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July 14, 2006

AdWords Price Increase Targets Small Merchants

Looks like I was wrong about Google's landing page quality requirements hurting AdSense arbitrage. Appears to be targeted towards smaller advertisers instead. PPC inflation has increased 2000% or more on many keywords in the past week.

In simplified terms, here's how I see it:

Say for a given set of keywords you have 1000 advertisers. One is eBay, and the other 999 are small to medium companies.

80% of the spend on those keywords is done by eBay, while the remaining 20% of the spend is those remaining 999 advertisers.

Google knows eBay can afford to bid far more than they currently are, and that they will bid higher to keep that exposure.

So Google jacks up the price 5 times. They lose the 999 advertisers who made up 20% of the revenues for those keywords, but they multiply the remaining 80% of their revenues by 5. Hence, they are making WAY more money, with drastically reduced customer service headaches.

Smart, but does not breed goodwill over the long term.

These WMW threads are a good place to keep up on developments in this story:

http://www.webmasterworld.com/forum81/8477.htm
http://www.webmasterworld.com/google_adwords/3003953.htm

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