Google AdWords API - why charging is a bad idea

Recently (2006) Google have decided they’ll add a second fee for using AdWords, but only for certain types of user.

You can see how it happens. Someone says:

“Hey - these guys that use our stuff… they make money off it. We should be, like, charging them or something.”

And some other person, who’s job is to make money says:

“Sure, no way those guys can use our stuff for profit without us getting a share.”

Bam! Right there, Google lost the plot and bought themselves a whole army of evil monkeys.

OK, so what is Google’s plot, and when and where did they lose it?

Google used to be pretty simple, back in 1999 or so. The idea was simple, anyway. Be the best search engine. That was it. No more, no less, just be the best.

Eventually, after a few loss making years of being the best, Google found a way to make money and still be the best. They introduced AdWords. Those “sponsored links” down the right side of the page, and the “Ads by Google” you see on various sites? Those are the main way that Google makes money.

They pressured advertisers to conform to the same rules for “good results” that worked for the main listing on the left, by using a CTR (and hence relevance) rewarding, but opaque, auction. In fact, it works so well, that many Google users assume that the same rules work for the sponsored links as work for the main results list - that the advert at the top is the one that Google, rather than user clicks and the advertisers bid, has determined to be the best answer.

Well, no crime here. Google added a way to make money, and made it so that users would probably find the most relevant answer ranked near the top of the paid search results.
Then Google added an API. Fancy words, meaning that programmers could now submit adverts through software. Doesn’t sound like much until you realise that some advertisers have 30,000 items of which only 20,000 are in stock at any time. Or perhaps, like the travel industry, what was a good price for a flight two hours ago is now an unavailable offer.

When you have a monster list of keywords, thousands or even tens of thousands of adverts and you have to bid all this to make a profit in the face of dynamic market responses to prices… well, you need a programmer or two to help make it all work fast enough.

So, whoop-de-do, Google adds an API and the programmers can get to work. We set up thousands of adverts and tens of thousands of keywords and tied it all to sales and site content. That way we don’t bid for keywords for products that aren’t in stock, and we bid on results.

Pretty neat stuff.

Then Google had that conversation.

They will now charge us for every change we make in AdWords, even just to find out what the performance has been. Why? Because we don’t work for Mr Big. We’re an independent outfit, using our smarts to help customers. If we worked for Mr Big, we’d call what we do an “in-house development effort” and we’d ask Google to excuse from the fees. But because we work for people like, well, you… some company that is not big enough to have a development team who can specialise in programming for internet marketing, we’re charged a fee.

But why is this evil?

There’s a bunch of reasons, from a variety of different perspectives.

Taxing Relevance

Making Google the best search engine means that you have to be relevant. Any link that appears on the page of search results has to be relevant to the search. If there’s any link there that you don’t want, that’s a worse page of results than the optimum.

If you have to pay a fee to change anything - like removing a keyword when a product goes out of stock, adding a keyword for a narrow segment of the market, or making a single letter change in an advert, then the incentive is there to avoid making that change. The quest is no longer to get the best page of results, but to minimise the fees - because Google’s fees come out of my profit, my lunch, my kids music lessons.

Taxing Automation

Now, if, instead, I employed a team of low cost economy workers, they could make endless changes to the account, all day, every day, for free. That’s because Google isn’t charging for the regular AdWords web interface. Not yet anyway. They still use brainpower. They are still making money from using services that AdWords provides. But because it isn’t the API, that service isn’t charged. Hmm, some failure of rationality here.

The financial pressure exerted by Google is that we should not make changes. Our rationale for making changes is that we’d improve the account performance - that activity will benefit users as well the advertiser. So giving us a disincentive to improve the page of search results is completely counter to Google’s Plan For World Domination.

Disincentivising The Ecology

Google does this in several ways. Apart from the additional fees, Google delivers software that performs some of the functions that third parties would and could develop. However, being a large publicly traded business, Google doesn’t reveal what it is working on. So if you want to develop software to work with AdWords, then you need to make sure that you only work on stuff that will damage Google - because Google could unpredictably deliver anything that helped users, for free, and destroy your business in a casual, almost accidental sideswipe.

Why would Google want to penalise companies that might want to improve search engine results pages, just because they write software for third parties? The answer is, I think, that a short sighted understanding of market economics has lead them to understanding market value in a counterproductive way.

Let me put that another way, and make it concrete - we do some smart stuff with AdWords and we were going to offer some products. But given a choice of reducing our fees and managing the account badly, or paying high fees that would put customers off if we passed them on, so we could manage the account properly… well, we’re just not going to play that game. We do it right, or we do something else.

But, all the experiments that we’ve done to work out how to use AdWords effectively from a piece of software, make us great troubleshooters. Chances are, whatever the problem is that you’ve got, we’ve made it happen or seen it happen in one of our client accounts, and we’ve solved the problem already.

Impact

We’ll continue to work on automation for other advertising systems, those without an army of evil monkeys. And we’ll apply our intelligence to finding ways to do smart stuff with the smartest search advertising product, without paying fees and without using prohibited screen scraping. When we do, we’ll resume our product development on AdWords tools. Until this pricing model, there was some cool, and so far as we know, unique, stuff in the pipeline… now lost to Google’s business ecology, from us at least.

Followup

As of July 12th, 2007, we’ve stopped paying for use of the AdWords API. We’ve found techniques that work for our customers, evading additional fees to Google. High-frequency of change users - well, it’s a custom development and hence zero rated. No fees.

It involves a small amount of additional, low cost, human effort - precisely as previously described. And our rate of innovating on AdWords has dropped to negligible levels, as our attention has turned to areas that compete with or damage Google revenues - the areas in which they won’t compete with us.

Update

6th May 2007

Minor tweaks, reflecting the VentureBeat article.

20th July 2007

Some tweaks for sense and economics. Also, strictly, AdWords was not the first paid search program, or even the first large scale program - it was the first mass market paid search vendor with the generalised second value auction; I can’t really say “innovation”. So that’s gone.