Is Google Getting Ready to Change the Ad Rules Again?

Google has a mobile problem. The problem affects the user experience, the slower than normal success Google’s been experiencing in the burgeoning mobile advertising channel, and is of keen interest among investors.

I believe that the day is very near when Google will resolve the problem, not by improving mobile cost per click (CPC) rates or the user experience, but by placing a shroud over the details, removing any differentiation between desktop and mobile AdWords campaigns, and hence CPC, making it impossible for anyone outside Google to discuss their mobile success, or lack thereof, accurately.

Combining mobile and desktop AdWords means advertisers will have less choices, and analysts less data. The argument will be about improving the user experience, and simplifying ad management for advertisers. But let’s call it for what it is: Google will fix its mobile problem by changing the rules — or to use a search analogy, they’ll solve it by cloaking.

What do you call someone who changes the rules of the game when they’re not sure of winning at something they’re accustomed to dominating?

I’ve been mulling this question over for the last couple of weeks since Google’s Q4 earnings call.

Someone I asked responded: “Is the word ‘cheater’?” I disagreed, as that term assumes the game is perfect, and no evolution is needed. It can be argued that sports change all the time. For example, the NBA changed the three-point rule to “improve the game,” and the NHL constantly makes rule changes to improve player safety. As a consequence, there’s more commercial breaks in both leagues than ever before. However, no one team benefits from these changes. These changes can be positive.

Is It An __opoly?

In the business world, if a group of independent companies came together to ensure they all earned more collectively, it would be called price fixing, and it’s unacceptable. Price fixing is what a small group of countries banded together as OPEC (Organization of the Petroleum Exporting Countries) has done, and we all know how that’s affected the world’s economies.

Alternatively, what is it called when one company can change the market rules for everyone else, and the market has no choice in the matter?  This is what the phone company used to do before they were forced to break up into “Baby-Bells.” That was called a monopoly.

Google isn’t a monopoly, but it is clearly the dominant company within an oligopoly. However, oligopoly isn’t a proper descriptor either, for although there exists many channels for the distribution of online advertising, and numerous options for searching the Internet, there’s only one company that controls the dominant market share in these channels. What’s an oligopoly that’s controlled by a single entity? Looks very much like a de-facto monopoly, or maybe just like “to search” is also defined as “to google,” we should refer to the present market condition as a “Googlopoly.”

It looks even more like a de-facto monopoly (Googlopoly) when you consider that according to a report from the New York Times in October, “Google earns 56 percent of all mobile ad dollars and 96 percent of mobile search ad dollars.” Furthering the Googlopoly dominance, the same company that dominates the advertising channels also makes the one of the most popular browser interfaces that most of us use to connect to the locations where these ads are seen.

Game Theory in the Marketplace

At least in the browser space — which is devoid of meaningful revenue at present — we can say there’s some equilibrium. But what about a market where the Nash Equilibrium model doesn’t need to be respected? In this case, there’s no collusion, because the Strategic Dominance model would hold that the economic market is being played for a version of the Ultimatum Theory model, whereby player 2 — or in this case the rest of the market — can either accept the decisions player 1 (Google) makes, or have nothing.

In other words, advertisers have no choice but to accept any rule changes Google makes, because while they have options, those options are limited, and unpalatable due to the restricted market exposure.

So while I was listening to Google’s Q4 earnings call, I — like everyone else on the call — was most keenly interested in understanding how Google was doing in mobile. Their mobile CPC numbers are key because mobile search will pass desktop search at some point.

Google is Changing It, Again

As mobile search will surpass desktop search in the future, and with demand soaring, the dramatic increase in tablet use expanding exposure, CPC prices should follow. For Microsoft’s Bing, prices increased and CPCs went up 11%; for Google, the mobile CPC change was tepid at best.

With all the analysts focused on that one number, I began to wonder how Google would change the discussion this time. Earlier today, I was reminded of an article I had read a while back on the desktop and mobile search experience, and how Larry Page was advocating combining the desktop and mobile search experiences. I realized how doing so with AdWords would destroy our ability to use the mobile CPC number as a metric for insight into Google’s health with regards to growth in the mobile space.

Google wants the market to focus on all the great and innovative things it’s doing, like the self-driving car, for example. Listening to the earnings call, I could hear Page’s frustration with all the questions about mobile CPC. To him, these questions were a distraction, and Google wants to change the focus, and place it where they believe it should be.

The only way to make this happen is to take the topic off the table by combining mobile and desktop search advertising into a single platform, and single reporting item. In doing so, Google can not only change the discussion, but can also improve its already-incredible bottom line.

How would this change affect you as an advertiser?

Right now, mobile CPCs are dramatically lower than desktop CPCs, so when Google makes this change, you will pay more per lead and per sale. Today, the return on investment (ROI) between the channels is different, and the pricing reflects that. In the future, this difference will disappear, advertisers will be the immediate losers, and Google the short-term winner.

Going forward from that change, small advertisers will find things easier to manage, but their overall ROI will likely slip. Search marketers managing larger accounts will need to rework every single campaign they manage because if they were any good at their jobs, they ran campaigns varied by platform & channel to get their clients maximum ROI.  

By the way, an easy check for all advertisers is asking: Did your campaign managers segment desktop and mobile for you, and allocate spend accordingly? If not, you’ve likely wasted a lot of money. Check now, because soon you might not be able to.

Advertisers and investors alike want more transparency and accountability -- not less. If Google goes the route outlined herein, and tells stakeholders “trust us,” that won’t help advertisers or investors in either the short or long term.

****Since publishing this post on February 6th at ~2:00am PST, the following updates have taken place and I thought it would be helpful to add them here as additional resources and information****

* Update #1 at 11:45am PST: MediaPost coverage: Would Google Change-Up Mobile, Desktop By Combining AdWords?

* Update #2 at 12:00pm PST: Google made an announcement announcing Enhanced Campaigns

* Update #3 at 12:07pm PST:  Forbes coverage: In Big Shift, Google Aims To Boost Mobile Ad Campaigns – And Its Own Revenues

* Update #4 at 1:28pm PST: Business Insider coverage: Google Just Blasted Away The Wall Between Desktop And Mobile Ads

* Update #5 at 4:19pm PST: GigaOm coverage: Google revamps AdWords in nod to mobile device explosion

* Update #5 on February 8th: Wired coverage: Google Upgrade Is a Tidal Wave for Advertisers

* Update #6 on February 9th: I wrote a byline for TechCrunch: Google’s AdWords Update: Are Desktops The New Fax Machines?