Google has admitted to quietly adjusting advertising auctions to hit revenue targets, sometimes increasing ad prices by as much as 5%.
Reportedly, the search giant makes changes to its advertising auctions without telling advertisers, with the goal of meeting its revenue targets. These changes can include increasing the cost of ads and the minimum spending on ads, known as reserve pricing.
The shocking revelation was made by Jerry Dischler, Google’s vice president of advertising products, on Monday during the landmark trial in response to questions from Justice Department antitrust lawyers.
According to Bloomberg, Dischler said Google tweaks its auction process in ways that might have quietly raised ad prices by up to 10% for some queries, without telling advertisers. He added, “we tend not to tell advertisers about pricing changes.”
Google’s ad auction system is hard to understand and advertisers can’t see how much their ads cost. This is especially concerning for advertisers who target competitive keywords, as they may be paying much more for their ads than they think. It is also unfair to advertisers who are trying to control their advertising spending, as their ads may not show up as often as they expected or they may overspend on their campaigns.
In its defence, Google says it changes its ad auction system to make the user experience better and to make sure advertisers get their money’s worth. However, critics argue that Google’s ad auction practices are not clear enough and that Google is manipulating the system to increase its own revenue.
Google Ad Price Hike: Is Your Business at Risk?
The digital marketing community is quite concerned after Google’s admission and many marketers are now wondering if the search engine manipulates Smart Bidding for profit too.
Digital marketing expert Anthony Higman shared on X: “So I always knew this was the case, but to see it actually stated by the VP of ads is astounding! And what do you think smart bidding is? A smart way for Google to be able to easily manipulate ad prices! SMH.”
Collin Schmelebeck, US Navy Veteran & eCommerce + SaaS Google Ads wizard, said on X: “A WILD concept in Google Ads revolves around Ad Rank Thresholds. Something called Reserve Price. Even if you’re the only ad that appears due to competitors not meeting the specific Ad Auctions’ Threshold. You’re still paying a “reserve price” that's defined by Google. Wild.”
Joe Youngblood, SEO & Digital Marketing Consultant, wrote a lengthy post on X, “This might sound crazy, but if I was rich and had $$ to burn I'd be shorting Google/Alphabet right now (or considering doing it soon). Why? Just admitted to manipulating their ad auctions to increase revenue without telling advertisers…”
Google on Trial: What’s at Stake?
Google is facing a major antitrust lawsuit from the US government, which alleges that the company has abused its market power in the search engine market. The government claims that Google has used a variety of anticompetitive tactics to maintain its dominance, including:
- Paying billions of dollars to companies like Apple to make Google the default search engine on their devices.
- Making it difficult for rival search engines to compete, such as by requiring them to pay fees to be included in Google’s search results.
- Acquiring and then shutting down rival search engines.
The government is seeking a structural injunction against Google, which would require the company to divest some of its assets or change its business practices. If the government is successful, the case could have a major impact on the search engine market and the way we use the internet.
In addition to the US Justice Department lawsuit, Google is also facing antitrust investigations in other countries, including the European Union and India.
The outcome of these antitrust cases could have a significant impact on Google’s business and its ability to maintain its dominance in the search engine market.
Why has Google been tweaking search ad prices?
By tweaking ad prices, Google wanted to increase search revenue at a time when there was little business activity.
In 2019, an email chain involving Dischler and fellow Google executive Anil Sabharwal read, “We are shaking the cushions.” The email also shared other options for boosting revenue that include making Search more prominent for Chrome users.
It further said, “If we don’t meet quota for the second quarter in a row and we miss the street’s expectations again, which is not what Ruth signalled to the street, so we will get punished pretty bad in the market.”
“I care more about revenue than the average person but think we can all agree that for our teams trying to live in high cost areas another $100,000 in stock price loss will not be great for morale, not to mention the huge impact on our sales team.”
Speaking about this email during the antitrust trial, Dischler said his team’s goal was “to get creative so we could meet our quota.”
Search ads account for more than 60% of Google’s total revenue. According to Dischler, Google generated more than $100 billion from search ads in 2020. He also said in court that 10% was the upper limit and raising prices by 15% would have been “a dangerous thing to do”.
What is Google’s stance on ad price hike?
Following Dischler’s comments, a Google spokesperson told Search Engine Land:
“Search ads costs are the result of a real-time auction where advertisers never pay more than their maximum bid. We’re constantly launching improvements designed to make ads better for both advertisers and users.”
“Our quality improvements help eliminate irrelevant ads, improve relevance, drive greater advertiser value, and deliver high quality user experiences.”
