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May. 22, 2007 at 7:25am Eastern by Alan Rimm-Kaufman

Google At $950 Per Share: Extreme Transparency

To grow share, revenue and market capitalization, Google should adopt Extreme Transparency.

Google dominates search with 70% market share.
Google has soaring revenue, 63% up year-over-year Q1.
Google has a monster market cap, north of $140B.

But there’s a problem lurking in the wings, and pulling that problem into the sunlight and solving it—nay, obliterating it—would position Google for more share, more revenue, and more market cap. (GOOG shares at $950, anyone?) And the solution to this problem would help advertisers to boot.

Google’s problem lurking in the wings is Opacity, and the solution I suggest is Extreme Transparency. The name is a hat tip to extreme sports and Extreme Programming—taking sensible best practices and pushing the dial up to 11.

Darkness

How is Google opaque and why does this matter? Well, Google derives 99% of its revenue from advertisers. I’d suggest that those advertisers—Google’s customers—fundamentally cannot see what Google is doing. Here are three examples.

Quality score

Advertisers do not know how Google assigns positions on the page.

In the early days, Google used the product of bid and click-through rate to determine an ad’s rank on the page. No longer. Now, Google allocates ad positions based on bid and Quality Score. Quoting Google:

Quality Score is the basis for measuring the quality and relevance of your ads and determining your minimum CPC bid for Google and the search network. This score is determined by your keyword's click-through rate (CTR) on Google, and the relevance of your ad text, keyword, and landing page.

Quality Score is a black box. Google doesn’t reveal the algorithm.

If Google was a dishonest company—they clearly are not—it could reward or punish advertisers with higher or lower ranks arbitrarily, invoking the mysterious Quality Score concept as justification. Given it’s market dominance, Google has to steer clear of any actions that might cross fair trade and anti-trust lines. (Indeed, when Googlers assists advertisers, they make it clear their assistance consists only of providing advice on how to use their platform.)

Broad match

Advertisers do not know how Google matches ads against queries.

For advertisers using broad match, Google has considerable latitude choosing ads to serve against search phrases. (For example, we have seen Google treat “De Beers” as a synonym for “diamond”, to the great consternation of the legal people on all sides.)

And when optimizing bids across match types, we’ve observed Google favoring the broad match “widget” ad over the exact match “widget” ad when the search phrase is the single word “widget”, unless one pays a premium for the latter.

Click costs

Advertisers do not know which clicks they have bought or what they paid for each click.

Google provides cost reports at the URL or phrase level by day. Providing daily total clicks and cost does not allow advertisers to audit their inbound traffic at the click level of granularity.

Imagine if the long distance telcos didn’t provide call-by-call charges on their invoices, and gave daily charges by area code instead. Businesses wouldn’t stand for that. Similarly, the paid search community will eventually reach the point where unauditable costs aren't acceptable.

Light

Reasonable people (both inside and outside of Google) can explain these obfuscations rationally. Such explanations usually boil down to this: “if we provided those data, Bad Guys would exploit the information to harm other advertisers, or harm us."

Perhaps.

Google has ample intellectual horsepower to develop disclosure mechanisms that would provide full data to advertisers without empowering Bad Guys.

Suggestions for transparency

Dump the quality score

Rank ads by bid times click-through rate. Period. And that’s bid, not max bid —don’t even pop "bid bubbles" in the bid landscape. Harkening back to the Age of GoTo, provide the full bid landscape to all, even non-advertisers. Make click-through rates public. And hire third-party auditing firms to confirm bids, CTRs, and positions. Bring all these data into the bright sunlight of full disclosure.

Provide more granular match logic

Extend the options for match type. Possible ideas include:

• Narrow match: Search phrase must contain every word in the advertised phrase, in any order, potentially with words in between and around. Matches common misspellings and stemming. (This resembles the old Broad Match.)
• Word match: Search phrase must contain every word in the advertised phrase, in any order, potentially with words in between and around.
  
• Flexible phrase match: Search phrase must contain every word in the advertised phrase and no others, but the words may occur in any order.

Provide click-level cost reporting

If a click comes from a paid link on Google and reaches the advertiser’s site, assign the click a unique Click ID, whether or not Google charges for it (auto-tagging). Provide an API allowing advertisers to access the full list of their own Click IDs, along with the click’s time and date stamp, originating IP, search phrase matched against, domain on which the ad was served, and the cost of the click.

These are just for starters. There are many other areas where Google would benefit from more openness.

Why should Google change?

Transparency is radical. Few companies have the technical and business acumen to embrace this level of openness. I believe Google is one of those few companies.

Google will do fine for a long while whether or not they take these suggestions. They’ll continue to grow rapidly. They’ll continue to expand their reach into other forms of advertising. Shareholders will stay happy for many quarters.

But as Google grows, the “trust us” approach that served them well when Google was small will begin to crack. Advertisers will grumble more loudly, regulators will finally look up, and other engines will differentiate themselves based on transparency.

An Open Letter To Google

Dear Sergey, Larry, and Eric—

Think about increasing Google's transparency. Consider what your company would look like if you increased transparency maximally, turning the openness dial up to 11. Let your customers understand how you are selling clicks. Let your customers understand the clicks they are buying.

If you opted to do this (probably unlikely), and if you engineered your way around the substantial technological and business pitfalls (hard, but possible for smart folks like you), your remaining competition would fall like Carthage. Your shareholders would name children after you. And your advertisers would rise in unison for a standing ovation.

Thank you for your consideration.

Respectfully—
Your Customers

Alan Rimm-Kaufman leads the Rimm-Kaufman Group, a direct marketing services and consulting firm founded in 2003. The Paid Search column appears Tuesdays at Search Engine Land.

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