Tuesday, April 26, 2005

New advertising strategy

Google is declaring war on internet ad servers by offering image ads and CPM (cost-per-impression), in addition to CPC (cost-per-click), bidding model. Site targeting will ensure that click fraud stays at a minimum (even though it may significantly impact revenues). Regional and local targeting gives advertisers control on a fine geographic granularity. This is especially important to the CPM model (which does not use keyword targeting).

Google is trying to take over a shrinking industry (image and banner ads), but the costs of doing so are low due to their leadership in search advertising. DoubleClick has fallen from its height in the dot com era doing exactly what Google wants to do. It will be interesting to see if Hellman & Friedman get their money's worth for their acquisition, now that Google is moving in on their turf.

This move may tarnish Google's "good guy" mystique. It will probably increase demand for ad blockers like AdBlock. Also, the image/CPM ads may not be as compelling or relevant to the user as keyword-targeted ads. I sincerely hope Google avoids the pop-up business.

Monday, April 25, 2005

Google AdSense allows site-specific targeting

From Search Engine Watch:

Google will now allow its advertisers to decide which AdSense sites will display their ads. They can make either an "include" or "exclude" list. This is an excellent move by Google to counter click fraud. However, it may shut smaller and newer publishers out of the advertising game, since they are most prone to click fraud activity. The real question is whether the revenue hit that results from allowing exclusions will be made up for by increased advertiser confidence.

Friday, April 22, 2005

Profits aplenty for Google

The Q12005 8-K came in much better than expected, with quarterly revenue up a whopping 93% year-over-year (22% sequential) to $1.256 billion. Here's the interesting factoid for those concerned about click fraud: AdSense revenue share dropped to 47%, at $584 million (75% year-over-year increase). AdWords accounted for 52% of total revenue, or $657 million (116% year-over-year increase).

Analysis: this implies that AdSense revenue share has indeed peaked at 49% and is beginning to drop. This is very good news for Google, since they are reducing their dependence on the fraudulent and potentially catastrophic ad model. Google will not be going under anytime soon, much to the dismay of the Fucked Google guys, I'm sure.

Here's more commentary from ISB.

Here's a chart of GOOG, up to $223.69 in after-hours trading.

Wednesday, April 20, 2005

Google in denial about click fraud

Excellent click-fraud coverage at Search Engine Watch.

Tuesday, April 19, 2005

GOOG explodes!

In after hours trading, GOOG is up 4% to 199!

Friday, April 15, 2005

GOOG slaughtered

Just after I posted that GOOG was outperforming the Nasdaq and YHOO, GOOG got crushed today (-3.37%), underperforming Nasdaq and YHOO. What goes up...

Thursday, April 14, 2005

AdSense to allow custom ad formatting

From Inside Google. Custom AdSense ad formatting will allow publishers to tailor their ads to fit their web sites better, leading to higher click-through rates. The real question is, why did Google do this now? A couple of possibilities:

1. They only got around to implementing it now.
2. Click-through rates have fallen enough to justify a policy change. Custom formatting definitely allows for more ... ahem ... deceptiveness.
3. Click-through rates have not changed, but Google is getting greedy.

The first possibility is just odd, considering Google's massive resources and oodles of PhD workers. The second possibility is disturbing, for two reasons:

1. It means people are losing interest in clicking on Google ads.
2. It doesn't fix anything. Click-through may increase, but ROI will still decrease.

The third possibility is also disturbing. It implies that the forces of short term profit are winning over the forces of "do no evil." I wrote about this earlier, here and here.

GOOG outperforming Nasdaq

Even though GOOG has been down the past couple of days, it is still outperforming the Nasdaq composite (past 5 days). Incidentally, it is also outperforming YHOO, by an even bigger margin.

