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Google AdWord Shakes Things Up

Google has been arguably one of the most lucrative internet companies of this decade. The success of Google for a large part has been because of its successful model for selling ads on its searches. This quarter alone 96 percent of Google’s revenue came from advertising. Now Google is attempting to redefine the game, pun intended.
On Oct. 20 2011, Google announced that it plans to change its AdWord model from a keyword centric model, where advertisers pay for their ads to show up at a certain location when a certain keyword is searched, to a page centric model. In this new model, advertisers simply provide the page and Google matches the ad with the best searches that are relevant, i.e. “instead of taking a keyword and finding relevant pages, the company is taking a page and matching it to the best keyword. “ The idea behind this move is rather intuitive actually because it removes the need for the advertisers to research what search keywords might bring in a prospective customer, they can leave this up to Google’s algorithms now.
The reason why the advent of this new Google ad model is relevant to networks is because it is an extreme divergence from the Google ad model we learned in class and if successful would completely change the way the game worked. In class we learned that Google matched advertisers to ad slots for specific keyword searches in a nearly market clearing type situation where the advertisers value per click and the ad slots click through rate were used to determine valuations. If this new ad model is implemented the entire concept of matching advertisers with ad slots falls apart as advertisers would have nothing to directly compete for. In fact since the advertisers have no idea when and where their ads are going to appear, no auction or matching model we have learned could be immediately used to describe the pricing for each ad. Google could theoretically preserve the regular ad pricing model by having each advertiser indicate their value per click for a page and have a virtual market matching instance every time a search occurs, but how would this new calculation step impact Google performance. Or maybe Google could establish a new model of some sort of tiered set of prices, where the more you pay the more precedence you are given when multiple ads map to the same search. No matter how things proceed, this is a big move by Google.

Link: http://www.adweek.com/news/technology/google-adwords-redesign-looks-beyond-keywords-135950

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