Google has conceded to covertly adjusting its ad auction systems in order to meet financial objectives.
Frequently, the search engine modifies the auctions that govern the sale of search ads. These changes can lead to an uptick in the cost of advertising and the minimum reserve price by approximately 5% for a typical advertiser.
In specific search queries, the tech behemoth has gone so far as to inflate rates by up to 10%, revealed Jerry Dischler, a Google Ads executive, during the ongoing federal antitrust litigation.
Dischler further mentioned that Google is generally reticent about notifying advertisers regarding these pricing shifts.
The revelation has caused a stir in the digital marketing realm, with industry professionals now speculating about whether Google may be strategically manipulating Smart Bidding to boost profits. Anthony Higman, a digital marketing specialist, commented:
“It’s one thing to suspect it, but to have it publicly acknowledged by a Google Ads Vice President is quite something. Smart Bidding, then, could merely be an ingenious method for Google to conveniently adjust ad pricing.”
The Backdrop of the Trial
Google currently faces scrutiny from the U.S. Justice Department for purportedly deploying deceptive tactics to maintain its dominant position as the world’s top search engine. With a 90% market share in search, Google has allegedly been paying substantial amounts to firms like Apple to ensure its search engine remains the default on various devices.
Understanding Search Ads
Search ads are the text and promotional material that appear at the pinnacle of Google’s search result pages during user queries.
In 2020, search ads contributed to over 60% of Google’s total revenue, raking in upwards of $100 billion, as stated by Dischler.
Motivations Behind the Price Changes
According to Dischler, internal efforts were being made to “shake the cushions” to meet the revenue targets outlined to Wall Street by Google’s CFO, Ruth Porat.
In a past email to his team, Dischler expressed concern over failing to meet financial quotas, stating that a failure to do so would severely affect market perception and team morale. When asked to elaborate during the trial, Dischler simply stated that the aim was “to get inventive to hit our targets.”
Why This Matters
If Google can unilaterally hike up ad prices without any real competitive pushback, it lends credence to the Justice Department’s claim that Google operates an unlawful monopoly. While the search service itself remains free to users, making the monopoly argument less direct, the Department could still assert that enhanced competition might solve other pressing issues, like user privacy.
In response to the revelations, a spokesperson for Google told Search Engine Land:
“Ad costs are determined via real-time auctions, wherein advertisers never pay above their highest bid. Continuous enhancements aim to improve ad quality for both the user and advertiser.”
In light of recent revelations that Google subtly raises advertising costs to meet revenue goals, trust between small businesses and the tech giant is becoming increasingly fragile. Many small businesses report receiving automated recommendations from Google on how to improve their ad performance.
These suggestions, as discussed in our previous blog, may sometimes be peddled by subcontractors acting as Google representatives, without adequately considering the specific needs or ramifications for the advertiser. This one-size-fits-all approach, coupled with the news of Google’s undisclosed price hikes, erodes the trust that small businesses place in Google Ads.
It underscores the necessity for engaging a reputable digital marketing agency. An agency with the right expertise can not only evaluate the appropriateness of Google’s recommendations but also proactively manage campaigns to offset any artificial price inflations.