Section 7.3. Automated Ad Brokering: AdSense and AdWords

7.3. Automated Ad Brokering: AdSense and AdWords

Google places ads on its own propertiesmost significantly on search results pagesand on web sites that have signed up for the AdSense program.

Google also places ads in third-party content networks to extend the range of its ads even further.

Advertisersbusinesses and people with something to sell or promotesign up with Google via the AdWords program. Working with AdWords, which involves bidding a maximum amount for particular keywords, is explained in detail in Chapter 10.

Google's software sits like an automated advertising broker between the two halves of this equation, as shown in Figure 7-5. It's a really important point. If a content ad is hosted by Google and appears on your site, you could theoretically cut out the company in the middle (Google), if advertiser and publisher knew who each was, and could negotiate a price both felt was fair. For example, if I publish a site with information about digital photography, and I notice that online camera stores often provide the Google AdSense ads that appear on my site, I could theoretically approach one of these camera stores and negotiate a deal to carry ads for the store on my site that did not pay Google a commission. However, that assumes that I know who to contact and want to take on the added responsibility of a direct interface with the stores. Since many people don't want this extra responsibility, using Google as an intermediary turns out to be a good solution.

Like all successful intermediaries, Google's job is introducing parties and establishing a market pricing mechanism that both sides feel is fair (or, at least, that they can live with).

Figure 7-5. Google is the intermediary between AdSense accounts and AdWords advertisers

In the case of advertisements that are placed on web sites participating in the AdSense content network, the business model is really simple. Google takes in money from the advertisers and pays out money to the owners of the web content. Your goal if you are web site content owner should be to maximize your share of this revenue stream, and Google's game is to make the most of the difference between what it has to pay for ad space (AdSense) and what it can take in placing ad inventory (AdWords).

The Google inventory of pages that can host ads is bifurcated, however, and Google's model with its own search results pages is different, and more complex. Google's search result pages make Google a content owner of an incredibly valuable web propertyone that is, however, difficult and expensive to maintain. Google's profit in this portion of its business comes from taking in more in ad revenue than it pays out to maintain and improve its search application (and, to some degree, the other parts of Google). The goal of a participant in the AdWords program who is looking to place ads on the Google search network is to maximize the effectiveness of its expenditures on the AdWords program.

What About Click Fraud?

Click fraud means clicking on contextual ads with no interest in purchasing the goods or services advertised, usually with the intention of defrauding the advertiser or enriching the contextual publisher. Most often, click fraud occurs as part of an effort to raise expenses for a competitorby making them pay for the bogus clicksor as an attempt at self-enrichment by a publisher (by clicking on ads on its own pages).

Click fraud is a major problem, at least in terms of perceptions, on the Internet for contextual advertising vendors like Google and Yahoo.

Google has major efforts underway to detect click fraud, which are in the aggregate fairly successful, but the details of these programs are (for obvious reasons) secret. The bottom line:

• On a very small scale, it is possible to commit click fraud and get away with it. However, as a publisher, you should take care to be totally aboveboard. If Google suspects you of click fraud, it will most likely close your account, and possibly ban your sites from the Google search index.

• Detecting click fraud is a statistical matter. Once the fraud becomes statistically significant, it will probably be detected.

• Contextual advertising does work and delivers targeted prospects much more effectively than any other method. A small amount of click fraud is a fact of lifemost advertisers regard it as a cost of doing business that does not diminish the relative effectiveness of CPC advertising. (Despite the publicity that click fraud gets, a recent study shows that less than 6% of all advertisers regard it as a problem.)