DISQUS

What, no comments from VL on today's rumors of Yahoo or MSFT buying EBay? ? ?

Linda,

I don't think it ever will be. AOL's deal with Google gives it the right to sell to 1000-2000 top advertisers (as defined by a 3rd party I believe), and no one else. So either you're on the list or you're not.

Vinny, I love you but you're way off on this one IMO. You say 1/3 of G's revs come from AdSense, so 1/3 of G's valuation is attributable to it, but you miss one HUGE thing here: Google has 70-80% TAC (traffic acquisition costs) on AdSense, and zero TAC on the rest of their business. So multiply the % of total revs AdSense brings to Google by 20-30% (post-TAC revs) to get to a more realistic valuation model for the contextual advertising sector.

If Google's 50% of the market is worth $12.5B and not the $50B you state, Facebook's worth a whole lot less.

Also (and I appeal to your love of data on this one), don't we all know in our heart of hearts that Facebook - and most contextual traffic for that matter - doesn't convert and is only temporarily over-valued?

I see a wave of advertisers getting smart thanks to Omniture, Google Analytics, Coremetrics et al, and the horror in their eyes as they realize how little contextual marketing has done for them.

That

There's a total disconnect in Google's messaging on this change. They say that in addition to giving advertisers more control over how to get their ads in top position, it will *also* improve quality of ads in top spots by making the pool of ads that can *attain* top position larger. But if increasing that pool just comes down to people raising max CPCs, then how does that improve quality? Realistically, it'll probably be quality neutral or even negative, at least until advertiser natural selection kicks in.

Anyone care to venture what % of clicks go to the top ad position on Google?

Good post Vinny, and I'm very much in agreement with your description of the situation. In terms of whether it's (1), (2) or (3), I have to say it'll be some of each. One point of distinction, though - my understanding is that this is *not* something Google is pushing but is rather being led by AOL who wants to (and has the rights to) sell their traffic directly for its higher ROI value and, frankly, because they have the rights to in their 2005 agreement with Google.

Another point of distinction - as far as I understand, AOL does not have the rights to sell their traffic directly to anything other than a list of 2000 top advertisers as determined by an independent 3rd party.

Google CPC's will not be impacted much, if at all, in the short term, advertiser adoption (even among those 2000) will happen over a period of 3-9 months because of work loads, lack of ROI understanding, and AOL's newness to search ad sales - and IMO because of the AOL/Google deal structure not making it easy to launch a la Site Targeting or Content bidding.

Markets want to be efficient, and this is AOL being sick of seeing their CPC's diluted by G's lower-quality [and IMO non-search] search distribution partners. Good advertisers who adopt AOL directly will be able to profitably spend more overall in search, Google will see a little bit less spend overall, and perhaps most importantly, many of those 2000 advertisers will opt out of G's search network once AOL's in place - at least until/unless G allows Search Network-specific bidding.

Robert,

The Google employee is either wrong or meant something other than the standard definition of 'short-term'.

We manage 3-4% of Google's total revenues on behalf of our clients, and their reducing ads had an immediate positive effect. Other changes to minimum bids also have improved revs, but from our data-driven POV, less ads = more $$ immediately as well as longer-term.