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The auction model for ads basically ruins internet searches in transactional categories. If you want to win at the "italian restaurant" search game, you have t

The auction model for ads basically ruins internet searches in transactional categories. If you want to win at the "italian restaurant" search game, you have to bid the highest for the ad, which means you must have the highest margin. The best way to win is to open a restaurant with ridiculously high margins (over priced wine and cheap ingredients). Want the "cheapest car insurance"? Google is zero help. It sends you to Geico or a bunch of lead-gen sites, and no matter what, you will end up at an insurance company that makes the biggest margins. If you really want the cheapest car insurance, you need to find a company that doesn't advertise, and is non-profit, that way your premium is spent buying insurance, not TV ads and Berkshire Hathaway's stock appreciation. Whenever I see a SERP full of ads, I search for something different. When there is nothing but ads, Google is sending you to high-margin crap.

camus 13y ago
there is no such things as "internet searches". Because all search engines behave differently and nobody can tell for sure how panda works , except people working on panda. So the rules are decides by whoever develops the search engine. Like there is no such thing as SEO , Google has a monopoly and the rule is pay to play.
nowarninglabel 13y ago
I think your hypothesis is quite far off. Can you give an example of an auto insurance company that is a non-profit? I couldn't find any. Perhaps you mean a mutual insurance company? Furthermore, when I bought car insurance last month, Geico gave me the most coverage for the least amount of money (after quite a bit of research), so I also don't agree with your assertation that Google is no help in that regard. While I agree with the concept, as I work for a non-profit and belong to a credit union instead of a bank, I don't think your hypothesis holds without some data to back it up.
- michaelhoffman 13y ago
  USAA (http://en.wikipedia.org/wiki/USAA#Returning_profits_to_the_insured http://en.wikipedia.org/wiki/USAA#Returning_profits_to_the_i...), although most people aren't eligible (https://www.usaa.com/inet/pages/pub_eligibility_task_entry https://www.usaa.com/inet/pages/pub_eligibility_task_entry).
  - ActVen 13y ago
    This is hands down the best company with which I have ever done business. Their technology is amazingly far ahead of others in the banking and insurance space. I was taking a photo of a check with my smartphone to deposit it years before it became mainstream. It is a great example of how constraints build value. By constraints I mean, they have had to deal with military customers stationed in far flung places for years. This built their capability to conduct business virtually.
    - thecoffman 13y ago
      I will second pretty much everything you just said. I have renter's and auto insurance, checking, savings and a credit card all through USAA and they are fantastic. Many banks are just beginning to catch up with their technology and none can match their customer service.
  - chii 13y ago
    i like the business model of USAA, where it isn't a corporation, but that everyone who becomes a member gets some sort of benefit. its almost like voluntary communism. I wonder if this model would work for other sorts of institutions.
- austenallred 13y ago
  As someone who sells car insurance leads for a living, this is an interesting discussion. First, Geicko isn't ranked number 1, affiliates who mask themselves as Geicko are. In high rewards markets like insurance (where 30% of the overall price of insurance goes to affiliates) it's actually about which affiliates convert the best and have the best payout. Those SERPs are dominated by black hat SEO. None of that is organic. The larger issue (percentage of the page dedicated to SERPs vs ads aside) is that Google's formula worked best in a world where people weren't trying to game it. In the end it breaks down to relevance and links. Relevance is based on tags and keywords, which everyone can get a perfect score on. So in the end it comes down to links. Is a link there because someone just loves the site, or because some SEO schmuck built it? There are correlations, but there's really no way of knowing. The key to spam is mimicking a human process closely enough that a computer (or algorithm) can't tell the difference, then making that scale. Google does manually review the SERPs for the highest grossing terms basically daily to try and find foul play, but those can be beat, too. So why doesn't Google just manually find and serve up the best pages of content? Because you just described Yahoo. So it's a very complex game that evolves every day as both parties advance and become more sophisticated, often in response to each other. If you think you can do better you either have to out-engineer Google or find a way to rank sites based on something other than links.
  - webjprgm 13y ago
    Could Google Analytics data be used as "something other than links"? They can track traffic, bounce rates, how long people stay, how often the same people return. Would that provide a better indicator of quality pages? It would only apply to sites that opt-in by using Google Analytics, but if it made them rank higher than everyone would do it. (How many don't already?)
