The news that Amazon is currently in beta with an AdSense competitor has raised a lot of eyebrows today. The obvious question on everyone’s mind is ‘will this impact Google?’

My thought is that there is a short story here and a long story. The short story is that Amazon “AmSense,” or whatever they want to call it, won’t impact Google too much at all. After all, A9 – Amazon’s search engine – hasn’t developed too much traction and recently lost their top man, Udi Manber to Google. So what makes anyone think that Amazon is going to suddenly take away huge market share from Google in contextual advertising?

True, Amazon does have a loyal cadre of associates (or affiliates) and they plan to market this service as an additional revenue-generating opportunity. But these folks – more than anyone else – are concerned about one thing – revenue. Whether that revenue comes from AdSense or Amazon is pretty much irrelevant to them. Whoever gives them the most revenue wins.

The longer story here is that Amazon is one of many big players who are chomping at the bit to get some of that AdSense revenue. Consider this list of competitors:

  • Yahoo Performance Network (YPN)
  • Amazon “AmSense”
  • Ebay Keywords

Pretty much the only big etailer missing from this list is MSN, and I suspect its only a matter of time before they follow suit.

The result of this heated competition will be more choice for publishers and less margins for distribution networks. Again, most publishers are agnostic to their distribution network – they will follow the money.

Of course, right now, Google has a huge advantage over their competitors, simply because the AdSense network has much higher CPCs than anything else out there. This is largely because there are so many more advertisers opting-in to Google’s network and thus bidding against each other, resulting in higher bids.

But this is a barrier to entry that is easily surmountable by Google’s big-pocketed competitors. First, as I noted in a prior column, CPC prices will gradually become efficient, with the network with the highest quality clicks getting the highest prices. Google’s distribution network has what I would call “moderate quality.” In other words, some sites in the network are good and produce great revenue, and others are downright awful. By going for quality instead of quantity, a savvy competitor can gradually wean wallet-share away from Google by simply creating higher CPC prices (or in the parlance of the industry, higher “eCPM” – earnings per thousand impressions).

Second, competitors can offer publishers a much higher revenue share. Google allegedly offers its publishers around 78% of revenue at the moment. If Yahoo came along and offered someone 90% of revenue, this could eliminate the eCPM gap between the two networks and make it more advantageous for that publisher to try the Yahoo Performance Network. From Yahoo’s perspective, this is a great deal – it’s additional revenue and profit they didn’t have before. From Google’s perspective, it’s a Catch 22 – either up the rev share and sacrifice margin, or get nothing.

Finally, let’s not forget that competition is coming not only from the major etailers, but from multiple sources. There are, for example, small companies that are focused on nothing but content distribution (Quigo, Industry Brains, ContextWeb). Perhaps even more disturbing for Google, there are affiliate marketing companies that could one day offer CPA (cost per acquisition) based distribution networks for the masses. Ultimately, this sort of scenario presents a higher risk to the publisher, but also the chance for a much higher return. Some publishers will no doubt opt to take this route.

And let’s not forget that a lot of Google’s revenue comes from companies that have simply been lazy about maximizing their revenue. Increasingly, I predict that companies in the Google distribution network will realize that having a small salesforce – or even an online self-serve solution – will make more sense for them, simply because they can eliminate the middleman and drive more profits.

Combine Amazon, eBay, MSN, Yahoo, affiliate networks, and savvy publishers and you’ve got to wonder whether Google’s golden goose might start to look a little tarnished. Will AdSense go away? Of course not, but don’t be surprised to see a much more level playing field in the near future.


  1. Jeremy Chatfield February 8th, 2006

    Intriguingly, your article doesn’t suggest a factor that I think is important – the quality of the content match. The technology to match content is important. No point in getting a higher rev share if the CTR drops through the floor because of poor matching.

    Is there an asymmetry in knowledge about content matching? From the advertising that we do, I’d say that there is. Not all content match networks offer the same CTR, even given the same keywords and the same advert… And this is plausibly down to the sites in the partner network and the quality of match. There’s still a technical race here and Google’s experience and dedication to quality of results for the searcher seem likely to maintain a lead for some time.

    Amazon’s strength has been more “Web 2” – with user contributions, etc. I don’t see much built experience with relevance and content matching – it’s alien to the current successful model. Doesn’t mean it can’t be made to work, just that the team that does this is relatively isolated from much of what made Amazon such a success (AFAICS that is logistics, affiliates and client interaction).

    Cheers, JeremyC.

  2. DavidZHawk February 9th, 2006


    Great point! I’m a little ashamed that I failed to think about this in my original post.

    A few thoughts: first, even with inferior technology, over time competitors to AdSense can still provide you with a higher eCPM simply by upping the rev share. Granted, if the AdSense algorithm is so far and away superior to their competitors, no amount of additional rev share will make a difference.

    But (now on to point #2), I do think that the technology gap between Google and its competitors is constantly narrowing. To wit, while Google natural algorithm is still superior to Yahoo’s, Yahoo has come along way since – say 2001 – when the difference between the two algorithms was enormous.

    Moreover, there are companies out there like Quigo that claim to have a much better content matching algorithm than Google (recall that Google did famously serve a Samsonite luggage ad for a news story about someone being murdered, put in some luggage, and stuffed in a car trunk).

    So I do think your point is valid today – Google does have the technology lead. It also has the advertiser base and CPC-price lead. Those two factors combined will make it hard for anyone at the moment to consistently compete on an eCPM basis.

    I predict, however, that the technology gap will narrow very soon, and the eCPM gap will become eliminated via higher rev shares, continued growth of competitor advertising networks, and the aforementioned improvements in technology.

    In the end, I guess the proof is in the pudding. Both you and I currently use AdSense (though for me, we’re talking about $1/week so it’s not exactly putting bread on my table). Everything I am talking about is just plain theory until people like you actually see a financial benefit to trying/switching to an alternative. Let me know if/when this ever happens!

  3. Sholto March 7th, 2006

    The matching technology is critical, and lets face it, the adsense matching is really crude at the moment. Whoever really cracks that will have a huge impact. Most publishers will notice how many irrelevant ads there are on there sites.

    Against that, neither Yahoo or Amazon strike me as really competitive. I dont know why, they just seem slack!

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David Rodnitzky
David Rodnitzky is founder and CEO of 3Q Digital (formerly PPC Associates), a position he has held since the Company's inception in 2008. Prior to 3Q Digital, he held senior marketing roles at several Internet companies, including (2000-2001), FindLaw (2001-2004), Adteractive (2004-2006), and Mercantila (2007-2008). David currently serves on advisory boards for several companies, including Marin Software, MediaBoost, Mediacause, and a stealth travel start-up. David is a regular speaker at major digital marketing conferences and has contributed to numerous influential publications, including Venture Capital Journal, CNN Radio, Newsweek, Advertising Age, and NPR's Marketplace. David has a B.A. with honors from the University of Chicago and a J.D. with honors from the University of Iowa. In his spare time, David enjoys salmon fishing, hiking, spending time with his family, and watching the Iowa Hawkeyes, not necessarily in that order.