Google Dance

From: Robert Ross <>
Date: Fri 19 Dec 2003 14:07:59 -0600

I think it is naive to think Google's problems are a conspiracy to
increase AdWords revenue. That is both transparent, fraught with
potential legal issues and not realistic. As a major AdWords buyer for
my clients, I can tell you there is a limit to what advertisers are
willing to bid. I tried to explain this before, but I guess I was too
wordy to be clear that time. It is really just simple math. If you bid
more than a keyword can return in profits, you will lose money. Hence,
the bulk of AdsWords buyers, which I assert are small businesses like
me, are likely not to participate in any bidding wars. The end result
would be that only those advertisers that can afford to buy market share
at any cost would be left. This would destroy the relevance, credibility
and usefulness of AdWords to searchers and probably reduce the
clickthrough rates and bidding eventually as searchers discovered that
AdWords links were not relevant to their needs. The end result is likely
to be a disaster for Google. I suspect they are smart enough to know
this. The search engine business is all about relevancy. Google is
already so far ahead, they really don't need to resort to deception and
underhanded stuff to increase their value, and such a strategy would
look more questionable than any gains.

Here's a simplified example of the math If you have 10,000 visitors and
sell or convert 1% (an average on the net) that is 100 sales. If you're
selling a $50 product that costs $25 to make, you have a gross profit of
$2,500.00. If you bid 50 cents a keyword (a common figure) you spent
$5,000.00 and lost money. In reality, you can't bid more than 25 cents a
keyword just to break even on the gross profit (not counting other
business expenses like office rent and phones). I currently bid on
hundreds of keywords, and most of them are already maximized for
profitability. Can a bidding war change that - no. It will only force
most advertisers like me out of AdWords altogether. I don't think Google
wants that.

Bob Ross

Received on Fri Dec 19 2003 - 14:07:59 CST


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