J. Timothy King’s Blog

Does Google Think It’s Bigger Than the Market?

John Carlton wrote recently about Google’s latest change in AdWords. This change has upset a lot of people, because now suddenly their AdWords ads don’t make money. It’s also pleased a lot of people, because they believe the change will thin their competitors. Regardless, no one should be relying completely on AdWords (or on any single service) for your business, and if you are, you deserve to be put out of business. Because we have to expect Google will upset its customers in perverse ways. It’s only a matter of time. And maybe the time is now.

We saw it with IBM, a once innovative company. Yes, IBM was actually once innovative. This was before my time, but I can read it in the history books. Peter Drucker even uses them as a shining example in his classic Innovation and Entrepreneurship (which you can buy individually or as part of The Executive in Action):

IBM had one of the early computers. Like the other early American computers, the IBM computer was designed for scientific purposes only. Indeed, IBM got into computer work largely because of [the founder Thomas] Watson’s interest in astronomy. And when first demonstrated in IBM’s show window on Madison Avenue, where it drew enormous crowds, IBM’s computer was programmed to calculate all past, present, and future phases of the moon.

But then businesses began to buy this “scientific marvel” for the most mundane of purposes, such as payroll. Univac, which had the most advanced computer and the one most suitable for business uses, did not really want to “demean” its scientific miracle by supplying business. But IBM, though equally surprised by the business demand for computers, responded immediately. Indeed, it was willing to sacrifice its own computer design, which was not particularly suitable for accounting, and instead use what its rival and competitor (Univac) had developed. Within four years IBM had attained leadership in the computer market, even though for another decade its own computers were technically inferior to those produced by Univac.

I’m obviously not talking about technological innovation, but market innovation, which is much more important. IBM was at one time willing to listen to customers and to do even the extraordinary in order to please them. At some point, IBM lost its innovative edge. It was said, “No one ever got fired for buying IBM.” IBM must have thought it could do no wrong.

Then they approached a young Seattle-area entrepreneur. They needed an operating system for their new Personal Computer. This entrepreneur bought the rights to an operating system called QDOS, which ran on a similar computer. No one ever got fired for buying IBM. IBM thought it knew the market. IBM thought it could do no wrong. Then this upstart entrepreneur licensed this operating system to IBM to ship on their computers, as long as he was able to market MS-DOS on its own as well. I guess IBM underestimated the value of the up-sell.

Fast forward to today. Now Microsoft pushes the Windows Genuine [dis]Advantage program, presumably because it distrusts its customers. Nowadays the saying is, “No one ever got fired for buying Microsoft.” And apparently Microsoft needs neither to trust nor to inspire trust in its customers, because it seems Microsoft knows the market better than the market knows itself. Meanwhile, crazy competitors like Google provide a wide range of aggressive services, and even stick up for their customers against the government.

But how long will this last? Google has made its brand by finding out what its customers want and giving it to them. But recently, they’ve made controversial choices that don’t seem to me to benefit the market. That’s okay. We all make mistakes. Innovation is about being controversial and making mistakes and taking risks, and learning from the experience. It’s when a company stops learning that it gets into trouble. Because learning is how you find a way to benefit the market. If you don’t find a way benefit the market, it dries up on you. No one is bigger than the market. When a company thinks it can do no wrong, it stops learning. It starts thinking it’s bigger than the market. But no one is bigger than the market.

I have to wonder, is Google beginning to think it’s bigger than the market?

The AdWords Controversy

AdWords is Google’s pay-per-click advertising program. Basically, you write a short, 4-line ad and bid on keywords that people type into Google’s search engine. If you bid high enough, your 4-line ad appears on the search results page in the “sponsored links” section. But Google has an interesting twist. Their software looks at your keywords, at your ad, and at how many people click on your ads for those keywords… And if you have a better ad that more people want to click on, they give you a better price. You can bid less for the same keywords that other people are bidding more for.

But wait! There’s more! Google’s system also scans your landing page, the web page that someone goes to when they click your ad. And if the landing page is a high quality landing page, they’ll discount your ad even further. And if your landing page is poor quality, they’ll make you pay more. And here’s where the controversy lies. Google recently changed the algorithm it uses to judge the quality of a landing page, penalizing some and helping others. And not all of us agree that Google has defined “quality” with any measure of goodness.

