• by Shankar Gupta , April 20, 2006

In a move that could impose significant costs on bid management firms and other search engine marketing companies, Google has decided to start charging on a per-use basis for its AdWords application programming interface, or API, which allows software developers to design applications that send and receive data to and from its keyword ad auction. The new pricing system will go into effect July 1.

"We are changing the quota allocation system and pricing model to create a more flexible and level playing field that encourages efficient coding and application design. Effective July 1, 2006, the current free quota system will be replaced by a usage-based system," wrote Google product manager Rohit Dhawan on the company's blog. "As a result, current developer quota caps will be removed in order to provide a more flexible and scalable system for quota allocation and consumption."

Previously, Google made its API available for free, but limited usage based on the amount of ad dollars being managed. Under the new system, developers will be charged 25 cents per 1,000 times the API is used to call data.

Josh Stylman, managing partner at search engine marketing firm Reprise Media, said the companies affected most by these changes will likely be bid management firms, which call and send data to and from the API multiple times per hour to change keyword bids in real-time. "The firms that are hurt more by this are likely the big management companies, particularly ones that overuse the API," he said. "Companies that are crawling the system once an hour, twice an hour--essentially bid management companies--are going to have a higher economic cost."

Stylman said that the change could mean bid management, previously seen as the key sector of search engine marketing, could recede in prominence, as marketers would seek another way to optimize their keyword campaigns beyond dynamic control of bids. "There's been this misnomer in the marketplace that bid management is search marketing," he said. "We may see the era of 'bid management as search marketing' come to an end, in that people are finally going to have to take a look at campaigns more holistically."

Ellen Siminoff, CEO and president of Efficient Frontier, a search engine marketing firm that does bid management for its clients, said that bid management firms would not face major problems if they were efficient in their use of the API. "As long as you're efficient with your system, there's not a huge issue associated with it," she said. "Everybody that uses API are going to have to be more efficient in how they use it, so they can continue to get a good return."

Siminoff said that Efficient Frontier did not have any plans to change its practices following the change in policy.

Google did not return calls for comment.