    - josephlord 13y ago
      No Google already know too much about all of us.
    - austenallred 13y ago
      Just because blackhat SEO ranked it doesn't mean it's not a page people will use or stay on. That would also require every site to have Google analytical installed. Google is a big company for sure, but not quite that ubiquitous.
- Terretta 13y ago
  > Can you give an example of an auto insurance company that is a non-profit? Privilege Underwriters Reciprocal Exchange (PURE) is not "non-profit" but theoretically "policy holder owned" with surpluses to the benefit of subscribers. To your point about credit unions, insurance 'unions' are interesting: Overview: http://www.pureinsurance.com/about/index http://www.pureinsurance.com/about/index That said, there is a marketing arm that extracts value as fees for marketing and management, and a financial stakeholder umbrella seeking return on capital. It's an interesting structure: Structure: http://www.pureinsurance.com/about/pure_group http://www.pureinsurance.com/about/pure_group In any case, my experience with PURE has been superior to my experience with other insurers (except Met-Life who was excellent but unable to competitively insure my property), and my costs have been 30% less than the most competitively priced usual players.
- rogerbinns 13y ago
  > Can you give an example of an auto insurance company that is a non-profit? AAA who do my insurance: http://en.wikipedia.org/wiki/American_Automobile_Association http://en.wikipedia.org/wiki/American_Automobile_Association
- jrochkind1 13y ago
  > Can you give an example of an auto insurance company that is a non-profit? I couldn't find any. Perhaps you mean a mutual insurance company? Aren't mutual's non-profit? They aren't trying to extract a profit for investors or other owners, but just need to charge enough to pay business expenses (including salaries, as well as the main expense of an insurance company, paying out claims and funding reserves to pay out claims, etc.) USAA mentioned in some other followups is... even weirder than a mutual insurance company, but it's legal structure is effectively the same as a mutual insurance company.
  - leephillips 13y ago
    "Aren't mutual's non-profit?" No, they distribute the profit to policyholders, who are effectively shareholders of the corporation. I belong to one, for auto and home. I get a dividend each year of 20 - 25% of the yearly premium, which is competitive even without considering the dividend. It's not open to the public.
- deleted 13y ago
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netcan 13y ago
It's not quite like that. What advertisers can afford to pay is margin X conversion rate. If people search for cheap socks and you have high margin socks, your conversion rate will be lower. In super competitive markets, the conversion rate is usually what makes one win. For something like insurance quotes, that probably means the one with a known brand, supporting advertising in tv & radio, etc. The quality of the sites and the margins will probably be pretty similar among most players. Where the dynamic you're describing happens is between product categories where you have a high margin per unit in one product category. Eg. If you want to sell a 'diy divorce kit with a $5 margin' you will have to outbid divorce lawyers who expect to earn thousands per client. The lawyers will drown everyone else out.
- jcampbell1 13y ago
  > The lawyers will drown everyone else out. The worst lawyers will drown everyone else out, including the good lawyers. The lawyer that has a high conversion rate by promising it will cost $5000, but ends up costing $30k drowns out the lawyer who legitimately quotes $10k. I agree, for certain searches, the ads are helpful, but I stand by the notion of avoiding SERPs with tons of high value ads. The person paying for those ads will likely be you.
  - ericd 13y ago
    Yeah, from what I've seen fraudulent advertising, bait and switch, and various other shady tricks are dominant strategies in adwords advertising within some categories, and I haven't seen any obvious effort by Google to curb it. If there was some way for Google to act as a reliable Better Business Bureau replacement, that rating would be a great addition to their ranking algo.
- AJ007 13y ago
  I don't know about the sock market, but there are lots of categories where the arms race for user revenue-maximization has either not yet started, or everyone is using very old techniques. A better example would be someone selling "cheap" socks but with expensive shipping. Or, aggressively upselling additional sock products in the checkout, possibly with FTC-unfriendly opt-in vs opt-out methods. Or, hammering their users with advertising after the sale by email and phone. When a particular vertical market gets aggressive, the item being advertised usually brings little, no, or negative revenue to the advertiser, and all of the money is made on the back.
md224 13y ago
I've been doing a lot of thinking about this topic recently, so it's nice to see a discussion on HN. AdWords ad placement is determined by a mix of quality score and bid size. It's good that they're using quality of links to influence ad ranking, but here's what troubles me: We're allowing money to influence information salience. You could say this is how the world works, and I can't deny it. Money = power = eyeballs. But is this a good thing? Is this a dynamic we should be actively supporting? I honestly don't know. Possible counterargument (because I can't help but play Devil's Advocate against myself): Maybe the auction model is about determining the true "market price" of an ad position, in which case maybe this is a good thing?
