Google Debunks CPC Inflation Study

    September 16, 2008
    WebProNews Staff

Google’s Chief Economist Hal Varian effectively dismantled all of SearchIgnite’s study on CPC inflation resulting from Google’s ad deal with Yahoo except for one: that prices could rise. That may be irrelevant, though, since, Varian notes, Google and Yahoo don’t actually set ad prices. Advertisers do.

Varian targeted SearchIgnite’s July report, which certainly did ignite the search world’s discussion of the conclusion that keyword prices on Yahoo might increase by an average of 22 percent. Varian criticized the study’s “flawed assumptions” and “questionable methodology.”

The ad auction process in place for the last decade will remain unchanged by the Google-Yahoo ad deal, says Varian, meaning ad prices as remain set by advertisers and not by Google or Yahoo, a detail SearchIgnite failed to acknowledge.

He also debunked the idea that Google will be serving Google ads across Yahoo’s network for all search queries:

“This contradicts Yahoo’s own statements that their plan is to serve Google ads on search results pages where they have few relevant ads to serve. Yahoo! also has a strong economic incentive to keep serving as many of their own ads as possible, since they get to keep all of the revenue from those ads, while Yahoo! only receives a part of the revenue from ads served by Google.”

While he was at it, Varian denied that Google and Yahoo would be monitoring auction prices to serve higher-priced ads, criticized the study’s authors for vaguely defining “head” and “tail” keywords, and placing more emphasis on cost per click than return on investment.

What he didn’t say is that prices wouldn’t rise. They might, just not for the reason SearchIgnite said:

“The paper suggests that advertisers will be getting the same performance from the same ads, just at higher prices. We believe that advertisers will be getting significantly better performance at prices that reflect that improved performance.”

Which means prices go up, presumably as advertisers bid aggressively on high-return keywords.

Google’s got a battle on its hands with antitrust complaints regarding this deal with Yahoo. Though Microsoft both hypocritically cried “monopoly” after its takeover bid failed and hired a DC Truth-Creator lobbying firm to lay down a convincing-enough AstroTurf organization on the press, other opposition has recently surfaced, including the World Association of Newspapers.

It makes sense they’d be against the deal. They sell ads, too. But, as a recent report from comScore shows, while Google may be king of search, the company is far, far away from dominating the online ad space in general.