Update: See this threadwatch post for more grousing about price gouging.
It's a well-known phenomenon, at least among search engine optimizers and marketers, that Google is constantly making changes to its ad-serving algorithms in an attempt to combat fraud and to make their advertising system more efficient for their customers.
Now, I'm not an SEO, and I don't buy AdWords or advertise using AdSense. But I follow the news and, in the course of my work for Google Watch, I talk to a few SEOs.
I'd like to share a conversation I had recently with an SEO who works for a major media company. He's responsible for optimizing several big name brands online, and he buys AdWords (both for his company and for his side projects) by the hundreds. We were speaking about the upcoming change to landing page quality score (QS) factors. In a nutshell, this is what he told me:
"The landing page quality score doesn't actually exist. You don't need to improve the quality score of your landing page, you simply need to bid more. In order to line their pockets, Google has changed the algorithms before the holiday season so that bid price is way more important that clickthrough rate. After the holidays, quality score will be important again."
I'm generally dubious of theories like this, which generally argue -- usually through ignorance and supposition -- that dark forces are working in tandem to screw the little guy. Like many of you who read this blog, I've met several Googlers, including Matt Cutts, and I genuinely believe they are honest people. And if you're familiar with this blog, you know I'm pretty even-handed when covering Google.
But I was interested in this theory, because a) the SEO is responsible for several brand name media propoerties, and b) it went against everything I assumed about landing page QS. i.e., that it reduced made-for-adsense (MFA) pages and thus click fraud. So this SEO explained his theory to me in detail. I've reiterated it here and added some context. Please leave your thoughts below (and please, don't shoot the messenger):
1. Google realizes click fraud is a problem
The problem: bad actors clicking on a competitor's ads, costing the competitor money with each click and driving meaningless traffic to each Web site. The sites received a boatload of traffic from the ad placement, the spurious clicks, and the optimization on the site itself. Presto, Google SERPs are full of spam. It's a vicious cycle.
2. Google announces landing page QS
So in order to combat click fraud and improve their cost-per-action (CPA) business, Google created in December 2005 something they called a landing page quality score. (Landing pages are the pages a user lands on when they click an ad.) The landing page quality score (QS) is determined by a host of factors, including relevancy of the page's content to the ad and the utility of the content itself. Before the landing page algorithm was launched, Google used click through rate (CTR) as a way to determine not only how quality the ad was, but also how good the overall experience for the visitor was. But advertisers who provided a poor user experiences on the landing page (and the entire site) could also write a high quality ad -- or a misleading one -- to promote it, resulting in an ad with a high CTR but poor user experience. Oddly enough, you could also get a high CTR if someone was fraudently clicking your ads at a high enough rate without being detected.
During the next fiscal quarter (Q1 2006), the average price of purchasing keywords decreased, but researchers said that was likely due to a decrease in ad spending after the holidays. Keyword prices remained stable throughout Q2, increasing less than 0.5% according to Performics.
3. Google announces another QS change, fraud on the wane?
Google made another QS change near the end of Q2. The immediate effect: Advertisers reported an increase in minimum bids for keywords. Google said that was to be expected for advertisers with low-quality landing pages, and that this affected a low number of advertisers. It was a canny rhetorical strategy -- Google was ostensibly making the change to combat click fraud, but maintaining the click fraud they were fighting wasn't that big a problem. UBS analysts said there was no way of knowing how many advertisers were affected, and recommended investors wait for Google's Q3 results. Google then reported stellar results. Revenue generated through AdSense publisher sites grew 54% year-over-year, and meanwhile Google had apparently removed much of the incentive for click fraud.
4. One more QS change, but this time makes bid price way more important
Today, with click fraud on the wane, or at least not increasing, Google is free to make another algorithm change. Publicly, they say that they're making more landing page QS changes. In reality, this is a chimera. The idea that there is a landing page QS is what keeps click fraudsters from clicking. The changeup forces marketers to invest more in paid search and not rely on organic as much. And what Google is really free to do now -- right before the holiday season -- is increase how important the bid price is relevant to CTR and landing page QS (if QS even exists). When click fraud was rampant Google wasn't free to increase the importance of bid price, since bid price and the incidence of fraud would rise at the same rate. But with click fraud on the wane because of the fear of landing page QS, SEOs who spend large amounts of money on keywords will see their ads gain top position on SERPs, almost regardless of the quality of their landing pages, and without a concomittant rise in fraud.
5. Bidding war starts just in time for the holiday season
Now Google has a bidding war on their hands. Going into the holiday season, they've priced out the low-end spammers who rely on made-for-adsense (MFA) sites by increasing the bid prices for keywords. But now SEOs, who have saved much of their budget to optmize for Christmas, will compete vigorously at a higher starting point for the same terms. Once the new year rolls around and advertiser spending drops precipitously, Google will change their algorithms again. And this time, they'll change it so bid price is less important relative to CTR, just like they did at the beginning of this year.
6. Google changes manage fraud, but also manipulate bid prices for profit
Some SEOs will tell you that in 2006, Google waited to change organic search algos until after December 2005, precisely to avoid manipulating the market. But those changes in PageRank in early 2006 created a kind of "clean slate" for SEOs to work with. That clean slate allowed MFA sites to grow throughout the year, thus providing more inventory for Google ads. Of course at the same time, cost-per-action results were dismal, and advertisers began opting out. So behind the scenes, Google started creating a "premium content network" filled with sites that provide better results for their content network. And of course they made the landing page announcement in June, weeding out the MFA sites again, and raising bid prices.
7. The bigger picture
That Google manipulates the market like this is largely hidden while broadband penetration and