A Google executive on Tuesday admitted to changing the price of advertisements during the auction process to meet revenue targets.
The company frequently changes the auction price for search ads and reserve pricing by as much as 5% on average.
Jerry Dischler -- Google vice president and general manager, who oversees the company’s ad business -- during Google's antitrust trial told the U.S. Justice Department that for some queries, the company may have increased prices as much as 10%.
More than 60% of Google’s revenue is generated by search ads. Dischler said that in 2020, search ads earned the company more than $100 billion. The Justice Department said Google’s ad revenue growth has consistently been in the “high teens” since 2012.
Dischler also said that in May 2019, his team worked on finding ways to ensure that Google met the quarterly revenue targets set by Google’s CFO, Ruth Porat.
That redacted email from Drischler stated concerns about not meeting quarterly quotas and “getting punished” in the market by failing to meet Wall Street’s expectations.
“The question we are all faced with is how badly do we want to hit our numbers this quarter?” he wrote. “We need to make this choice ASAP. I care more about revenue than the average person but think we can all agree that for all of our teams trying to live in high-cost areas another $[redacted] in stock price loss will not be great for moral, not to mention the huge impact on our sales team.”
Anthony Higman, CEO at Adsquire, always intuitively knew Google raised prices, but nonetheless seemed shocked to discover the truth. He wrote on X that “to see it actually stated by the VP of ads is astounding!”
Others chimed in. Andrew Goodman wrote on X that “many years ago, a senior member of the Ads team, who had previously only referred to users, technical issues, Quality Score algorithms, etc., publicly referred to his team as the ‘Revenue Team.’ For sure, don't kid yourself. They can and do fiddle constantly to maximize [money].”
A Google spokesperson separately explained how the ad auction process works.
“Search ads costs are the result of a real-time auction where advertisers never pay more than their maximum bid," said a Google spokesperson. "We’re constantly launching improvements designed to make ads better for both advertisers and users. Our quality improvements help eliminate irrelevant ads, improve relevance, drive greater advertiser value, and deliver high quality user experiences.”
Ad Rank thresholds are the minimum combination of bids and ads quality required to be eligible to show on the search results page and have been part of the auction process for more than a decade. They’re key to promoting ads quality.
An advertiser’s actual cost per click (CPC) is calculated based on a variety of factors, including their bid, quality thresholds, and competition from other advertisers.
Advertisers are never charged more than their maximum CPC bid and, if there’s only one eligible ad, the advertiser pays a reserve price, which Google sets to help preserve ad quality.
Update: This article was updated on Sept. 22, to address how Google's real-time ad auction works.