to get money, competitors clicking ads to use up a rival’s budget, and other forms of click fraud.

So, a pay-per-result or pay-per-action model would go a long way toward making advertisers happy again. If you’re selling a $50 item, for instance, and your profit margin is $25, you have a lot of money available for bidding on the result of actually selling it. As it stands now, you have to watch carefully the percentage of clickers that buy it, figure the highest amount you can pay to afford all the deadweight clickers that come with every buying clicker, and then budget accordingly. The result is an ad plan that gets so slimmed down from the crummy performance of Google’s text ads these days that it’s just not worth it for many people.

I hope Google’s clean-up efforts continue, and that the rest of the industry follows along. In the meantime, though, the deterioration of Google’s model spells trouble for the only way the company makes money, and is what may give us a cheaper stock price.

Derrick Shields of Adscape wrote that he doesn’t “think it was GOOG’s intention to ‘trick’ users into clicking on contextual, text-based advertisements.”

Maybe not, but it’s become clear over the years that a lot of the early success of the text ad came from the way it blends into a page and looks like part of the page itself. People clicked away at anything on the page, not being careful to see that it was an “Ad by Google” that they were clicking. Now, that low hanging fruit is gone. People know where the text ads are placed in search results, know where to find the “real” results versus the paid, know how to spot a text ad block from a mile away on a third-party website, and so on.

Derrick wrote, “What you are saying is akin to saying that television commercials are no good because consumers are aware that the brands/advertisers paid to have their commercial shown.”

This is an interesting example. It doesn’t matter whether we all know that a commercial is a paid spot or not, what matters is whether we want to watch it. Evidently, the answer is a resounding “no.” Whenever possible, people strip commercials from their favorite programs. All of us have seen a commercial that we liked at one time or another, but we still resent the interruption to our activity that advertising imposes.

It doesn’t take a professional study to realize this. Let’s say every TV program was preceded by a screen that asked, “Would you like ads interspersed throughout the programming or would you like the program to be ad-free?” Do you think the larger percentage of people would select the no-ad version or the ad version? The no-ad, of course, even though there will probably be some relevant, interesting ads in the mix that they’ll miss.

It’s the same online. If every website was preceded by those same two choices, almost everybody would elect to see the no-ad page, even if the stripped ads were text-based and relevant.

By the way, this is exactly why you’re seeing more in-program advertising. Rather than running another 30-second Coke spot, Coca-Cola will pay to have the character in a sit-com drink a can of Coke and maybe even say, “I love this stuff!”

People don’t resent advertising, per se, they just hate when it gets in the way of what they’re doing. Ads hog page space. They creep into all the little areas that our eyes want to be clean. They create a sense of stress in the viewer because an abundance of links on a page makes it harder to focus on what to do next, what to read, where to go.

Google is an advertising business and has offered other ways to incorporate ads into smaller and smaller places on a page as the click rates for the bigger ad blocks dropped. Site owners can now put link bars into thin areas and they show just the category of ads that will appear.

There’s nothing wrong with Google trying to get more people to click and perhaps even hoping that those clicks turn into business for advertisers. The problem is that they don’t. Word is getting out. Something new is needed and soon, or Google’s only source of revenue is in trouble.

Nobody in this discussion is naive. We know that advertising won’t disappear, shouldn’t disappear, but in the same way Google changed the face of online advertising with its text model, something is going to displace the text model in the near future. It’s not clear yet whether Google will be the company that develops the next method of online advertising. So far, it hasn’t shown much creativity. Other firms, including Microsoft, appear to be ahead.

Derrick wrote, “I think it’s wrong to assume that the text-ads are irrelevant or not useful to the user. Let’s say you did a search for ‘cheap online brokerages.’ Of course the top 10 organic results would be (hopefully) relevant but I think it would be fair to assume that the paid advertisements would be very relevant as well.”

It would not be fair to assume that at all, and this is precisely my point. I searched Google for “cheap online brokerages” and found the organic results to be useful: a SmartMoney article on the best brokers, a CNN broker guide, and links to some brokers themselves.

The ads, however, disappointed. The horizontal ad on top was for Firstrade, relevant, clear, and fine. The vertical ads to the right of the results, on the other hand, were representative of the problem. The top one was just a collection of links assembled by Active Audience, a domain parking outfit. The next one was another collection of links by a similar outfit. Clicking either was a waste of the user’s time because the result was not a broker at all, but a list of links inferior to the list that was already served up by the search engine.

That’s why people stick with the organic results.

Derrick points out in a later comment that Google clearly differentiates its ads from its organic results. I agree. Everybody knows where the ads are, almost everybody avoids them, and there’s good reason for them to do so.

The point of my article was that GOOG the stock looks vulnerable to revenue trouble from the declining performance of Google the company’s ads. I still think that’s true.

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