Back in 2006, when Google announced the “Quality Score” initiative, Google’s advertising revenue growth seemed unstoppable. Penalizing a few rogue advertisers (’rogue’ being mainly defined as affiliates, made for AdSense sites, or incentivized marketers) might lose Google a few dollars in the short term, but those dollars would quickly be replaced by the hordes of new advertisers rushing to give their marketing budgets to the Google juggernaut.
Since the initial Quality Score launch, Google has expanded the program further, adding comparison shopping engines and travel aggregators to the “most wanted” list in 2007 and factoring in page load time earlier this year (which some have suggested creates an incentive for publishers to run text-based AdSense ads at the expense of non-Google display advertising). Along the way, Google’s revenues have continued to explode. Now that even the most traditional mainstream marketers understand that Internet marketing is no longer just ‘experimental’ budget, advertising competition and CPCs have continued to increase on Google.
But unless you’ve been hiding under a rock for the last few months (or work in the Bush Administration), its clear that the Internet advertising boom is going to see some slowness in the near future. The implosion of the mortgage industry, skyrocketing gas prices, job losses and consumer uneasiness all point to a coming recession. Though I believe that Internet companies will be largely immune from a national economic downturn, Google’s recessionary fate – and the fate of Quality Score – may take a slightly different course.
You see, Google is now one of the world’s biggest corporations. As a result, macroeconomic forces have a much greater impact on them than they would on a smaller company. I remember when I worked at Thomson-West and I sat in on a meeting with the CEO. All I wanted to discuss was the Company’s SEM efforts, my boss wanted to talked about overall marketing efforts, and our division president wanted to talk about the Company’s strategies over the next few years. But the CEO was on a different plane all together. He was asking us how the war in Iraq would impact business, and whether globalization was a trend we should capitalize on. Basically, his world view was not unlike that of the leader of small country – my small world of SEM was the equivalent of some obscure farm subsidy bill – he understood that the overall health of the Company was decided by much broader factors.
Google is in a similar situation. There’s no doubt that they will feel the brunt of recessionary pressure much more acutely than smaller Silicon Valley companies, simply because their size by definition connects their health to the health of the nation. When you combine severe reductions in mortgage advertising, bank advertising, car advertising, airline advertising, consumer spending, and employment, you can see how Google might experience some slowness. Case in point: Google’s latest (and disappointing) earnings, which shows that – to some degree – as the overall economy goes, so goes Google (for the record, the majority of this article was written prior to the earnings report!).
So how does this relate to Quality Score, you ask? The revenue rationale behind Quality Score is that users will click on fewer ads over time if the ads that are being served are not relevant. This theory, however, is based on the assumption that ‘low quality’ ads can be replaced with ‘high quality’ ads without impacting Google’s monetization per click. That’s been a correct assumption over the last three years, with the economy strong and the heavy flow of new advertisers.
But what happens when you kick out the ‘bad’ advertisers and the ‘good’ advertisers suddenly curtail their advertising budgets? Suddenly the ‘out with the old, in with the new’ approach results in a lot fewer advertisers, resulting in diminishing CPCs (and potentially, diminishing ad relevancy). Google has been the darling of Wall Street for a few years now, but it will only take one or two quarters of disappointing results to dampen investor euphora, potentially forever.
Faced with an advertising slowdown and investor pressure, a loosening of Quality Score restrictions might be just the revenue boost Google needs to make it through tough times. At the end of the day, Google’s master is revenue, not relevancy. All the ‘holier than thou’ folks in Mountain View who have spent the last three years weeding out evil marketers from the Google results may suddenly be faced with a new directive – drive up our revenue, or think about applying for a job at Yahoo (the ultimate demotion!).
Think this sounds like a big conspiracy theory? Consider Sergey Brin’s comments last week during Google’s earnings conference call. “There is some evidence we have been a little more aggressive in decreasing coverage than we should have been . . .Clearly that is not the ideal strategy, because we don’t want to end up with no ads.” Funny how a recession can make Quality Score a little less popular around the Googleplex.
In a perfect world, it would be great to see Google get a little come-uppance here. All of those jilted advertisers who helped Google grow their revenue when Madison Avenue wasn’t interested, and then got pushed aside once Google didn’t need them anymore, would join together and collectively decide not to renew their advertising on Google. The adage ‘don’t forget the ones that helped you get to the top’ would be proven valid and Google would learn a valuable lesson about playing God when it comes to determining who shall and shall not be considered a legitimate advertiser.
Alas, knowing direct marketers as I do, you can be sure that any reductions in Quality Score rigor will be met with a renewed flood of ad dollars from advertisers given a second chance on Google. Google will gladly take their business (and the marketers will glad take the boost in revenue from being allowed to run on Google again), until such time that the national economy improves and the ‘good’ advertisers come back to the fold. Once Google no longer needs the vermants of the advertising world, you can be sure that the Quality Score fumigation service will be back in business.