Google's Varian on Search Ad Auction Quality Scores
Google Chief Economist Hal Varian continues to enlighten the public on what makes Google's search moneymaker tick, explaining the value of quality scores for the company's search engine ad auction.
Call it Google's latest plank of defense for its pending deal with Yahoo, which would let Yahoo run Google search ads alongside its own results.
The Association of National Advertisers, U.S. Sen. Herb Kohl and others have written letters to the Justice Department condemning or expressing concern about how the Googlehoo deal will impact the online advertising sector.
Google defines its quality score as a formula that reflects what ads consumers prefer based on how they respond to the ads. By including quality scores in its advertising system, Google claims smaller companies can more effectively compete with larger businesses by creating highly relevant ads and Web sites.
Varian, which last month shredded arguments that keyword prices on Yahoo would soar 22 percent once the company completed its search ad deal with Google, explains why Google uses quality scores:
The quality score gives search engines a way of aligning the incentives of the buyers, the sellers, and the viewers of ads. The search engine wants to sell ad impressions, but advertisers want to pay for clicks. The solution is for advertisers to bid on a cost-per-click basis, while the search engine estimates the total value of the ad over time: bid per click times the expected number of clicks.Parity in capitalism, Varian suggests, is the key to Google's quality scores. Varian's argument and example, which you can read in his post here, are convincing. He is trying to show how Google uses objective mathematical equations to decide what ads get served where on a Web page.
I have questions. What good are these posts doing? How much will the DOJ take this info into consideration as it parses Google's pending deal with Yahoo? How scientific will the government get?
Will it become experts on Google's practices to make a decision? Will Microsoft find a way to convince the DOJ that Google is perhaps messing with the math, or that the math won't help Yahoo in the long run?
My guess is that quality score isn't a large part of the government's deliberations on Googlehoo, but as this deal continues to get drawn out, we are sure learning a lot more about how Google works. That's good for everyone concerned.