Google – Another email discussion

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On 12/17/06, Arpit Rai <xxx@gmail.com> wrote:
Sorry couldn’t reply earlier. Internet marketing business is worth 27 billion a year (5% of total ad spend)

Google should be doing 6 billion a year. The bid for ads range from 10 cents to 40 bucks…click on ads for search term Mesothelioma and the law companies that have put up their ads lose 40 bucks for each click. Bjorn’s right..the price you bid for is the price you pay.

A conservative estimate of click fraud is about 10% (thats what the Googles and the Yahoos tell us) but it could be as high as 50%. I think there’s a lot of money to be made through the click fraud business especially with the incompetent mechanisms these companies have in place (Eric Schmidt even went to the extent of suggesting that an economic model to prevent click fraud from happening was to let it happen such that in the long term it would all balance out). No..they certainly don’t seem to be paying much attention to this and the army of clickers run amock.

Rachit mentioned two things..its the younger generation that clicks the ads and unlike me, there are people who first look at the ad results for a search query and thats where the click happens). But for somebody as cynical as me (that should be the general case..aren’t we always too cynical when we’re being sold something), wouldn’t click on those ads…no authenticity of information. So lets say if I’m looking for a Canon AS 400, I’d much rather check out the reviews from BestBuy or some electronics forum than clicking on those ads to see what they have to say. Hmmm perhaps my thinking differs from this 27 billion market. :P

Forget the search queries for a moment…look at the GigaOms and the VentureBeats where the whole business is built on the internet ads and mind you, these are not contextual (from an end user/reader point of view) and yet, these are minting money….how do you make money from blogs…who are these random people clicking on the ads..I mean now that I work, when I search for some information I’d much rather go to a website which can give me information rather than click on the ads just to be told that information comes at a cost.

Rachit, you have any inputs?

On 12/12/06, Bjorn Lee <xxx@gmail.com> wrote:
I think its believable but time is the best test of that. At the end of the day, marketers hold the key to Google’s fortune, as long as a marcomm manager gets a hike in sales from Google advertising, more will follow and as we can see now from the stories online, there are indeed successes as much as failures and its these successes that make marketers pour money into the search engines as they try to get customers.

And I will give you a personal account, Alpha Innotech pays 2000 bucks per month for AdWords willingly because all we need is to sell one system once every 2-3 mnths to pay fot the entire year’s of expenses. Many scientists and Principal Investigators of labs across US do that. So long as people believe in the Google system, customers will go to Google to buy.

Yes, I do agree that there are few controls and checks for Google. They face problems like lack of transparency for their revenue share, arbitrageurs who game their Adwords guidelines and its a constant battle against these “black hats”, an industry term for the scum who plague the online advertising industry. I found a good recent article on this here: http://www.forbes.com/technology/2006/12/06/internet-advertising-search-tech_cx_ag_1207google.html
But let not Enron make fear the first response towards a phenomenally successful company in terms of revenue growth. Understand the underlying business model more, I am still learning too and truly enjoy this discussion. The lack of audits and formal structure checks and balances have made forums, blogs and other mainstream media outlets the new auditors today and they are the new gatekeepers who keep pushing the frontier and force Google to open up and be more accountable.

THanks!

On 12/12/06, Wang WeiSheng <xxx@gmail.com> wrote:

Hi all,
Agreed it’s flawed after reading your thorough explanation.
Thus also my reason for putting a disclaimer in my previous email
“I am not too sure about this though” near the last part.

And if Rachit said so, I would most certainly agree. He is truly an expert in online/digitial media advertising. While I understand the rationale between Cost per Action and its advantages over CPM, my only query is whether are there really that many clicks out there that churn out billions?Essentially, that’s my question – Do you genuinely believe that there are that many clicks out there?

In the past, for Enron’s case, nobody questions whether are there genuinely that much supply of energy…and neglect for a proper audit and physical audit of inventory and processing site results in a catastrophe. My enquiries (and Arpit’s queries in the past) seek to achieve a similar purpose.

Kudos to your response. Well-articulated and to-the-point.

On 12/12/06, Bjorn Lee < xxx@gmail.com > wrote:
you are confusing me. I am only talking CPC here because CPM is not the business of Google. Lets narrow the scope here, blogs cannot sign up to ad networks based on CPM. Its just rare unless you have a certain traffic volume, a distinct voice, opinion or a an affiliate of Federated Media or other Ad network, but i digress…

Let me answer your citizen-generated opinion of blog monetization income. You specifically quote Justin, i know he earns pennies, so does many others I know.

Now you also know Adsense is contextually relevant, Justin’s low income is due to two important factors: context and volume. He writes about low-CPC content which generates low-income generating Adsense income. I think u have some blogs in mind, or what Justin writes about, type in a rando keyword u think of about his blog here and see what kind of revenue comes up: https://adwords.google.com/select/KeywordToolExternal?defaultView=2

That was context. Second is volume, Justin simply has low blog traffic. And we know how few pple click on these ads. But think GIgaOm or Techcrunch these sorts of A-list bloggers and their ADsense income will shoot up due to sheer volume.

