Google’s Silent Monopoly (Or How Much Does Google Pay For Its Own AdWords?)

An essay written in 2006 about Google buying Adwords against its customers. In the end I was vindicated.

Google’s Silent Monopoly (Or How Much Does Google Pay For Its Own AdWords?)

What does the future of start-ups look like when they spend a majority of their advertising budget with one company – and its your competitor?

“So what? As long as the ROI is there.” – Right?

The history of business is filled with examples of such healthy compromises – also known as “co-opetition.”

Arguably, Google has mastered the art of coopetition. Last year, Google generating $2.7 billion, 40 percent of its total revenue, through “cooperating” with other web sites that host Google’s ads and then share the click revenue. (Ellen Lee does a nice summary on this topic)

But what if the company started placing ads for its *own* competitive products next to yours?

And, what if those ads are placed higher and in more premium positions than yours?

Well, that’s exactly what Google is doing with certain keywords.

Google’s Silent Monopoly

Over the past few years, Google’s spaghetti strategy for product innovation
has yielded a plethora of features and services that with the exception of the emerging “anti-Office”, appear to have very little in common. (Click here for a visual timeline of Google acquisitions) And, for the most part, people (including me) didn’t really care about Google’s Product Strategy. As Google releases new products most of the world continues to moves on.

But, a few weeks ago, Google acquired a competitor (Jotspot) to my company (Central Desktop). It wasn’t until Google encroached into my business space that I started to care about Google’s product strategy. Suddenly, Google’s product
strategy did get my attention, but not for the reasons you might think.

You see, I’m not afraid of Google or its product strategy. And, I’m not afraid of competing with Google either. Unlike Paul Graham, I believe that small companies *can* build defensible businesses in the shadow of larger companies and achieve success. I hold strong beliefs that if a company is providing a valuable service to a paying customer, that the small company can successfully compete and coexist with a large company in free and open marketplace.

A cursory look at Google’s financials and their product history is all you need to realize that Google has *not* produced a string of successful products.

To date, Google’s only two product success stories are Search and AdWords.
And, one could argue that one is just an outcropping of the other and
therefore only one product – together comprising 99% of its revenues.

And, there is the rub.

You see, I’m not afraid of competing with Google – but I *AM* afraid of AdWords. Here is why……….

Google Cheats
Google holds the top advertisement (Adword) slot for the following key words:

intranet, spreadsheet, documents, calendar, word processor, email, video, instant messenger, blog, photo sharing, online groups, maps, start page, restaurants, dining, and books (somehow Amazon has managed to appear in the #1 ad slot for ‘books’).

For spreadsheet, blog and video, in addition to squatting the premium ad position, Google Products also dominate three of the first four search results.

In such cases, Google Product Links and Ads can account for up to 25% of
your viewable screen resolution – 30-40% for lower screen resolutions –
almost guarantying that users will click on a Google Product over any
other search results, sponsored links or text ads.

What this tells me is if you are trying to advertise a product that is competitive to Google, then you’ll never be able to receive the Top Ad Position, no matter how much money you bid and spend.

How successful do you think *your* ad buys would be if your competitor trumped your position no matter how high you bid your key words?

At what costs is this affecting the CTR (Click-Through-Rate) of my ads –
since they will always be placed lower than Google’s Ads for its own products?
(Research yields the the top position yields twice as many clicks as the second position)

Should Google decide to market Jotspot (my competitor) with words like “wiki”
(and there is no reason to believe that they wouldn’t), I’m not sure I’ll ever be able to precisely measure the detrimental effect of Google/Jotspot ads trumping my keyword buys for the same words. I can tell you that the net-effect will be negative, noticable and damaging in comparison to their competitive ads NOT appearing.

Three Questions for Google
1. How much does Google pay *itself* to claim the top ad position for searches  relevant to its own products?

2. Does Google hold itself to the same minimum CTR thresholds for Ads placed?
(In case you aren’t aware – Google recently changed its Landing Page criteria; increasing keyword buys to $5.00, $10.00, $15.00+ for companies who’s Ads were not meeting a minimum (unknown) CTR.)

3. What alterations does Google make to its search algorithm to guarantee top rank for search results relevant to its own products?

Note: Yahoo does *not* place ads for its own products in the premium ad position.

How Deep Does the Rabbit Hole Go?
Does any of this feel or sound familiar? It should. We’ve all already seen this movie.

Many are already declaring Google’s product strategy as Google Ad/OS.

It’s the perfect metaphor.

Should Google manage to pay off enough media publishers then they’ll be able to syndicate and distribute content via YouTube – then this will solidify their position as the advertising operating system.

But, just like Microsoft misused its monopolistic position and squeezed Netscape out of the browser market by bundling its products with its operating system – so Google could prevent competitors from entering the market (squeeze out competitors) by “bundling” its own product ads into premium advertising positions in its “advertising operating system.”

Think about it. How different is it than MSFT placing its products (Internet Explorer) in a premium marketing position (embedded in the OS)?

Why This Matters To You
In the beginning, AdWords was hailed as the revolutionary platform that enabled small start-ups, mom and pop stores and businesses all around the world to ‘compete fairly in an open market bid system.’ It was written that “small businesses can now compete evenly with big business – it levels the playing field.”

But that’s not entirely true. Is it? Google has unfairly made itself (its own products) exceptions to the rule. As the search queries above have shown us, Google has wielded its weight and manipulated the market to its own advantage – at potentially detrimental costs to small businesses like Central Desktop.

How is a small company able to compete with a force that controls and manipulates the market to its own advantage?

Up until now, you might be saying to yourself, “This doesn’t apply to my business – I don’t compete with Google.”

And you are right. Today you don’t compete with Google, but tomorrow you might.

Based on various hints dropped by Google executives, it appears that Mobile Phone Service Providers, Music companies, Movie and TV companies ala YouTube had better keep an eye out on how they intend to keep Google in check.

And even if you never end up competing with Google, I would certainly be concerned about any monopolistic giant that manipulates markets to its advantage but publicly declares to not “be evil.”

The power to unfairly squelch innovation and competition should never be taken lightly.

This post was originally written around midnight 12/05/06. Perhaps my search queries for the keywords listed above yielded Google Ads in more premium positions b/c other Bidder’s AdWords accounts were largely used up through the bulk of the day? Here are the screenshots I took of the results last night.

It’s now 9pm 12/06/06 and Google is consistently appearing in the 1st or 2nd
ad position (mainly 1st) for all of the search queries listed above with the exceptions of “start page”, “dining” and “restaurants” which are not yielding any Google Ads at all.

I think many of you are missing the point completely. My concern lies in the fact that Google is trumping top bidding ads with their own product ads. This is
unethical and potentially an abuse of power/position. Think of it as “AdWord insider trading.” This does not occur on any of the other major search engine.

Sure, I’m free to take my business somewhere else (I’m not though b/c Google continues to yield positive results for us), I understand that. But the point is not about what I’m able to do….but everything to do with the false-sense of security that many naive advertisers (and from the likes of the comments I’ve received, naive users) might have about how the system works.

Update Part Two: Addressing the points and comments about “Opportunity Costs” that Google experiences by inserting itself in the top position.

Presumably the #1 position bid wouldn’t have been “as high” had they known that Google would insert their own ad and make #1…actually #2. Had the person known they were ACTUALLY bidding on #2, they probably would have bid lower. Yes, there is opportunity cost…but more importantly, it’s false expectation and manipulation on behalf of Google.

Update Part Three: Google Responds

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