- notahacker 13y ago
  Is there any hypothetical search model in which money doesn't influence information salience? High performers for competitive searches in organic search have usually invested heavily in SEO and/or brand-building too. Open reviews can be astroturfed and social likes can be astroturfed or incentivised. At least with "sponsored results" it's blatant, and declared. Ironically, considering the original article starts off by complaining about its effect on search results, the most-free-from-financial-influence way of ranking information salience is probably the Zagat review model (selling aggregated secret shopper info)
  - md224 13y ago
    I don't claim that advertising is the only vector of influence, and I realize it is possibly the least worst version (because of labeling), but that hardly seems like a reason to consider it a Good Thing. Your argument seems to be that if we get rid of sponsored search results, this will push advertisers to invest more heavily in less visible forms of opinion manipulation. This is actually a very interesting viewpoint and possibly a valid argument, but it also feels like coercion in some way ("give us ad space or we'll reach you via less ethical methods").
- RivieraKid 13y ago
  I've been thinking about this too. IMHO, the only reason to advertise that is beneficial for both the consumer and the advertiser, is to provide information. Ie.: our product is objectively better than the competition for certain consumers, but the problem is, they don't know about us. So we create a ad campaign, that will be beneficial for both the consumers and our company.
dano415 13y ago
You are 100% correct! I've thought this for years, but gave up trying to convince friends. It seems like people like paying more for cute advertising?
AJ007 13y ago
I am happy to see other people finally pointing this one out. I will refine your hypothesis a little. a) It isn't companies with the highest margin who win, but the ones which are able and willing to devote the greatest percentage of revenue to performance driven advertising. If the company has a slim margin to begin with, they will never even be able to start in the "race." b) Education is a better example than car insurance. While there are geographic variances to what ads are shown, nearly all of the ads will be for for-profit schools (many of whom spend more on acquiring a single enrollment than on educating them.) Additionally, the organic results will either be for performance marketers driving leads right back to these schools, or it will be objective journalism plastered with banner ads and contextual text ads for for-profit schools (Forbes, Washington Post (who owns and receives half of their revenue from Kaplan but thats another story..)) c) Some markets get so abusive Google puts very heavy handed and aggressive rules in place. For example, if you read the FTC's news releases regularly a common scam is someone operating as a payday loan operator simply emptying bank accounts (not sure why this isn't an FBI/DOJ issue.) Its easy to bid high when your end result is the entire content's of your customer bank account. If you are operating in a market and your competitors start doing this stuff -- your fucked. Google can take years to catch up. d) The "quality score" means little. It largely has to do with how a site looks, not what it actually does. Misleading ads tend promise more and thus get better click through rate which means they are even more likely to show up higher, not less. At the end of the day, Google will let low quality site run, they just charge them a little more. e) The most disturbing thing to me is how Google is trying to wash away organic altogether. The original article points this out. Aaron Wall (SEOBook) has been pointing this out for year. Ben Edelman has been doing an excellent job of busting Google's bullshit PR (even though he may be paid by Microsoft for consulting its academic level work of the highest quality.) Google wants to keep serving that organic content to users, but block them from flowing through to the original source. Google Images' recent changes reflect this exactly. f) All of this makes me think Google's original business model is in serious crisis. Ironically, Google is doing the same revenue escalation to their own users as their advertisers are forced to employ. If desktop revenue is dropping fast, Google has to crank up the "aggressive" meter to milk out more revenue from a diminishing ad clicker user base. g) This is great news for the next search companies. Google is dependent on their ad revenue to fuel their behemoth enterprise. They are sacrificing their own product in an escalating fashion. (If you use AdBlockPlus you probably never even noticed..)