And I checked with Rachit, the price paid for winning the keyword bid and what you pay when a user clicks on your ad is ONE AND THE SAME. Google operates on a second-price auction process, hence when a winner wins a bid, he doesn;t pay what he bidded but what the 2nd priced loser bidded. Say if its $40, then he pays $40 when someone clicks. You can decide how much your daily budget is to prevent spiralling costs or to minimise click fraud. And $40 is hence not a misrepresentation, you have to tweak your understanding of that business model. And on your point that no one will risk click fraud when each click is $40, you will be wrong as surveys have shown e-talers are willing to pay that amount, again this depends from industry to industry, some have industry structures that simply have high customer acquisition costs so they can handle that.

On your point regarding how advertisers might be reluctant when they know each click might not trranslate to sale conversion, u are talking about a different advertising model here, which is COst Per Action. IN this model, there is more sales cponversion, the holy grail of advertising. Google doesn;t do that yet satisfactorily, nor does anyone else. You will hear the Google-Yahoo-Microsoft triumvirate saying about this all the time but we are some way from accomplishing that. IN the meantime, advertisers are comfortable with CPC and CPM, at least they are right where their audiences are, never mind if the audience might not realize their presence sometimes, its permission-based marketing after all.

Your final point is flawed, Google does not sell keywords, they make money only when someone clicks.

On 12/12/06, Wang WeiSheng < xxx@gmail.com> wrote:
nope… Justin didn’t say 20 cents per words. What I mean is, from what I have gathered of people using Adsense in their blogs. Well, I believe Justin did tell me that his average monthly income Google’s Ads is 50 cents. So it’s not too much of a misrepresentation.

My 20 cents example is not specific to keywords, but advertisements in general…… can be banners too.

Anyway, I believe that 40dollars per click is also a misrepresentation. It’s 40 bucks to purchase the keywords, but it does not mean 40 bucks earned per click. There is a great difference here. I hardly believe that anyone will risk click fraud where each click can translate to a loss of 40 bucks.

The 3 dollar estimate makes more sense.However, we are forgetting who is making the payments. It’s the advertisers. it’s not difficult at all for the 50 million alpha users to click (some may say, it’s quite a challenge to get them to click, but I am talking about, relative to the following…..), it’s much more difficult to convince the advertisers to pay 3 bucks per click, which as I said, may not guarantee a sales conversion. Worse still, as Bjorn has mentioned earlier, the problem of click fraud.

And most importantly, I will like to refer you to my previous discussion on the fact that it’s 3 bucks (40 bucks) per keyword bid for. Not 3 bucks (or 40 bucks) per click. I am not too sure about this though, but my general sense suggest that this sounds more reasonable.

So my point is this – if Google is selling keywords to churn out 10 bil, is that reasonable?

On 12/12/06, Bjorn Lee < xxx@gmail.com> wrote:
thanks for pointing out the mistake. it really depends on the relevant keywords clicked on.

But i do not agree on the “less than 20 cents per click”. Did Justin tell you that? I cant find the average price paid out for keywords but 20 cents is too little. Soem keywords like “venture capital” can be as high as 20 plus, and forums on SEO have shown successful bids to be in the 40 dollar range sometimes. What I am trying to say is the range could be quite high and although I have really no clue in Adwords bidding, 20 cents as an average Adwords price is too little.

Another important point of note is that Google is in a revenue-share with the affiliate or Adsense partner, so bids typically have to be much higher than what the advertiser pays for. 20 cents per click is way too low and hence, that might have been contributory to your skepticism but I dun believe in that price at all.

I would rather believe in a hypothetical figure of 3 dollars per click as an average. THats 60-70 clicks per user per year.

On 12/12/06, Wang WeiSheng <xxx@gmail.com> wrote:

An excellent exercise of guesstimation, highly-valued skill in the management consulting field. You should really reconsider your career path, Bjorn.

However, a careful scutiny will expose something critical
– when you use Revenue/Clicker (50 Bil/50 Mil), the result is revenue per clicker, and not number of clicks.

So the 200 number of clicks is wrong. It is supposedly $200 per user.
And how much clicks constitutes $200/user is dependent on how much the advertiser pay per click.

And my guess, after talking to peeps like Justin and co, is less than 20cents per click. Sometimes, it’s much much less, perhaps less than 2 cents. If so, it will take tens of thousands of clicks to make that happen per user.

And truth be told, I am getting skeptical.

On 12/12/06, Bjorn Lee < xxx@gmail.com> wrote:
I dun have the accurate numbers, you can always run a quick online search, but the ballpark figure for what we are talking here is the Cost-Per-Click market and thats basically Google’s Annual Revenues + a bit of Yahoo’s and AOL/ MSN… Google’s annual revenue is about $10Bn, based on Yahoo Finance.

