• by Ross Fadner , April 5, 2004

Google's new pricing scheme for advertisers will lower the price of pay-for-placement contextual ads displayed on occasions that are less likely to result in conversions. While the new plan was announced on April Fool's Day, it wasn't a joke. The plan is likely to give advertisers more control over the deployment of their ad dollars in search programs.

However, publishers, advertisers, and industry analysts are left wondering whether the latest Google AdDance really makes the company's contextual ad program more relevant, or if the pricing shakeup is just a foil for an old bid-market pricing model.

Industry analysts and pundits have noted that Google AdSense leaves advertisers with little control. The tradeoff is in fine-tuned targeted placement for the Google network's enormous volume and reach. As part of Google's smart pricing technology, which was developed to address the concerns of Google's advertising customers, a program will calculate the value of leads and adjust prices accordingly.

However, rather than giving advertisers the control to tweak their bid prices by each publisher, Google will be making the decision for them. The methodology used to calculate this was not disclosed, but advertisers do stand to benefit from the fact that keyword buy homonyms, like "polish" and "Polish" (the nationality), should no longer be a problem for advertisers and publishers.

Lance Podell, president, Kanoodle, Inc., calls the new Google pricing system a "Band-Aid" over "an infrastructure issue." He says that the main problem for advertisers with Google is that the search giant uses an algorithm for mapping contextual ads to content pages that is similar to the one that it uses to place paid results on its search engine. Essentially, the Google AdWords system simply scans each page and displays ads based on how many times a given keyword is repeated. Other contextual marketing firms--including Yahoo!'s Overture as of January 2004--peg ads to content based on vertical category.

Podell notes that Google's content ads were not performing as well as its paid search ads because "advertisers are buying keywords and not content." For publishers, Podell says that they don't care about bid price as much as click-throughs, so a lower bid price is satisfactory to them as long is it leads to greater conversions.

"Did Google create more relevant ads? No," Podell deadpans, adding: "All they did was adjust their pricing." Podell claims that even though Google and Overture compete with Kanoodle in the contextual marketing space, "I look for Google and Overture to succeed all the time because rising tides lift all boats." He adds that Google's system works precisely because of its large network: "I see where they're bound by their infrastructure." Podell maintains that there is a relevancy problem, and the future of contextual placement is a bidding process by industry verticals, separate from search placement.