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January 19, 2007

Google AdSense : We Make Your Life More Difficult

posted by MR WAVETHEORY at 1/19/2007 05:25:00 AM
It's annoying enough that you can't put AdSense and Yahoo Publisher ads on the same page. It's even more annoying now that they force you to switch the look and feel of the ads. I think all this means that Google is losing share to Yahoo and very afraid of the competition. After all, why would a winning team forbid its customers and partners from doing business with its rivals. I think that Google is doing this because the effectiveness of its ads is going down.

Competitive Ads and Services In order to prevent user confusion, we do not permit Google ads or search boxes to be published on websites that also contain other ads or services formatted to use the same layout and colors as the Google ads or search boxes on that site. Although you may sell ads directly on your site, it is your responsibility to ensure these ads cannot be confused with Google ads.

Don't you love the way they describe it? Prevent confusion from what? Isn't this unfair competition?
Google's just instituted a policy that forbids placing rival ads that can be confused with AdSense anywhere on an AdSense publisher's website. And that's a problem for Yahoo (YHOO)'s competing Yahoo Publisher Network, as well as countless other online-ad networks, which have largely copied Google's default look: blue links and a green website address.

Google already forbids publishers from putting AdSense ads on the same page as ads from Yahoo or other competitors. But some publishers had gotten around this rule by rotating Google and Yahoo ads throughout their websites. The new rules make that impossible, unless publishers also switch their sites' color palettes on the fly. That's a major pain for Web designers who'd prefer to keep the look of their webpages consistent, no matter who's providing the ads.
Why do I think this is a very interesting development? Because I think that Google is doing this because the effectiveness of its ads is going down. The text ad format was very innovative when it came out 6 years ago, but today, everyone has text ads. And if there is one thing we know about ad formats, its that new ad formats

1) Have very high effectiveness when they come out.
2) Generate very high click through rates
3) Have low numbers of impressions and inventory
4) Therefore, have very high CPMs

On the other hand, when ad formats become old and burn out, old ad formats

1) Have very low effectiveness
2) Generate very low click through rates because users develop ad blindness
3) Have high numbers of impressions and inventory
4) Therefore, have very low CPMs

Perfect example: Banner ads. $60 CPMs when they came out - untargeted. Today, $.60 CPMs. you're not reading it wrong. Banner ads have lost 2 zeros off their CPM rates.

My guess is that text ads are at the end of the long tail. Yahoo experienced it first - Overture invented the format. Yahoo results are now declining due to the declining ad format - text ads. Google looks like its next.

Why do I think it's interesting? Because it has happened before.

All this is sounding alot like what the railroads used to do. Back in the day (like a century ago), the railroad industry was the ultimate cool business -kind of like Google today. Profits were fat, competition was nonexistent - because they had geographic monopolies - but then these monopolists all decided to roll their profits back into their business - by building railroad tracks in their rivals territory - think Microsoft, Yahoo, Google building railroad tracks into each other's businesses.

With all those railroad tracks, everyone was shipping everywhere. They broke each others' monopoly. Then one day, competition in the railroad industry got so intense that the monopolists decided to gauge their customers. the guys in the big tall hats announced to their customers: You can't ship your meat or livestock on two different railroad lines - unless you wanted your meat to end up rotten when it got to the market from Ohio to New York.

Now Google wants to have your livestock - on its choochoo train - all for itself, because its ad format is waning in effectiveness. Google has one business - text ads - just like the railroads did - shipping. Both are network businesses - ad network, train network. Network effects don't last forever, and when they end, they go in reverse overdrive.

Personally I think Google should focus more on innovation and less on creating annoyances for its partners. Stop building train tracks into their rivals' territories, and start building tracks into virgin territory. There will bound to be a day when these annoyances add up to the point where users just leave - because the competition is good enough. I'm a perfect example. You don't see AdSense ads on my blog do you? Why? Because AdSense pissed me off. Making enemies out of your partners is just idiotic and sorry for saying this, but annoying your best customers is even more idiotic. Most of Google's partners joined with them because they had a friendly brand, but doing things like this really breaches the trust and the value of the brand - or at least, my naive view of the brand as a friendly, open, tech innovator.

I know that all those Googlionaires wouldn't give a dam* about what I think because they're all rich and "un-humble" now. Most just care about vesting in peace (VIP) and cashing in their options. These are not the code warriors of 8 years ago. After all, code warriors live on ramen noodles and cold pizza not on steak and wine. They have buses that take them to work at 8 and buses that take them home at 5. Did I mention their daily volleyball drill at 11 am? OK. I'm being facetious now, but the truth is that the Google of today is not the innovative Google of the past. Google is now run on business metrics rather than tech innovation. They want a larger share of their partners' revenue and a larger share of their page views. Fair enough, but as an investor, understand that the company's innovation stage is over and it's now trying to protect its monopoly just like those big, money making railroads of a century ago. Why? Business is about making money. History repeats itself again and you're seeing it live from Silicon Valley rather than live from New York. Don't believe for a second that Silicon Valley is run by software geeks. At heart, these guys are financial engineers.

The long and short of it is that Google is no longer just a great search company. Its a great monopolistic search company that's trying to protect and take market share. And some of the things it has to do will piss off its users - people like me.

Like everyone else, I use Google because it does a great job - today. Ten years ago, I used AltaVista. And there is no telling that, if another search engine came out, that was faster, cleaner, and easier to use, I would be using a different search engine ten years from now - without those silly, annoying text link ads.

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2 Comments:

Blogger vivpuri said...

Great insight. Looking back to my last months revenue from Adsense and comparing it to Feedburner Ads, FeedBurner returns are 20 times more than Adsense. Right now we have the CPC rates going up for Adsense advertisers, while revenues seem to be falling for pubishers. Any adversiting solution that doesn't deliver revenue to publisher will never fly. And if publishers don't put up the Adsense blocks, it will hit the advertisers hard. Still hidden and sliding scale returns from Adsense was a really really great move from Google. As an aside it will be interesting to get stats of people in US who really look at what adsense blocks show. In another case sepcialized ad agency Federated Media(FMPub) is doing exteremly well for all three: Advertiser, Pubisher, and FMPub itself.

Also with the emergence of free or relatively cheap advertising platforms like widgets, it is easier to get your word around. If Universal is looking to launch an ad campaign for their new release, all they need to do is cut a deal with ClearSpring or Widgetbox or Musestorm that can spread the word around in the right viral groups really fast. Also this way, ads gets viewed by people who really care to there. However each of these widget syndication engines need to build ways for publishers to monetize from the widgets, otherwise the idea will never fly.
VP/StatupSquad.com

9:37 AM  
Blogger MR WAVETHEORY said...

There are lots of hidden and sliding scales like you said. And you thought advertising was a growing industry!

4:33 PM  

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