Google Insists Panda, Penguin Not Designed To Increase Its Revenue

Chris CrumSearch

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Google put out a new Webmaster Help video, featuring Matt Cutts once again talking about "misconceptions" in the SEO industry. You may recall a while back when he tackled the "misconception" that Google is doing everything you read about in its patents.

There are two main takeaways from the new video. The first is that Google does not make changes to its algorithm (like Panda and Penguin) in order to generate more revenue for itself. The second is that you should focus more on design and user experience than link building and trying to please search engines.

Do you agree with Matt's statements? Are you convinced that Google is putting user experience ahead of short-term revenue gains? Let us know in the comments.

First, Cutts points out that a lot of people don't get the difference between an algorithm update and a data refresh, both of which are common terms associated with Panda and Penguin. He's talked about this before, but here's his latest refresher.

"The difference between an algorithm update versus just a data refresh - when you're changing your algorithm, the signals that you're using and how you weight those signals are fundamentally changing," he says. "When you're doing just a data refresh, then the way that you run your computer program stays the same, but you might have different incoming data. You might refresh the data that the algorithm is using. That's something that a lot of people just don't seem to necessarily get."

Cutts put out a blog post back in 2006 on the difference between algorithm updates and data refreshes. He then gave these straight-forward definitions before pointing to a video in which he compares an algorithm update to changing a car part, and a data refresh to filling up the gas tank:

Algorithm update: Typically yields changes in the search results on the larger end of the spectrum. Algorithms can change at any time, but noticeable changes tend to be less frequent.

Data refresh: When data is refreshed within an existing algorithm. Changes are typically toward the less-impactful end of the spectrum, and are often so small that people don’t even notice.

So that's the first misconception Cutts aims to clear up (again) in this new video. Then he moves on to "a bigger one they don't seem to get".

"I've seen a lot of accusations after Panda and Penguin that Google is just trying to increase its revenue, and let me just confront that head on," says Cutts. "Panda, if you go back and look at Google's quarterly statements, they actually mention that Panda decreased our revenue. So a lot of people have this conspiracy theory that Google is making these changes to make more money. And not only do we not think that way in the search quality team, we're more than happy to make changes which are better for the long term loyalty of our users, the user experience, and all that sort of stuff, and if that's a short-term revenue hit, then that might be okay, right? Because people are going to be coming back to Google long term. So a lot of people...it's a regular conspiracy theory: 'Google did this ranking change because they want people to buy more ads,' and that's certainly not the case with Panda. It's certainly not the case with Penguin. It's kind of funny to see that as a meme within the industry, and it's just something that I wanted to debunk that misconception."

"Panda and Penguin," he continues. "We just want ahead and made those changes, and we're not going to worry about whether we lose money, we make money, whatever. We just want to return the best users' results we can. And the mental model you should have is, we want to have the long-term loyalty of our users. We don't want to lock users in, so we have Data Liberation. People can always get their own data back out of Google, and if we just choose short-term revenue, that might make some money in the short term, but historically we've had the long-term view. If you make users happy, they'll come back. They'll do more searches. They'll like Google. They'll trust Google more. That, in our opinion, is worth more than just some short-term sort of revenue."

"If you look at the history of the decisions that Google has made, I think you see that over and over again, he adds. "And Panda and Penguin are no exception to that."

We did look back at some of Google's earnings reports. The Panda update was first launched in February, 2011. Google's revenue grew 27% year-over-year in the first quarter of 2011.

“We had a great quarter with 27% year-over-year revenue growth,” said Google CFO Patrick Pichette. “These results demonstrate the value of search and search ads to our users and customers, as well as the extraordinary potential of areas like display and mobile. It's clear that our past investments have been crucial to our success today—which is why we continue to invest for the long term.”

Some other snippets from that report:

Google Sites Revenues – Google-owned sites generated revenues of $5.88 billion, or 69% of total revenues, in the first quarter of 2011. This represents a 32% increase over first quarter 2010 revenues of $4.44 billion.

Google Network Revenues – Google’s partner sites generated revenues, through AdSense programs, of $2.43 billion, or 28% of total revenues, in the first quarter of 2011. This represents a 19% increase from first quarter 2010 network revenues of $2.04 billion.

...

Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 18% over the first quarter of 2010 and increased approximately 4% over the fourth quarter of 2010.

Looking ahead to the next quarter's report, the first full quarter of post-Panda results, Google's revenue was up 32% year-over-year. Here's CEO Larry Page's statement from that one:

“We had a great quarter, with revenue up 32% year on year for a record breaking over $9 billion of revenue,” said Larry Page, CEO of Google. “I'm super excited about the amazing response to Google+ which lets you share just like in real life.”