narrator 13y ago
What's funny is how different using Consumer Reports online experience is. What? There's no free content? I have to pay a monthly fee to read content and it's not trivial. Best investment I ever made. Especially when buying new appliances. Ha.. It's kind of pathetic that I flinched at spending a few bucks a month for good content. If you're getting information for free your information likely has a cost you're just paying for it in an obfuscated way in the form of higher margins when you shop at a place that advertises heavily. If you ever look at Hulbert's Financial digest, which tracks the total return of investment letters you'll see that the ones that do well are $120/year. Oh yeah, you have to pay for the digest which will tell you which newsletter performs the best and that isn't cheap either. Of course free investment advice is available everywhere online and usually makes a good contra-indicator. If I see a hype filled story show up in the freebie investment news it usually means the stock is about to take a short term down turn.
- npsimons 13y ago
  If I see a hype filled story show up in the freebie investment news it usually means the stock is about to take a short term down turn. Good time to short it.
- corresation 13y ago
  Best investment I ever made. Especially when buying new appliances. Ha.. It's kind of pathetic that I flinched at spending a few bucks a month for good content. I have an entirely different perspective of Consumer Reports (the online variant which has external site ads on it). Understand that they are entirely biased (as we all are): They take home the lucre by keeping you thinking that you need them, and that they're doing an important service. Hence why the big noise about things like not recommending the iPhone -- all just noise to keep the subscription dollars coming and to create a sense of utility. They're also prone to taking complex products and then trying to distill it into easily quantified values that they can put in a chart and categorize, leading to a detachment from real-world value and "need to fill this issue". I was a subscriber for several years and eventually came to realize that their top picks were usually not really top picks, and they were often in areas where they were entirely out of their depth (I discovered that particularly after buying a set of their top pick speakers). After that print subscription ended, years later I was looking at getting a new furnace and saw that the online site listed furnace reviews, though they were hidden behind a paywall. Okay, bought a subscription to find that there were no reviews at all, but some useless summary about basic efficiency levels. Well that's useless. Oh well, a year subscription wasted. A year later I discovered that they auto-renewed (never signed up for that, but whatever), and put it on my todo list to jump through hoops to cancel at some point, wasting my time (as they give NO clear way to cancel, despite subscribing being a trivial painless step). The next year they sent me notice that my credit card had expired -- awesome, easy way to finally unsubscribe from an auto-renew that I didn't opt into without sitting on hold for half an hour! Imagine how funny I thought it was when they guessed my next expiry and just used that, continuing the subscription. I have an extremely poor opinion of CU, and I think the belief that they're more pure or their opinion more useful is a bit naive.
npsimons 13y ago
A thousand times this; when I tell people I prefer buying from companies who aren't blowing my money on superbowl ads, they just don't get it. The ads aren't for you, the existing customer - they're to get new customers. There's a reason I like Vanguard and USAA.
notatoad 13y ago
Internet searches in many categories have always been useless. Searching for a restaurant or car insurance has never ever returned anything useful on any search engine, ever. it's not as though google used to have incredibly relevant results for a search term like "cheapest car insurance" and now it's been replaced by ads. The only thing a search like that has ever gotten you is the websites of the insurance companies who are well established brands. The categories where google is pushing a lot of ads or supplementary features like knowledge graph are the categories where organic results are not a good experience. 9 times out of 10, when i search for something on google i get a traditional SERP with little to no advertising. If you're searching for something that doesn't necessarily lend itself to a web search, google should be trying to find some way to make that useful to somebody, whether that is a feature that gives you better results or an admission that their organic results for that query are useless, so here have some ads instead.
- hobs 13y ago
  In regards to your first paragraph, you are completely right because the product has always not been the consumer of the search. I dont if it would be possible for a subscription based search service to exist, but as long as they are selling to advertisers and not to the people there is very little incentive for this to change imo.
vacri 13y ago
find a company that doesn't advertise, and is non-profit, that way your premium is spent buying insurance Does economy of scale not apply to insurance?
corresation 13y ago
The best way to win is to open a restaurant with ridiculously high margins (over priced wine and cheap ingredients). That's a rather terrible example: a restaurant that had over priced wine and cheap ingredients would fail miserably in short order, regardless of how many Google ad auctions they won. If you really want the cheapest car insurance, you need to find a company that doesn't advertise, and is non-profit I doubt those two traits have any measurable correlation with providing the cheapest car insurance, or any other service or business, just as it's possible that a company with rampant ads on every medium and high margins provides the best value.
