More Ad Money in the Pie, Lower EPC for Publishers?

http://whizzbang.typepad.com/whizzbangs_blog/2007/06/wheres-all-the-.html

Michael Gilmour discusses flattening earnings per click amid a growing search pie.  If he's right and Google/Yahoo are collectively gaming/shaving their publisher partners paid search revenues then I think we'll live to see the day when those folks either pay out 90-100 effective rev-shares, or another ad platform reveals itself to exploit the inefficiency.

Two years ago I contemplated starting my own ad platform, hiring a full-time sales team and sending them to all the adtech/industry related shows, building a Rolodex of contacts to sell ads directly to..  You'll never be able to duplicate the entire PPC marketplace that Yahoo and Google have cultivated, but when you own static-inventory in the form of organic, proprietary domain-name traffic; you can get the low hanging fruit which represents the 50%- 80% of your "easier to sell" traffic.

I haven't pulled the trigger on that due to my geographic location and the lifestyle-change resulting from rolling out offices and hiring people; but this is something I would seriously consider if things go as Mr. Gilmour's chart suggests. 

I'm not the only one thinking this way of course. That undercurrent of "closing inefficiencies" should limit the ability of the ad-marketplaces to take too-great an advantage against their publisher partners. Google and Yahoo are powerful but they can not reverse the laws of gravity, or business. Traditional distribution models eventually degenerate into 90% for the manufacturer, 10% for the distributor or so.  I don't see Internet traffic being any different.  If anything, greater percentages than even 90% will flow to the publisher as advertisers better comprehend where the high quality traffic (which drives sales conversions) originates.

As Mr. Gilmour points out, we're not seeing that at the moment; but the pendulum always swings both ways.

Comments

[Rubber Duck]

I think Google have a way to go yet before they have us all stuffed like a Thank Giving Turkey. Baidu cometh. Google has dared to enter their backyard, so they must now be prepared to slog it out in a Global Arena.

Even Microsoft don't appear to be entirely dead. I went back to work this week to occupy my time while MS and ICANN continue to struggle to get their act together over IE7 and get punycode into the their precious root. Anyway to my horror, every screwed search is going to MSN!

***FS*** True true sir. Double-true.

[Rob]

Hopefully Google, Yahoo and MSN will have to keep publisher rates up as they compete for places to put their ads. What I think will help PPC is the advent of CPA, pay per call, and video ads - which should pay everyone higher. It would also be nice to see a strong fourth option - I think you're right that if the big guys keep paying out less, someone will see the opportunity to set up a better Ad network for publishers.

[Robert]

Which brings me back to my earlier 'ask Frank...' why on earth 3 or 5 domainers aren't joining strengths to offer their own bidding platform? With a combined force of a couple of million domains advertisers should be knocking on your doors. And yes, it's different than counting money while contemplating your red dot robusto. It will mean plenty of work and headaches but...

Count me in!

***FS*** I definitely think you'll see this.. it will come.

[Edwin Hayward]

While I don't deny that the linked article is an interesting hypothesis, there are at least 3 possible explanations that are less "sinister" in that they do not imply that the search engines are retaining a greater share of the pie over time.

In reality, this trend (if more than a statistical anomaly arising from the particular mix of 500 domains in the original study) may be a mix of all these factors and more besides:

1) Traffic may be growing in the domain channel faster than the ad dollars allocated to it. As more and more domains get bought out by larger, experienced domain players, they will be adding to the total inventory of parked domain traffic.

2) Advertisers may be opting out of the domain channel, wherever they get the chance to do so. Most will probably not be tracking their traffic sufficiently precisely to pinpoint the potentially higher conversion rates from generic type-in traffic (surveys generally suggest that less than half of businesses have a good feel for where their traffic is coming from, and much fewer know which is their more/less profitable traffic). After all, the preponderance of press articles over the last 6 months has been negative, despite the upturn in sentiment recently, so there may be a negative perception of the domain channel across the wider advertiser community.

3) Advertisers may be paying less for domain channel traffic. While GENERIC typein traffic may convert better than search engine keyword traffic, ALL domain traffic (old links, typos, arbitraged traffic, TM traffic etc. + generic typeins) may be of an overall poorer quality/convertability. The search engines - Google especially - have been putting more effort into trying to calculate what "works better" and compensating advertisers accordingly by discounting lower-converting traffic (and there's therefore less "pie" to share with domain owners since Google is taking in less for those ads too).