Greywolf, for example, tells the story of how Google put one of his pages out of business. He had a sales letter, short and sweet, which sold a product. The sales letter was relevant to his ad and keywords. We know this, because we know it was what visitors wanted. And we know it’s what visitors wanted, because they parted with their hard-earned cash as a result of that page, enough of their hard-earned cash for him to make a profit.

This was not a keyword arbitrage site. It was not a lazy-affiliate site. And not all of us agree that these are bad, because they do provide market value. They have to, or else they’d quickly go bankrupt, because the market won’t pay for something that’s useless. The backlash against these sites is not really about how valuable they are. Rather, it’s the same backlash you see against ticket scalpers. It’s not logical, but emotional.

But this page was not even like these. It was a bona-fide sales page, with original content that produced clearly valuable results, as judged by the people actually clicking through to the page. But it didn’t meet with Google’s new “quality” standard. So the bid price for his ads went up. The price went up so much that he could no longer make a profit, and he had to shut down the campaign.

Now, I applaud Google for wanting to increase the quality of the content on its search result pages. I applaud Google for pursuing this, even though it means risking part of their primary revenue stream. And it is a risk, because advertisers that can’t meet the new price-point will just leave the program. In fact, Google has made it no secret that they want this result. They actually want to encourage so-called low-quality advertisers to put up or get lost.

So I applaud Google for their goals. But I’m seeing a certain capriciousness and hubris. Google has always been about setting up a self-regulating system that would achieve its goals. From the beginning, Google judged web pages by counting how many other web pages linked to them. At the time, this was revolutionary. But it made sense. Don’t try to judge the content; rather, set up a system to let the market judge it. With AdWords, it was the same way. Don’t judge the ads; rather, measure how many people click on the ads. Let the customers decide! Indeed, click-through-rate has historically been the primary metric used to measure the quality of ads and keywords.

But no more. Now they’re judging content outright, and this judgement is a significant factor in the new bidding algorithm. Yes, Google’s engineers have designed a system so perfect, it knows what you want without even asking you!

It’s Not Google’s Fault You’re Bankrupt

When I heard about the new AdWords change, I freaked out a little. Because I didn’t know how it was going to affect me. And in their traditional style, Google told us very little about it. Fortunately, there are AdWords geeks out there who have experimented and thereby shed some light on the subject. So I feel a little more comfortable. Indeed, none of my AdWords campaigns have gone into the toilet. (And I’ll have to tell you an AdWords story at some point.) Actually, my campaigns are performing better than ever. What it boils down to for me is that I’ll have to be more aware that my landing page can have a huge effect on my AdWords bid prices. I can handle that.

When I read Greywolf’s story, I had to wonder whether he could handle that. I mean, really handle it. I had the same reaction John Carlton talked about in his blog post. You see, Greywolf didn’t have a business. He had a web page. A web page is not a business. If he had a business, he would not have had to shut down simply because Google changed their policy.

Let me explain. The really great thing about AdWords is that it’s flexible and immediate. And these qualities have not changed. You can get in there fast, try an ad campaign, measure specific results down to the keyword, and improve your campaign until it’s making money and you know how much money. Then you take it out of AdWords.

This is a tactic Perry Marshall pushes, and he’s right. I have used and highly recommend his free 5-day AdWords course and his other AdWords products and services. Once you use AdWords to refine your message, then you buy Overture ads. And other pay-per-click ads. And pay-per-impression ads. And you send out direct mail postcards and run radio and TV ads. You can do this with much more safety than you could before using AdWords. Because through your AdWords campaign, by trying different things, you let the market tell you what marketing message you should use. This is the way Google used to do things, too.

But Google is changing, and it will change. The only thing you can count on to remain the same is change. If you have a business, you have multiple ways to talk to your customers, and you keep talking to them. You cross-sell them, and you up-sell them. And if one vendor or one advertising channel or one product gets flushed down the toilet, it’s okay. Everything else continues as normal, because you have other vendors and channels and products. Running a business is kind of like being Survivorman. How successful you are depends on one thing and one thing alone: how deep your bag of tricks is.