We believe it’s important to understand the business model underlying broadband communications, since it has a critical relationship to diversity of content in a democracy. So we think some of the questions raised in DM News regarding Google’s market power–and the economics of the search business–deserve attention. Here are key excerpts:
“3. Why doesn’t somebody investigate Google’s Adsense revenue split?
Because micro-payments failed, online publishers have long been caught between a rock (revenue from affiliates, which puts all the risk on the publisher) and a very hard place (Google AdSense and the other contextual networks). Most publishers have chosen AdSense because it’s the biggest network, which is fine by Google, which reaped 35 percent of its revenue from these publishers in Q2 2007.

But most of these publishers are barely eking out a living with AdSense (although there are plenty of AdSense spammers making big bucks by gaming the system). These publishers are doing Google a big favor by extending its empire, but Google won’t even tell them how much of a cut it’s taking from their click revenue. Is it 60 percent? 75 percent? Does Google favor the big guys (for example the big newspaper sites) with a more advantageous split to curry favor with them as it pitches its other products?

Nobody knows and there’s no way to know, because Google refuses to come clean on the cut it takes. I guess Google’s mission statement to “organize all the world’s information” doesn’t extend to providing its poor partners with the information they need to survive.

4. Why don’t online agencies demand an “agency discount” for search spend?
Agency discounts are a normal practice in the advertising world, but not in the world of search engines. Google claims that it denies agencies a discount to provide “a level playing field,” even though agencies do their utmost to evangelize the benefits of Paid Search Marketing and bring millions of dollars into Google’s coffers. The attitude of search engines toward agencies is “my way or the highway,” and the only reason they can get away with this is that everyone goes along with it (so far). If the search marketplace were more competitive, agencies would have a better chance of being treated as partners, not lackeys, but it may take the FTC to restore competition to this market, and it’s anybody’s guess when this will happen.

5. Why does Google run a “real-time” auction and charge users to change bids?
When you buy something at an auction house, you don’t have to pay a fee each time you raise your bid. But that’s exactly the way it works at Google, which charges agencies an API usage fee that effectively penalizes marketers for making their campaigns more efficient. While it’s true that there are certain SEM (search engine marketing) agencies out there that abuse Google’s API ( application programming interface) by making far more calls to it than is reasonable, the imposition of onerous fees on agencies who don’t abuse the API is deeply unfair. Google, if you’re serious about providing a “level playing field,” please don’t paint all agencies with the same broad brush. Just charge the offending agencies a higher API usage rate, and leave the rest of us alone.”

from: “Five Internet Questions that Keep Me Up at Night.” Dave Pasternack. DM News.  July 31, 2007.

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