This latter problem is compounded in the case that a given parking company is getting data in a relatively "bulk" form from Google or Yahoo, i.e. where they can't attribute a specific click - and click value - back as far as a single visit to a single publisher's specific domain, but have to derive click values across all publishers for a given trigger keyword. In such a case, the "super quality" generic traffic is being polluted - and penalized - by all the other (relatively) junk traffic being syphoned through the domain channel.

[Lea de Groot]

Frank, I'd love to see you do this :) Why? Because I can only see that eventually you'd offer advertising on 3rd-party sites and compete directly with adsense et al. I love competition, and there isn't enough in the market right now :(

[Robert]

The above is an interesting, useful perspective. But there is no denying that shaving -whether a parking company or the ad provider- is prevalent in many industries for whatever reason. Since there seems to be a gap in reporting uniques/clicks/revenues in most cases, there is always the potential for unintentional errors as well as manipulation of data. It will be fairly easy to drop an algorithm somewhere that maximizes revenue given certain parameters and since these are all numbers noone *gets hurt*. The smart webmaster/domainer should not discount real events that may influence profits as the ones Edwin Hayward described, neither live in a self-denial, rosy world.

[Andrew Johnson]

I think Edwin is right on the money here. Huge growth in revenue, but there has also been a huge growth in the other "pie" as well.

On the conspiracy side, this might explain why the big three are eagerly eating up the remaining successful independent ad networks.

As for 100% rev-share, this is tough. When dealing with ad inventory optimized for performance you have to take into account both contextual targeting as well as user/behavioral targeting. I think an aggregator of strictly high quality generic domain names may be able to sell ads independantly, but to compete on any other level will become more and more difficult as technology advances. In addition to technology, every day Yahoo and Google are adding to their massive databases of past performance allowing for even more optimized distributions of inventory.

To speak specifically about Yahoo -- they have big room for improvement. I know guys who have multi-million dollar internet advertising budgets. They throttle their Yahoo spend because of the enormous numbers of low quality publishers syndicating Yahoo's advertisements. Neither Yahoo nor Google provides any meaningful way of advertisers to single out individual publishers and adjust their bids in accordance with performance, thus the high quality publishers subsidize the payout of the low quality publishers.

Consider this, there is more money in the ad pie but Yahoo continues to underperform. There may be a reason behind this other than Yahoo shaving.

Arbitrage may also be playing a large role in flattening profits. There is certainly a market for low quality traffic but publishers should not be paid a premium for it. Google's cracked down but Yahoo's overture feed syndicators continue to get away with it. You know more about the domain space than I do, but from what I am hearing it sounds that there are domainers arbitraging paid traffic through their portfolios.

Bottom line, right now its up to Google and Yahoo to fix the problems. They both appear to be a lot more interested in reaping the profit of display advertising right now. When they finally get the other side right, revenues should jump.

[Michael Gilmour]

A couple of points that I didn't cover in my blog (whizzbangsblog.com).
1. There is an imbalance of information between the domainer and parking company and advertising aggregators (ie. G&Y). They have perfect information that allows them to exploit their own system.
2. There is not a section of the pie allocated to the domain channel or advertising content channel. To suggest such a thing would mean that we DEFINATELY are not on a percentage of the advertising spend.
3. I did a statistical significance check on the 500 domains in the portfolio and found that there is less than .001% chance of those particular domains being penalised.
4. With all of the additional dollars entering online advertising someone is taking the additional cut that should be flowing through in the form of EPCs. The problem is that since there is no transparency or accountability at the top level then we can only assume that G&Y are skimming.
I think that I'll write an article on this in my whizzbangsblog to flesh out the concept. I do think that it's very healthy that we are having this discussion....many thanks Frank for bringing this to the attention of your readers!

[Adrian Bye]

You will not beat G & Y if you do this.

Even if you can get some great advertisers signed up, you won't be able to aggregate as many top paying advertisers as G&Y can across all keywords. Since your smaller volume of advertisers won't be able to pay as much for advertising, your payouts won't be competitive.