GenuineVC David Beisel's Perspective on Digital Change

June 1, 2006

Back in April, Forbes reported that as part of Yahoo’s effort codenamed “Project Panama,” it will move away from its original Goto/Overture-inspired straight CPC pricing for paid search towards a system which mirrors that of Google (ranking both by the amount advertisers pay for keywords and the relevancy of the ad).

Last week, Google (without much fanfare) one-upped Yahoo in the calculation of Adwords rank,

“Google’s rolling out a new system where ad landing pages will be automatically spidered by a new AdsBot. The content of landing pages will help determine the quality of an ad campaign. That quality score, along with the amount you are willing to pay, is then used to determine an ad’s AdRank, the position where an ad will appear in the results. A high quality score means you can rank higher even if you pay less than others. And not participating in the new spidering system can hurt your AdRank.”

This evolution for Google plays out on a number of different planes. On a tactical level, it raises all sorts of questions for search engine marketers on how this additional ranking component will affect their campaigns (“What about graphically rich landing pages? Or those with Flash or even AJAX?”). On a philosophical level, one has to question if modified landing pages which are friendly to Google’s AdsBot are truly best for end users/consumers. The increased opacity can’t be beneficial for advertisers, as it increases the barrier to understanding marketing campaigns for new search advertisers and creates disruption for current ones.

Along the strategic level, Google’s move is a clear demonstration of the power which it has in the marketplace, given the sheer volume of quality traffic which AdWords can provide. That situation is hardly news. Perhaps more subtly, however, is that this move could covertly raise prices (and thus revenue) for the search engine company. If existing advertisers see their traffic levels decline because the AdRank algorithm views their landing pages as sub-par, one of the only levers an advertiser has is to raise the per click price it is willing to pay.

Lastly, I see these two moves from Yahoo and Google as potential datapoints in a trend towards advertorial content, where the content is the advertising (see other posts on the topic). When the current paid search market emerged, there was a clear line of demarcation between it (advertising) and natural search (content). Since then, the line between these two has blurred (perhaps in part because most consumers don’t know the difference anyway), creating an advertorial search product which is sponsored by advertisers yet still includes some editorial control. And in some ways, this situation is a good thing – at the end of the day, all content and advertising (even links to other content) is most effective when delivered to the most appropriate person to consume it. The difficulty is to avoid alienating advertisers in that tightrope walk (as it is in any advertorial product).

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