The FTC, Regulation, and Google

By now you’ve heard the Federal Trade Commission is investigating Google. Such an event was bound to have happened. When you get to be huge, have a lot of market power, and wield a lot of influence within the United States, the regulatory bodies will eventually take notice. After all, when you are big and powerful, people complain. Whether or not those complaints are valid, they do get the attention of government officials whose job it is to investigate the veracity of complaints.

Google clearly takes regulatory scrutiny seriously. It launched a website specifically to address some issues that may fall under the FTC inquiry. Additionally, several sources have reported that Google hired not one lobbyist firm, but 12. For a multi-billion dollar firm, that may not be unusual, but apparently the 12 firms are recent additions to the Google presence in Washington, which indicates that Google isn’t taking any chances.

Before we delve into the complaints leveled against Google in an attempt to predict where the FTC and other government organizations may find fault with it, let’s analyze the company culture and whether that culture puts it at risk of stepping on toes the U.S. government or others are interested in protecting. The URL above has as its header: “Serving our end users is at the heart of what we do and remains our number one priority,” a statement reiterating Google’s focus on the consumer/searcher. After all, if Google loses the searcher, it loses the cash cow side of its business. The user-centric message is repeated on the Google blog post addressing the FTC review of Google business practices.

Of course, being user-centric sometimes isn’t the choice of advertisers. Advertisers want to get their messages out about how great their product or service is. Some advertisers are also publishers and want to help consumers learn about their sites and the value they provide (such as shopping comparison engines, travel comparison engines, and business directories).

One publishing site, comparison shopping site, was recently quite vocal about how it believes Google is abusing its market power and is in litigation in Ohio (from what I read, Google started things by litigating to get unpaid AdWords invoices paid). Should Google be able to dramatically change an advertiser’s Quality Score with limited transparency as the reason for this action? Google highlights transparency as one of its main initiatives within its blog post, but clearly there is room for improvement in this area. Currently, if you want information on the Quality Score of listings live within your account, you must use a mouseover/clickover Quality Score indicator of a problem area in one of the following three areas: keyword relevance, landing page quality, or landing page load time. Many of us within the field continue to believe that predicted normalized click-though rate is the largest single variable within Quality Score, and therefore, if there were a problem in relative CTR (compared to competitors), one might expect to have that pointed out in a simple way. One can only presume that keyword relevance (of the ad) is a proxy for predicted CTR.

Countless advertisers I’ve talked to (clients and otherwise) have at times found themselves perplexed by sudden changes in Quality Score, and consequently minimum bids. A bit more transparency in this area would be useful. Perhaps simply having the FTC look into the Google system will result in greater transparency.

Just for fun, during the authoring of this column, I decided to bid for my name, Kevin Lee, in Google, point the ad to (the bio page), and, despite the fact that I’ve got only two or three advertisers bidding against me (and plenty of room for additional ads in the right rail), I can’t get that placement for the stated bid minimum of $0.05. I have to bid $1. Yet, my Quality Score as indicated in my Google AdWords interface started out as six out of 10 (given that Google ranks my personal site no. 1 organically, one would think that an ad for me could garner more than a six out of 10) and then moved overnight to three out of 10 with “poor keyword relevance.”

Given that Google runs a generalized second-price auction, one would perhaps expect the floor (minimum bid) to in fact be the stated minimum bid for the auctions in general, not a minimum bid calculated with a slightly less than perfect Quality Score when high Quality Scores as in the above example are clearly hard to obtain. OK, I’ll admit that there are lots of other Kevin Lee’s out there including a band, and my bio may not be all that relevant to most searchers, but it does contrast the different ways the bar for relevance is set organically and within paid search.

Google also sets minimum Quality Scores and bid prices for eligibility for ads shown above the organic listings (should Google believe that sufficient commercial intent exists to show ads at all). This makes sense because it protects the searcher from less than relevant ads. However, are advertisers always happy that they are bidding against an AdWords PPC floor set by Google rather than just bidding against the competition? Many advertisers have certainly seen costs rise as a result of combined Quality Score and minimum bid price requirements. You’ve gotta hand it to Google. If there’s insufficient auction pressure in the lower position, Google found a way to lift auction pressure dynamically. That’s a great way to improve monetization.

Other advertisers, particularly those with trademarks with high search volumes, may not like Google’s user-centric trademark bidding policy where consumers doing a search for one brand may see an ad suggest an alternate product or service with a landing page comparing the searcher’s options.

Microsoft and some other players in the online advertising space have been critical of how difficult it is to automatically move data in and out of Google. Perhaps some of that pressure has resulted in Google’s launch of the Data Liberation Front (which I think is actually more about Google desiring access to Facebook data and needing to set a good example).

One column can’t cover all the things the FTC might be looking into at Google, but I hope I’ve covered some interesting areas where we as advertisers might benefit from improved transparency and bidding policy clarity.