Google last Tuesday changed the way advertisers using its AdWords program bid on keywords, creating a minimum bid for each one based on a quality score it determines for the keyword.
Google's policy statement says the change allows advertisers to resurrect keywords that previously had been disabled because of low click-through performance.
There are two sides to Google's advertising program, which matches ads to Web site content and search results. The first half is AdWords, which lets advertisers buy placement with a certain keyword. If a user should search on "spark plug" or a Web site should display news about spark plugs, for example, AdWords would let a spark plug maker buy placement with that content.
In the past, if a keyword being used by a particular advertiser didn't meet a set of performance criteria including the number of click-throughs, the word would be disabled, even if the advertiser still wanted to advertise with that keyword. The changes made last week lower that performance bar.
The second half of the program is AdSense. Google acts like a middleman between advertisers and publishers with AdSense, which provides text and display ads that are relevant to a site's content and searches. Google shares that revenue with the publisher.
Since the changes were made, some AdWords advertisers have complained that instead of paying 5 cents, they have to bid anywhere from 10 cents to $1 or more for new keywords. In addition, they gripe that Google is not being forthcoming about its formula for determining the quality score and bids.
"This is a major change for (Google), I think," said John Sullivan, chief executive of Cork, Ireland-based Interactive Reporting, which buys ads to help drive traffic to third-party Web sites. "At the end of the day, I see this only increasing the average cost-per-click you have to pay to maintain the same level of traffic."
Advertisers on the WebMasterWorld.com forum were more blunt.
"As I suspected...the prices are going up already. Minimum bids to activate a keyword were 4 cents yesterday. Notice it was not showing today and yes of course it's now 40 (cents) to reactivate," someone with the alias "Voxman" wrote. "I have reduced our campaign by 50 percent to start and (am) now looking at other ways of spending the ad money."
Danny Sullivan, editor of Search Engine Watch, said the complaints are similar to those leveled at Overture Services in 2001, before Yahoo acquired it, when it increased its minimum bid price from 1 cent to 5 cents. Yahoo's minimum bid is now 10 cents.
Even at increased bid prices, advertisers are getting a big return on their investment, according to Sullivan. "This is part of the evolution of these ad systems," he said. "They started as low-cost systems, and it is only natural that they would increase the prices."
While advertisers were grumbling, Web site publishers were reporting that they were seeing an increase in revenue from ads on their sites provided by Google's AdSense program--the service that allows publishers to display AdWords on their sites--since Yahoo launched a beta of its competing Publisher Network program earlier this month.
"I'm seeing elevated revenues per click on AdSense since the Yahoo announcement. Confirm?" someone asked in an anonymous message that Jason Calacanis cited in his blog last week.
"This is not scientific, but it looks like a 10 to 15 percent boost when I take out the added clicks," Calacanis replied. In subsequent feedback other publishers said they, too, were noticing a pickup.
It was unclear exactly what was driving the shift.
"Fewer Ads, More Money?" was a headline to an AdSense blog on Wednesday that said Google had updated AdSense to vary the number of text ads that appear in a given ad unit.
"When we tested this feature, we saw that the increased user attention to these relevant ads resulted in a higher (click-through rate)," the blog said. "This means more revenue for publishers."
Google declined to comment on the AdWords and AdSense changes. (Google representatives have instituted a policy of not talking with CNET News.com reporters until July 2006 in response to privacy issues raised by.)
The AdSense change comes just about two weeks after Yahooof the most significant Google competitor in the space.
At the time, Yahoo's new service differed from Google's in that it added human editorial judgment to the selection of ads for content pages.
Women's network iVillage said Wednesday that Yahoo, not Google, would be providing its search listings and search-related ads.