Mar 12012

Shining a Bright Light in a Dark Corner

Sometimes candor is bracing.

Barry Schwartz caught Google in just such a moment in a great Search Engine Roundtable post. In this, Barry quotes an AdSense Help thread in which a Google engineer gives some highly illuminating tips to an AdSense publisher about maximizing revenue.

In short, his advice boils down to: Google is going to maximize your revenue if you just don't touch the dials, so don't touch the dials.

We generally think about this business from the advertiser's perspective, but this look at the economics of the publishers says a great deal.

Google Engineer Guillaume writes:

Some key facts to take into account:

1) AdSense algorithms are optimized to get you the highest earnings. Specifically, they aim at maximizing RPM, so considerations about CTR or CPC are somewhat irrelevant. Also, there is no infinite supply of high-RPM ads: if a category of ad requests has a lower RPM, it's because AdSense didn't find anything better.

2) Targeting type is a per-individual ad impression criteria, not per-ad request. When a single ad unit shows several ads at once, the corresponding ad request is attributed to the targeting type of the first ad to show. The targeting types of the other ads are ignored. This may have an effect on the statistics. In your case, switching to the "Individual ad impressions" metric family completely changes the numbers; in particular, interest based ads have an Ad RPM much higher than contextual ads.

3) Due to how the auction works, disabling a category of ads can only but reduce your earnings. I would suggest not blocking anything unless you don't like a category of ads and are ready to suffer a decrease of earnings. Even in the situation where interest based ads have a lower RPM than contextual ads, disabling the former will reduce the number of ads competing for your inventory, therefore decrease your earnings. Indeed, ads even cheaper than the interest based ads would be served instead of them. See [1] for details (the article is about ad networks, but the principle is the same for targeting type).

This third point is the most interesting to me. Guillaume is saying: we're going to serve the ads that make you (and us) the most money. Anything a publisher does to try to reduce irrelevant ads will have a negative affect on their revenue, because the irrelevant ads may pay you more (lower CTR but higher CPC), and even if they don't appear on the page, the less relevant ads increase the CPCs the other advertisers have to pay to win the auctions.

Well, there you have it.

The tension we have often described between relevance and revenue in Google's algorithm is laid bare here. This logic applies not just to AdSense and contextual advertising, but to broad matching in search as well.

It is no surprise to us, nor does it make Google evil. However, seeing it in writing does make one take a deep breath.


5 Responses to "Shining a Bright Light in a Dark Corner"
Terry Whalen says:
Agreed - no surprise whatsoever. If advertisers are bidding high on inventory that is not relevant, or if Google is using their (sometimes scary and costly) discretion to match ads to irrelevant inventory, then those ads are part of the auction; and if they're part of the auction, they can increase RPMs for publishers. From a publisher's standpoint, it may still make sense to tweak the dials for greater relevance, even at the expense of lower RPMs, because irrelevant ads may negatively affect user experience, which could have negative effects on the numbers of users using the site, the page views they bring to the table, and user lifetime value for that publisher. This would be similar to how Google thinks about things - monetization on an RPM basis - super important. Monetization from the standpoint of maximizing total numbers of users and page views for the long haul - arguably even more important to long-term profit.
Great point, Terry! Thanks for commenting!
Google is extremely protective of core ad real estate. If they allow irrelevant ads to capitalize on the top ad slots above organic listings, users might revolt. Strict standards for ad quality (and higher willingness to pay) preserve the Google user base, and keep them from choosing another search engine. However, on the AdSense side, Google probably doesn't care quite as much about ad relevance and quality, and is more likely to favor revenue over relevance, as indicated in the above. Users won't naturally cast blame at Google for irrelevant ads on a content network site. If the user has any gripe over the relevancy of the ad, they'll likely blame the website, and not the ad supplier. In my opinion Google can lose users with poor ad relevancy on, but isn't likely to on AdSense properties.
Interesting point, Matt. Their brand identity is much less apparent when you're on a publisher's site. People may think the publisher chooses the ads to serve. I'd argue that while "irrelevant ads" aren't likely to show prominently on core search, "less relevant" broad matched ads absolutely compete against, sometimes beat out, and certainly bid up more relevant exact matched ads all the time.
Terry Whalen says:
Agree with George - it's a crazy world out there in search land.

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