A few more snippets from that report:

Google Sites Revenues – Google-owned sites generated revenues of $6.23 billion, or 69% of total revenues, in the second quarter of 2011. This represents a 39% increase over second quarter 2010 revenues of $4.50 billion.

Google Network Revenues – Google’s partner sites generated revenues, through AdSense programs, of $2.48 billion, or 28% of total revenues, in the second quarter of 2011. This represents a 20% increase from second quarter 2010 network revenues of $2.06 billion.

...

Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 18% over the second quarter of 2010 and decreased approximately 2% over the first quarter of 2011.

The word "panda" is not mentioned in either report as far I as can tell, but there you do have a slight decrease in paid clicks from quarter to quarter, which given that this takes AdSense into account, and many sites affected by Panda were AdSense sites, could be representative of a direct blow from Panda itself.

The next quarter, however, saw paid clicks increase 13% quarter-over-quarter. In Q4 of that year, they increased 17% quarter-over-quarter.

Interestingly, back in July of 2011, analyst Tom Foremski suggested that Google wasn't being clear about Panda having an impact on ad revenues, pointing out a "huge disparity between the growth rates of Google sites and partner sites," which he said was "without precedent for most of its history."

Cutts actually took issue with some words from Foremski, and reacted in a comment on a Hacker News thread, where he points to transcripts from actual earnings calls, highlighting relevant sentences. Here's Cutts' full comment from the thread:

DanielBMarkham, let me try again using quotes from Google's last two earning transcripts from the last two quarters and see whether that helps to clarify.
I'm loath to go anywhere near a subject like corporate earnings for various reasons, but Foremski says "There is no explanation from Google or Wall Street analysts that I could find," but anyone can go read Google's Q2 2011 earnings call transcript, which you can find at http://seekingalpha.com/article/279555-google-s-ceo-discusse... . The relevant sentence is "Network revenue was again negatively impacted by the Search quality improvements made during the latter part of Q1, as you will remember, and know that Q2 reflects a full quarter of this impact."

Now go read Google's Q1 earning's transcript at http://seekingalpha.com/article/263665-google-s-ceo-discusse... . The relevant section is "The Google Network revenue was up 19% year-over-year to $2.4 billion. That Network revenue was negatively impacted by two things, the loss of a Search distribution partnership deal and also, what has been broadly communicated, by Search quality improvement made during the quarter. Regarding the Search quality improvement, remember that we regularly make such trade-offs. We really believe that the quality improvements that benefit the user always serves us well both in the short term and in the mid term in terms of revenue."

So Foremski claims that "For some strange reason no one has picked up on this or noticed this huge change in its business model. There is no explanation from Google or Wall Street analysts that I could find." I would contend that Google has actually been quite clear about the reasons for the change in network revenue in its earnings calls.

In particular, Google has been clear in that it's willing to accept an impact in our revenue in order to improve the quality of our search results.

In Q1 2012, paid clicks were up 7% quarter-over-quarter. In Q2 2012, they were up 1%. In Q3 2012, they were up 6%. In Q4, they were up 9%. In Q1 2013, they were up 3%. So, while there was a short term hit, the long term does seem to see increase after increase in this area.

Now, back to the video. Finally he gets to the topic of what he thinks SEOs are spending too much time doing.

"I think a good proxy for that is link building," Cutts says. "A lot of people think about, 'How do I build more links?' and they dont' think about the grander, global picture of, 'How do I make something compelling, and then how do I make sure that I market it well?' You know, you get too focused on search engines, and then you, for example, would entirely miss social media and social media marketing. And that's a great way to get out in front of people. So, specifically, I would think, just like Google does, about the user experience of your site. What makes it compelling? What makes it interesting? What makes it fun? Because if you look at the history of sites that have done relatively well or businesses that are doing well now...you can take anywhere from Instagram to Path - even Twitter...there's a cool app called YardSale, and what those guys try to do is they make design a fundamental piece of why their site is advantageous to go to. It's a great experience. People enjoy that."

I think we've all pretty much heard this before.

Do you think Panda and Penguin have really helped the quality of Google's search results and created a better user experience? Is link building still of major importance? Let us know what you think.

Image: SerSon Art (Etsy)

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Chris Crum
Chris Crum has been a part of the WebProNews team and the iEntry Network of B2B Publications since 2003. Follow Chris on Twitter, on StumbleUpon, on Pinterest and/or on Google: +Chris Crum.