November 14, 2003
In a rare sign of trouble for the booming search marketing business, Google is fending off complaints from angry customers who say recent changes to the company's advertising program are costing them sales.
By Stefanie Olsen
The search engine giant tweaked its AdWords service in late October, saying it was making the move to better identify successful ads -- those that get clicks -- and to increase their visibility. It also took steps to reduce the number of unsuccessful ads that show up on its search results pages. A company spokesman said overall ad response rates have improved since the changes took effect.
But the new system hasn't improved results for everyone, leading to a vocal outcry from those on the losing end. They say the new system pits smaller companies against bigger ones, ultimately favoring deep-pocketed advertisers that can afford to outbid rivals for coveted keywords. In addition, some say the changes may be responsible for hurting conversion rates -- the crucial sales that come after someone clicks on a Web advertisement.
"We would love to spend more with Google, but we're not going to overpay on (search) terms, when the surfer will click on terms and be frustrated and go elsewhere," said Daniel Mardorf, the Webmaster at Cellphonecarriers.com, who said he's seen response rates and sales from his Google ads drop since last month's changes took effect.
The dispute highlights Google's growing pains as it aims to extend its highly regarded search technology in new and more profitable ways. The company is reportedly preparing for an initial public offering early next year. The IPO is expected to value the company at more than $15 billion, largely as a reflection of its earnings from its growing keyword advertising business.
Keyword advertising uses terms typed into search queries to help identify people who are likely to buy a given product or service. Advertisers bid for the terms that trigger their ads, but only pay when someone clicks on a link, an event that in many cases costs just pennies.
The ads have been a smash success so far, helping fuel a revival in online advertising after nearly three years of stagnation. Keyword searches made up 31% of the $1.66 billion in U.S. online ad sales for the second quarter of 2003, according to the Interactive Advertising Bureau (IAB), an industry trade group.
The complaints voiced by a handful of Google's advertisers don't mean that the bonanza is coming to an end. Some other advertisers said they are happy with the service and haven't noticed any significant drop in performance in recent weeks.
Still, the chorus of unhappy customers underscores an increase in pressure on search engine advertising programs. As keyword marketing grows in popularity, providers will likely face a tough balancing act satisfying advertisers, who will bid up prices and fight for visibility on increasingly crowded lists.
Analysts said Google is using new automated tools to fight the growing complexity of its ad network, a strategy that could help keep its costs in check but that could expose it to other risks, as evidenced by the recent backlash.
James Lamberti, a vice president of media solutions at Comscore Networks, an Internet research firm, said Google is seeking to address shortcomings in its service without building up a large, well-trained staff of human editors to review ads -- the course taken by its main rival, Overture Services.
"Google is trying to accomplish through technology what Overture essentially does through an editorial staff -- they have a much more intense review process of what ads can appear against what words, whereas Google relies a lot more on technology," Lamberti said. "The financials are going to play into Google's favor, because they relying on the efficiency of the technology. It's yet to be seen whether it will work."
Rising Prices, Falling Response Rates?
Google does not break out its advertiser metrics, but Overture reported such statistics in its financial quarterly reports before it was acquired this year by Yahoo.
From April to June 2003, Overture said that advertisers paid 40 cents per click on average, up from 30 cents in the same period in 2002.
Prices for high-demand categories command prices many times greater than the average. Google and Overture don't display the prices that advertisers pay for listings, but some of Overture's keyword prices are listed by rival FindWhat.com. Information published recently on FindWhat's Web site showed GoToMyPC, which paid $5.10 per click, as the top Overture bidder on the term "remote access." PeerDirect paid $6 per click for "database management," and Cornell University paid $4 for "IT security."
According to a recent study from the IAB and Comscore, the average click-through rates for travel- and finance-related sponsored ads were 18.3% for April and May of 2003. That compares to click-through rates of 4.3% for ordinary search results for related terms.
Sponsored ads also drove more sales than ordinary search links, according to the research. About 1.4% of the people who clicked on sponsored listings became customers of the advertisers. In comparison, about 0.6% of the people who clicked on ordinary search results bought something.
Online advertising formats have historically faced problems with declining response rates over time. Banner ads debuted with click-through rates above 50%, according to Nielsen/Netratings research analyst Marc Ryan, but faded during their heyday to about 2% -- a respectable performance for direct response ads. Now banners get fewer than 5 responses for every 1,000 advertisements shown, a response rate of about 0.5%.
Perhaps fearing a repeat of that scenario, Google's critics are lashing out at changes made to the company's bidding system for AdWords and the way it matches ads to keyword queries.
