Google rebuts study predicting higher ad costs

Google's chief economist, Hal Varian, said Tuesday that "flawed assumptions" and "questionable methodology" undermine a SearchIgnite study that predicted a 22 percent ad price increase from Yahoo's search-ad deal with Google.

Varian took issue with several elements of the study, but led off with this one: "ad prices are not set by Yahoo or Google, but by advertisers themselves," through the search-ad keyword bidding process. Varian also said the study assumed Yahoo will show Google ads for as many searches as possible, which indeed Yahoo has said isn't its intent. Other gripes are in Varian's blog post

Of course, there are longer-term issues with the deal Varian didn't dig into. What happens if Yahoo grows accustomed to the revenue from Google and expands the use of Google's ads over time? Some believe there will be a feedback loop that will push advertisers toward Google's system, further undermining Yahoo's service, further advancing Google's position. If there's only one market for search ads, will advertisers bid the prices higher?

Facing antitrust scrutiny in the United States, Europe, and Canada, Google and Yahoo are working hard to prove the merits of the deal.

Yahoo is expected to get the bulk of the financial benefit--$800 million in new revenue in the first year of the deal. Google justified the deal in part as a way to help a fellow Internet company fend off Microsoft's mostly unwelcome attempt to acquire Yahoo.

[HighwayHome]

Isn't Google already skating on thin ice with having majority control of both the search and the online ad business. How does having control of both of these services not create a conflict of interest? Can their search results not be programmed to favor their advertisers?

"If there's only one market for search ads, will advertisers bid the prices higher?"

Of course - you're talking about more advertisers flocking to one vendor, which leads to a natural increase in prices. Without other viable options for advertisers, competitive pricing is removed from the equation.

"ad prices are not set by Yahoo or Google, but by advertisers themselves,"

Whether or not the ad prices are determined by the vendor or the advertisers is irrelevant. Regardless, you're dealing with supply and demand, with the same market forces in effect.

This case parallels the antitrust litigation by the US Government versus AT&T, which was initiated in 1974 and settled in 1982 by the breakup of the telecom giant. Since technology moves much faster than Government legislation, Google has prospered by being able to maintain a stranglehold on sectors which may pose a conflict of interest. This noose will continue to be tightened around the consumer if Government continues to look the other way.

[Kwasiowusu]

In another development, it was announced that the Pope was Catholic.
Of course Google will "rebut" any study that predicts higher ad costs if the Google/Yahoo deal is allowed to go through. They will keep denying everything untill this deal is allowed to go through and they sharply raise prices and screw consumers.
The Good news is, Google's attempts at deception are not fooling anyone. The EU has just announced they are going to look into this deal:

http://www.reuters.com/article/ousiv/idUSBRU00674420080915

[wedding-planning]

I cannot imagine how the cost wouldn't go up. With significantly less companies to compete with costs, the merger can now set the cost standards and the public has absolutely zero recourse since the only other active SE's are considerably less powerful and have much less scope as compared to these two giants. - Jen - <a href="http://www.my-wedding-blog.com/">weddings</a>

[Penguinisto]

Funny, but the market would put a lid on ad costs very quickly - and you don't even need a search engine to do it. Just build an advertising brokerage, and have the brokerage deal with individual websites.

The ease by which this could happen is more than enough to keep Google from jacking up prices. The porn industry does this now (one can't advertise pr0n via adSense, after all), and in spite of the ocean of scam artistry surrounding it, there are quite a few reputable brokerages out there in that industry which are easy to find and charge reasonable prices.

Now build one for non-porn content, and suddenly Google has something with which they would have to compete, without the overhead of maintaining a search engine. One could even make it open-auction-style (think: eBay), with individual websites selling space at auction.

/P