Google's public policy blog said a new Wired article by Steven Levy is "a must-read for policymakers who want to understand online advertising."
First, I agree; there is a lot to learn from the article.
- The article accurately captures Google's dominance of online advertising and the monetization of Internet content.
- "Anything that increases Internet use ultimately enriches Google, Varian says. ... more eyeballs on the Web lead inexorably to more ad sales for Google."
- The article accurately captures Google's dominance of the monetization of private information and why consumer privacy is a lower priority for Google than others.
- "Selling ads doesn't generate only profits; it also generates torrents of data about users' tastes and habits, data that Google then sifts and processes in order to predict future consumer behavior... This is the heart and soul of Googlenomics. It's a ... data-fueled feedback loop that defines not only Google's future but the future of anyone who does business online."
- The article accurately captures the vortex of Google's market power -- data/private tracking information.
- "Varian believes that a new era is dawning... and it's all about harnessing supply and demand. "What's ubiquitous and cheap?" Varian asks. "Data." And what is scarce? The analytic ability to utilize that data."
- The article accurately captures how Google dominates the Internet marketplace.
- "Varian, of course, knows that his employer's success is not the result of inspired craziness but of an early recognition that the Internet rewards fanatical focus on scale, speed, data analysis, and customer satisfaction."
Second, I didn't learn much from the Wired article concerning Google's ad auction process. Google's Public Policy Blog said: "Admittedly Google's ad auction can be a bit difficult to understand because it differs so much from traditional ad models." Yes Google's auction process is a non-transparent black box ad model where most other ad models are quite transparent.
- Dan Lyons' piece this week in Newsweek did an excellent job of encapsulating the Black Box nature of Google's auction process.
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"We all know how an auction works. The auctioneer sits up front and keeps calling for higher bids until there's one bidder left—and that person wins. Now imagine an auction where the auctioneer won't let you see the other bidders, but assures you they are there, on the other side of a curtain. The auctioneer won't tell you who the other bidders are; you're only told a range of prices that others have bid. And there's another twist: simply paying the most doesn't guarantee you'll win, because the auctioneer has created a system that lets some bidders win even when they pay less. You may not like this system, but you must participate because this auctioneer controls the bulk of the market. Imagine that, and you have imagined Google."
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Third, the Wired article, despite the title, "Secret of Googlenomics: Data-Fueled Recipe Brews Profitability," did not reveal any new secrets. However, a recent New York Times article, "Pay-per-click web advertisers combat costly fraud," did discover one of "Googlenomics" biggest secrets -- that advertisers would like to learn more about...
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"Reggie Davis, vice president of network quality for Yahoo, says he believes that Google’s click fraud rate of less than 1 percent is not accurate. “We’ve disclosed that our rate, before hiring Click Forensics, was between 12 and 15 percent,” a number that includes invalid clicks, or traffic that an advertiser should not pay for, he said. According to Outsell Inc., an information industry research group, 13 percent of the total of online advertising clicks were fraudulent last year."