Under the old system, a hotel-chain advertiser could bid for a term such as "hotel." If the price was right and its Web page was a popular destination for Web surfers, its ads would surface to the top of Google results pages for the term. The buyer's ads would also show up in searches on phrases that included the word, such as "hotel with swimming pool," in a system called broad match.
Opening Up Broad Match
Broad match terms evolve over time, based on the click-through rates of an ad in different contexts. For example, a keyword advertiser for the term "accommodations," might see ads appear for related keywords such as "hotels," "inns," and "hostels." But if the system learns that searchers aren't clicking on the ad in relation to the term "hostels," it will eventually remove that term from the mix.
In mid-October, Google expanded broad match so that it now automatically matches keywords to a wider set of terms, including synonyms and misspellings. Advertisers might now see their ads appear in results for search queries that don't use their keyword at all. For example, an ad tied to the keyword "hotel" might show up in searches on related terms, such as "vacations" or "car rentals."
In one example of the technology in action, a search on the term "U.S. District Judge Brooke Wells SCO IBM" yielded an ad promoting "countrywide mortgages," for example.
In addition, Google changed a key measure it uses to determine an ad's placement, known as the "minimum click-through threshold." Google now disables any ad that has a click-through rate lower than 0.5%. In addition, ads must now show a higher click-through rate than they did previously in order to appear within a certain broad match phrase, although Google has not disclosed the new threshold.
A Google spokesman said the company has seen an improvement in overall click-through rates for ads served through its AdWords program since the changes took effect.
"The net effect of (the changes) is that we are now serving fewer ads than before, and the ads are of higher quality, and that is reflected in the higher click-through rates we're now seeing for ads on Google," Salar Kamangar, a director of product management at Google, said. "It's a very smart system, we are learning over time which expansions work best for all advertisers."
Some other small advertisers said Google's changes take some of the work out of keyword bidding. Mark Aistrope, who runs Meeting Tomorrow, a meeting supplies Web site, said that Google's broad matching gives his ads more opportunity to show up for obscure searches.
"This is great for us, because we don't have to think about every possible iteration of a particular keyword that someone might type in," Aistrope said. "For example, when I use broad match for 'rent lcd' I get my ad in front of people that type any term containing those words -- i.e., 'rent sony lcd projector Topeka Kansas.' It's also good for Google, because they sell a lot more clicks."
Overture has said it would launch broad matching tools in recent months, but it has not implemented it as of yet.
Not Working Out?
Not everyone is convinced that broad match is a good deal, however, and some critics said they've seen ad performance plummet on Google since the changes took effect.
"Conversion ratio not 0, but sorely dropping every day for the past several weeks, while the click-throughs stay the same," one poster wrote about the Google changes on a popular Internet chat board for Webmasters. "If this does not (improve), we'll likely ditch Google (until) things go back to the way they were (that's if they ever do)."
Others said they believe the changes inherently favor big advertisers that can afford to pay top dollar for keywords, given that more successful ads will now theoretically appear on more search results pages. That means it's tougher for small players to push their ads to the top of Google's listings, those companies argue. In addition, some advertisers said the ads that do appear are often less relevant than they were before, hurting sales.
Cellphonecarriers Webmaster Mardorf said a search on the term "3G cell phone" recently yielded nine sponsored ads, but only one directly promoting third-generation cell phones.
"Is that a good experience for a searcher?" asked Mardorf. "AT&T can sit on top of these terms because it (likely) bid $5 for 'cell phones.' If an advertiser is using a 20-cent bid, there's no way we're going to the top."
It's not just Google advertisers that are complaining. Publishers that take part in a Google program called AdSense, which serves up ads on ordinary Web pages, said they have noticed a decline in relevancy in recent weeks.
One owner of a travel Web site said that AdSense has displayed ads for hotels in Madrid on pages about Amsterdam, for example. That publisher said that for the last two weeks of October, click-through rates were down 10% and earnings were down 14% on the AdSense program, compared with the last two weeks of September.
"The relevancy of the ads has deteriorated significantly in the past month," said the publisher, who asked to remain nameless because of Google's terms of service forbid publishers from discussing the program. "When an ad appears on the page that has nothing to do with the topic of the page, click-through and revenues go down significantly."
Kamangar said that the recent changes did not affect AdSense. He also denied that Google had made the changes in order to favor large advertisers. Rather, he said, the changes were designed to favor advertisers with the most successful ads, measured by click-through rates.
"We're expanding matches for those advertisers more aggressively," Kamangar said.
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