Google Adwords – Operational Speculation

Robert X. Cringely is a long-time observer of the web and a pundit who regularly churns up controversy with his articles. From speculation on Apple’s decision to switch to Intel to power it’s next generation PC’s (pun intended), to this week’s article regarding the algorithm that dances behind Google’s AdWords system, Mr. Cringely is always interesting and he’s also been known to be “on the money” in his pondering.

I found this weeks article likely to be of particular interest and relevance to our audience on this blog because, of course, it deals with Google, but also because it deals with Google’s “Do No Evil” corporate mantra.

From the article:

His old site with the same ads had been running successfully for a year paying at the relatively low rate of $0.10 per word (the Adwords minimum is $0.05 per word) and generating about 15,000 clicks-through per day. But for the new site, he started out paying $1.00 per word for exactly the same words. Based on everything he had read about Adwords (remember nobody actually SPEAKS to Google about these things — the service is totally automated from Google’s end), he expected his ad to move higher in the rankings and, hopefully, to make more sales as a result. And that’s exactly what happened, though not to the extent that he would have liked.

Buying AdWords at $1.00 versus $0.10, his ads DID move higher on the page and his revenue was increased, though not by enough to justify going all the way to $1.00 with its associated higher cost basis.

All the while, of course, the essentially identical original web site was churning along, still entirely dependent on AdWords, still carrying identical ads for identical products as the test site, and still generating an average of 15,000 click-throughs per day.

Now it was time to drop the per-word price a bit on the test site to see whether he could increase his profit margins after paying too much at $1.00. So he set the new per-word price at $0.40 — still four times as much as he was paying per word through his main site.

And his clicks-through dropped from 15,000+ to 1,200 per day.

Huh?

He goes on to say that, while he thinks this is a mysterious result, he thinks it smacks of being “Evil” and then quotes his friend comparing Google to a casino:

“It’s like Vegas,” said my friend. “They want you to lose. Try to game the system and they cut off one of your legs.”

Personally, I think Cringely is quite off-base in saying this and while I think the article provokes some thought into how Google operates (even offering some measure of insight), I think he is, in essence, simply stirring the pot (again) and daring to find some “evil” agenda at Google.

I went hunting for discussion and criticism of this article and found this:

Cringely claims that the “only difference” between the two sets of ads is how Google treated them, but that’s not true. One of the sites was quite established, and so Google has a long history of how the ads to that site performs. The other was new and had no such history. Considering that Google takes into account ad performance in how it positions the ads, it seems like that could be playing a factor here as well. I’m sure others who are much more involved in the Google AdWords world may have other theories as well — but it still seems like a stretch to immediately jump to the conclusion that Google is specifically punishing anyone who lowers their ad bids.

The comments in response to this are enlightening and, on another blog (in the comments, not the post) I thought this was relevant:

It’s possible that by upping the amount he was willing to pay per click, without modifying his daily budget, he burned the budget faster every day, causing the ads to stop running … and simultaneously lowering traffic.

not enough parameters are given to accurately compare and make judgements here, all we’ve got is silly assumptions.

In conclusion: interesting read but he’s grasping at straws on this one. ‘nough said 🙂

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