Legal roundup (update)

Lane's Gifts (class action)US04/06/2005In ProgressN/AClick Fraud
Agence France PresseUS03/18/2005PreemptedN/AContent Syndication
Luteciel and ViaticumFrance03/16/2005Lost$100,300Ad Keywords
Louis VuittonFrance02/04/2005Lost$257,430Ad Keywords
Le MeridienFrance12/16/2004Lost$2,592Ad Keywords
GEICOUS12/15/2004WonN/AAd Keywords
American BlindUS01/28/2004In ProgressN/AAd Keywords

Monday, April 11, 2005

Web analytics vs. click fraud

The Internet Stock Blog covers the click fraud issue again, this time talking about how increasing web analytics impacts fraud. ISB is optimistic that
    As web analytics improve, click fraud will be more easily detectable and advertisers will be able to manage more closely to RoI.

This is true, from the advertisers' point of view. But the corollary is that improving analytics will expose lower-than-expected ROI (due to fraud), which causes advertisers to spend less. Which is very ironic, considering Google's recent acquisition of Urchin.

What exactly is their strategy here? Increasing the general use and efficacy of web analytics is not in their interests, since it risks demolishing their entire business model. They would only benefit from making these tools available to their publishers, thus enabling them to increase traffic, and therefore click counts.

Another issue is that a decrease in advertiser spending will not only affect the AdSense program. Advertisers can only manage their campaigns on a keyword basis, since Google does not differentiate between AdWords and AdSense clicks. So, a spending decrease would affect the entire Google ad revenue stream. Look for an increasing AdSense share of total revenues, accompanied by slowing total revenue growth.

Saturday, April 09, 2005

Search and content convergence

The Internet Stock Blog discusses the implications of Google Q&A, focusing on search engines as answer engines - gateways to proprietary content. Google's strength is its position as gateway, rather than content provider:
    It's better to be a search company moving into content than vica versa, because search will be the gateway to content, and we know from experience that he who controls the gateway...

I'm not as optimistic as ISB. It comes down to the business model - how is Google going to make money off this content? The only model they have right now is AdWords - text ads alongside search results. I'm unconvinced that this model is sustainable. It is very vulnerable to competition and disruption. Some other possibilities:

1. Paid listings in specialized searches. The risk here is betraying the idea of unbiased search results. Google may be able to pull it off without tainting their search results by creating the idea of special categories of answers (separate from search). Google Q&A may fit into such a strategy.
2. Market research service. This may become Google's strongest model in the future. Think about it. All that data they gather on how people use the web can be turned into extremely valuable information. They just need to develop the right analytical tools. Best of all, this doesn't need to compromise the objectivity of their search service.

But this is just speculation. I'm waiting to see if Google will actually move its business model beyond AdWords.

Thursday, April 07, 2005

Separation of "church and state" blurring

Man, I'm on a roll today. I was recently talking about how Google will increasingly find itself torn between the forces of short-term profits and the necessity to maintain its aura of objectivity. Now, this from Search Engine Watch:
    Google & SEO Support For Advertisers now posted for Search Engine Watch members looks at how increased editorial listings support being given to large advertisers is raising concerns with search marketers and threatening the "church and state" division between ads and editorial results that Google has long sought to maintain.

Told ya so

GOOG has jumped up recently, to $189.22 on Wednesday. Remember when I told you to buy it at $180.04? Well, don't feel bad. I would probably make you broke in the long run.

Tuesday, April 05, 2005

Class action lawsuit on click fraud

From Dow Jones (via Battelle): A group of advertisers are filing a class action lawsuit against Google, Yahoo, AOL Time Warner, Ask Jeeves, Disney, Lycos, LookSmart, and FindWhat. The advertisers claim that the ad-serving companies charged them for fraudulent clicks. Interestingly, the article only mentions AdWords-style click fraud (i.e., competitors clicking on your ads in Google search results), not AdSense-style fraud. It's unclear from the article what the scope of the lawsuit is. It's also unclear how serious this effort will be. But a ruling in favor of the plaintiffs will certainly embolden other advertisers to sue. Even so, the click fraud issue is unlikely to be resolved in the courts.

Sunday, April 03, 2005

Acquisition roundup

A summary of Google's acquisitions:
UrchinWeb Analytics03/29/2005$30M
ZipDashTraffic Info2004$56M*
Where2Google Maps2004*
Keyhole3D Maps10/01/2004*
PicassaPhoto Sharing07/01/2004*
Pyra LabsBlogger02/01/2003?

* Google spent $56M acquiring four companies in 2004.