I dun believe we have 2billion internet users, lets be more conservative to bring down gross numbers:

- US has 200M, China has 300M, then u have India, Europe and the rest, lets say 1Billion users.

- 50% of which uses Google = 500M users

- Your metric of 10% is a guess, thats 50M “Alpha” Adsense clickers (lets call them that hypothetically)

- Revenue/ Clickers = $10BN/ 50M = 200 clicks per year.

So an “alpha” google clicker needs to click once on an ad for 200/360=56% of the entire year. Not too much, actually, if you look at it this way. We are over-generalizing of course, some more academicaly-oriented person could develop a better methodology. I would say i click about 50 times per year, more when i was working. And I am not even an alpha user.

CLICK FRAUD IS ONLY 2% of all searches. (Fresh from the press today)

Google’s business product manager for trust and safety, Shuman Ghosemajumder, declared that click fraud invalid clicks at Google was “on average is in the single digits, quarter over quarter.” I recently sat down with Ghosemajumder to discuss exactly how large of a problem click fraud is at Google. Whether intentional or not, he gave me access to information and shared data never before seen outside of the walls of the Googleplex.For those of you short on patience or time, here’s the revealing information gleaned from my conversation with Ghosemajumder:

The click fraud rate – as discovered by most AdWords advertisers – is on average, less than 2% of all clicks through Google’s system.
Source: http://www.marketingpilgrim.com/2006/12/google-click-fraud-rate-two-percent.html

SO what do you guys think?

On 12/12/06, Arpit Rai < xxx@gmail.com> wrote:
I had this discussion with the two of you back on Lvl3 and both of you countered me by saying that you do click on ads (you and WS). I agree…but whats the run rate? One a week at the most?

Personally I have spoken to all my friends asking them the same question and the answers have always been negative. So lets run some crude numbers here. I don’t even know if these figures are correct but for brevity sake lets say total internet population 2 billion. Lets say 10% of these click on ads everyday…so thats 200 mill..200mill*30=6 billion clicks a month.

Whats internet ads market worth…Bjorn?

Frankly, on TV sometimes the ads are creative and I do end up watching them but the general tendency always is to channel surf and skip ads. Unless ads are fed to me I don’t react. And now with these little boxes with ads that are not creative (i mean its the same boxed ads everywhere)…are we actually actively looking at clicking those ads?

It just doesn’t add up….is there an analytical view of where the clicks are coming from? which countries, which regions….hmmm need to get hands on the data belonging to these analytics companies.

On 12/11/06, Bjorn Lee <xxx@gmail.com > wrote:
think this needs a new title. you are right, i dunno the answer to that question, no one know clicks on them significantly, i think i have clicked on less than 50 times since i used google for searching. a quick query on google seach engine, its blog search and technorati also shows a dearth of discussion on this, u see more blog posts about adsense gaming and invalid clicks if u ask me, who regulates google? how serious is click fraud? Rather, where and who are this invisible searchers who contribute to google’s billions?

On 12/11/06, Wang WeiSheng <xxx@gmail.com > wrote:
To be entirely frank, while I am intrigued by the theories of long tail advertising….I am somewhat troubled by Arpit’s question on “Who actually click on the ads?” That plagues my thoughts once in a while, because I do still harbour skepticism given my lack of interest in most of the ads….

And even if there are, are they really that significant in size and volume to churn out the types of revenues Google is showing in its books?Remember the lesson of Enron, nobody knows what happened until it actually happened….. Vigilance is still the key.

And worse still, nobody can really know just by looking at the accting documents.

On 12/11/06, Wang WeiSheng < xxx@gmail.com> wrote:

Just to throw out a thought for discussion?What’s Google’s core?

Are they straying away from their core? Dell strayed away from their core by engaging the distributers and retailers for a while, and realized the mistake early, cutting their loss to a minimum, but is Google doing likewise?

On 12/9/06, Anubhav Madan < xxx@gmail.com> wrote:
google is growing like crazy… generally it’s more so from the emerging markets — from the new people coming online in china, eastern europe… etc…

Best,
Anubhav

On 12/5/06, Arpit Rai <xxx@gmail.com> wrote:
off topic but i do wonder who are the ppl who click ads online.

my eyes have become so used to ignoring ads that i don’t even remember the last time i clicked on some ad. and yet, google keeps growing. who..i mean who clicks on the online ads.

hey do you guys happen to know how many ppl worldwide use google search?

One Response to “Google – Another email discussion”

  1. Ankur Says:

    I use to ask myself the same question why would someone click on the ad. Until I found my father one day searching for cars and click thrice on the google ad displayed on left bar. I think non techie’s or websavy ppl certainly click once in a while. However sooner or later click rate will fall and they will have to reinvent the model or move to intrusive ads like television.

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