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The Idiot Tax, The Free Will Tax, Charity Tax, and Opacity Tax: Four Charges You Pay When Advertising on AdWords

Published: February 1, 2009

Author: David Rodnitzky

We search engine marketers spend our days rigorously study reams of data and repeatedly testing new ad text and landing pages, all in the hopes of improving the performance of our paid search campaigns. Ultimately, we do all of this work in attempt to predict and control the outcome of our campaigns. If we have a high level of confidence that a certain keyword, ad text, and landing page, placed at a certain time of day in a certain geography is going to convert, we are at an advantage over any competitor who has not done such calculations.
But we all understand that we can’t control everything. Economists call these “externalities” – these are”taxes” on our AdWords spending that we not only have no control over, but that in theory just shouldn’t exist at all. I’ve identified four such forces that cut into our profits and are virtually impossible to counter.
The Idiot Tax
I credit Chris over at SearchQuant for this one. What happens when a dumb advertiser spends way too much on a keyword that they shouldn’t be buying in the first place? Well, in the long term, this advertiser loses a lot of money and either quits AdWords or goes out of business. But while that advertiser is live on Google, he is costing you and me – the ‘smart’ advertisers – money. If we are paying $2 a click for a keyword and a dumb advertiser comes in and bids $2.50, to maintain our position, we need to bid more (just assume CTR and Quality Score are equal).
Google makes it very easy for advertisers to join AdWords, and I don’t blame them for their incredible user interface and instructional tools. At the same time, however, Google also encourages stupidity, through “innovations” like “automated matching” and misleading marketing messages on AdWords. There’s really no way for us to prevent this, we end up having to grin and bear it.

The Free Will Tax
We can’t stop consumers from clicking our ads even though the ad text clearly states that we are not selling what they are looking for. Do you know what the number one search on Google is – it’s the word “Google.” My friends, we are still in the early days of the Internet and consumers are still figuring this whole Web thing out. Even the most targeted keyword with the most targeted ad text (indeed, I’ve tried ad text that say things like “Serious buyers only, please!” and it still doesn’t work) are not enough.
Of course, it doesn’t help that Google continues to expand the definition of “broad match”, so much so that I have repeatedly wondered whether keywords even matter anymore. Combine confused consumers with Google’s broad-broad-broad match and advertisers end up with a lot of useless clicks.
The Charity Tax
Google Grants is “a unique in-kind donation program awarding free AdWords advertising to select charitable organizations. Charities can apply to the program and receive thousands of dollars a month in free advertising on AdWords. Again, I applaud Google for providing free marketing dollars for non-profits to promote their organizations.
Of course, for the rest of us, this only increases the competition for keywords. Google gets a nice tax write-off and simultaneously increases the bids for their paid advertisers (in their defense, the Google Grant rules limit bids to a maximum of $1 CPC, so the impact is somewhat limited). As an aside, Google Grant recipients can only advertise on Google directly, not on Google’s search partners or the content network, so Google ends up basically losing nothing on the proposition!
The Opacity Tax
A few weeks ago Google opened their “conversion optimizer” tool to all AdWords advertisers. The response from the blogosphere was overwhelmingly positive. In particular, bloggers were excited by the notion that Google would be using data not available to mere mortals in their optimization decisions. As David Szetela noted in a Search Engine Watch post:

Google says (and we trust them, right?) that the bid optimization algorithms take into consideration data that only Google can possibly have. Google knows the conversion history for most of the search terms in your campaign — across many advertisers. So they know with better precision than anyone how likely it is that your keyword will trigger a conversion (when associated with a proper ad and landing page, of course).

On the one hand, any tool that uses tons of data to automatically optimize by campaigns to my CPA targets is great, I can’t complain. On the other hand, the fact that Google apparently has valuable data that it isn’t sharing with its advertisers begs the question: why not? In the example that David is using above, we are talking about anonymous and aggregated data across thousands of clients – there are no confidentiality problems about releasing that data to advertisers.
And as I’ve discussed many times on this blog, Google could do a better job of providing granular conversion information in their reporting – for example, the “date stamp” of a conversion – but they have thus far chosen not to (I know that frequent reader CalTrainWreck will agree with me on this point).
Savvy search engine marketers love data and know how to use it – by not providing us this information Google is effectively forcing us to act inefficiently, which ultimately means more money for them.
What Did I Miss?
I had started to write a long dystopian diatribe about a future where giant advertisers are the only AdWords customers (and where they don’t even know they are being taxed), but it sounded too grumpy and perhaps a bit paranoid. I’m sure you have experienced other “hidden taxes” when advertising on Google – drop my a comment on this post and let me know what I’ve missed!

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