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Jul 18, 2008

Can Google (GOOG) Fix "Quality Control" Keyword Mistake And Boost Revenue?

Can Google (GOOG) Fix "Quality Control" Keyword Mistake And Boost Revenue?

googleplex.jpgDuring Google's Q2 earnings call yesterday, Sergey Brin admitted to a rare mistake: The company pulled back too much on the number of keyword ads it displayed, and the strategy backfired.

Why would Google (GOOG) cut back on keywords ads to begin with? The idea was to enhance performance: eliminating lower-performing ads means higher click-through and conversion rates for those that remain, and theoretically higher bid prices. (As well as a better user experience.) Google has reduced the number of keyword ads on results pages by more than 40% in the past 6 months from an average of 6.5 ads to 4 ads, according to AdGooroo's Richard Stokes.

Smart up to a point, but Google went too far. Whether because of the cuts, the economic climate or some combination, AdSense revenue and paid clicks were down sequentially from the previous quarter, for the first time ever.

So, can Google just put back the ads and fix everything in Q3? Maybe not, says Stokes, who has been warning about decreased keyword advertising for a couple of months now.

First off, when Google started its "ads quality" program last year, it culled the herd of AdSense advertisers, meaning there will be fewer advertisers to bring back into the fold. Realistically, Stokes says, Google can raise keyword ads 20% in Q3, but probably not more. Second, consumers got accustomed to less advertising clutter, and so did the advertisers. Presented with more ads, it's hard to know what the conversion rate will be. Advertisers will have to accept a lower rate, and it could take time for bid rates to adjust.

Still, if there's a time to try it, it's now, because ads ususally pick up in Q3. So get ready for more keyword ads on your search results. Meanwhile, Stokes has been charting the missing keywords ads on Google for the past year:


See Also: Google Blows Q2: Multiple Compression Continues...

Google Buys Russian Contextual Ads Service for $140m

BREAKING NOW: Google is buying Russian contextual advertising company ZAO Begun for $140 million from UK-registered Rambler Media (many Russian firms now base themselves in the UK). Rambler owns 50.1 percent of Begun, so to secure the deal it is buying the remaining 49.9 percent stake from owner Bannatyne Limited and then selling the entire firm to Google. Rambler says it expects to net about $50 million from the deal which will finance its investments and potential acquisitions.

Simultaneously Google announced (fairly obviously) that Rambler will now use Google AdSense for Search and AdSense for Content services.

The contextual advertising market in Russia is worth $225 million billion but Google has, until recently, not made much indent into the market which has grown over two and a half times since 2006. Yandex, the Russian search engine and one of the biggest Russian Web portals online since 1997, could account for 64% of the market , accounting for $145 million.

From the press release:

Rambler Media Ltd. (“Rambler” or “the Company”), operating one of Russia’s most popular internet brands, announces that it has agreed to sell its contextual advertising company ZAO Begun (“Begun”) and related subsidiaries to Google. Rambler currently holds 50.1% of Begun. The transaction will consist of Rambler buying the remaining 49.9% stake in Begun from Bannatyne Limited, affiliated with the Finam group of companies, immediately after which Rambler will sell 100% of Begun to Google subject to certain approvals and conditions precedent for a total cash consideration of US$140 million, of which US$69.9 million is attributable to Bannatyne, with customary closing adjustments.

Rambler’s net gain from the disposal is expected to be approximately US$50 million after all direct costs associated with the transaction. Proceeds received in respect of the sale of its holdings in Begun will be retained by the Company for further investments and potential acquisitions in line with Rambler’s stated strategy. The Company’s net cash position after the completion of this sale is expected to reach US$100 million. The Company’s directors consider, having consulted with its nominated adviser, ING, that the terms of the transaction are fair and reasonable insofar as its shareholders are concerned.

Google is the world’s most popular search engine. Begun is one of Russia’s leading search and contextual text based advertising services with local expertise, efficient sales systems and the number of its advertisers exceeds 40,000. Begun’s partner network includes over 143,000 Russian language sites.

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-- Outgoing CFO George Reyes: Slight decline in paid clicks is a result of seasonality and focus on quality ads. An interesting note: interest gains were weak in the quarter ($58 million vs $167 million in Q1) due to lower cash yields, increased hedging expenses and a decrease in cash balances due to DoubleClick...

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