- chii 13y ago
  > a restaurant that had over priced wine and cheap ingredients would fail miserably in short order, regardless of how many Google ad auctions they won. unless if there's so many restraurants, and the quality of wine is so subjective that most customers cannot really differentiate it. Then exposure is really the only thing a (time poor) customer can rely on, and thus, by massively spending on advertising, and not on ingredients, they can convert more paying customers than the small, but quality restaurant who nobody knows exists. I want some way to have word of mouth recommendations work over the net, without it being game-able. perhaps a system where you must pay (a very small token amount) to review?
  - lmm 13y ago
    >I want some way to have word of mouth recommendations work over the net, without it being game-able. perhaps a system where you must pay (a very small token amount) to review? That would make it even more of a money arms race. Ultimately you want something like personal recommendations where people attach their own reputations to their recommendations; google is trying to push something on these lines with google+.
    - chii 13y ago
      but a person's reputation on the net is inherently non-existant, unless they're forced to use their real name, and is somewhat known/famous. Being able to create fake reviews and fake recommendations is the same problem as spam in email (cept spam is easier to filter out). If sending email costs the sender some token amount (say, 1cent per 1000 email), it would probably stop majority of spam, because it just became cost-ineffective. That was why i was suggesting paying token amount for writing reviews - tho i have no doubts there are flaws with that idea….
pitchups 13y ago
True that car insurance ads deliver little or no value - as in the end you always end up at one of the major carriers - and the price is no lower than if you had gone to them directly. The restaurant example assumes that you can continue to fool your customers with overpriced wine and low quality food. If you could stay in business long enough with that strategy you don't really need to run PPC ads! But these two examples completely distort the way Google's Ads are used by the vast majority of businesses - to whom they can and do deliver real customers and value. This includes the vast majority of cases - the long tail of search traffic that converts well for niche products and services that have little or no other way to directly market or get customers. When used correctly, Google Adwords is a godsend for such businesses. This could be a maker of high-end custom furniture cabinets in a little town in the middle of nowhere, or a small software company in a small town in India that has produced a killer app to learn Yoga, or a software developer in New Zealand, that has developed the perfect SaaS app for monitoring your server, and so on. These are the businesses that Google empowers - by giving them access to a potential worldwide market for their products.
dendory 13y ago
I've long ago taken this approach to all ads myself. Whenever I'm forced to see an ad (because I block or skip ads as much as I possibly can) then I make a mental note not to buy from that company. Whenever I go to buy something, I always go for a brand I've never seen in an ad. I find that this on average saves me money.
- deleted 13y ago
  [deleted]
ohashi 13y ago
So this comment really resonated with me because I am competing in a space like this. I have a better product but a better product means making substantially less money. Do you have any ideas on how to better compete without the same type of margins?

camus 13y ago

there is no such things as "internet searches". Because all search engines behave differently and nobody can tell for sure how panda works , except people working on panda. So the rules are decides by whoever develops the search engine. Like there is no such thing as SEO , Google has a monopoly and the rule is pay to play.

nowarninglabel 13y ago

I think your hypothesis is quite far off. Can you give an example of an auto insurance company that is a non-profit? I couldn't find any. Perhaps you mean a mutual insurance company? Furthermore, when I bought car insurance last month, Geico gave me the most coverage for the least amount of money (after quite a bit of research), so I also don't agree with your assertation that Google is no help in that regard. While I agree with the concept, as I work for a non-profit and belong to a credit union instead of a bank, I don't think your hypothesis holds without some data to back it up.

michaelhoffman 13y ago
USAA (http://en.wikipedia.org/wiki/USAA#Returning_profits_to_the_insured http://en.wikipedia.org/wiki/USAA#Returning_profits_to_the_i...), although most people aren't eligible (https://www.usaa.com/inet/pages/pub_eligibility_task_entry https://www.usaa.com/inet/pages/pub_eligibility_task_entry).
- ActVen 13y ago
  This is hands down the best company with which I have ever done business. Their technology is amazingly far ahead of others in the banking and insurance space. I was taking a photo of a check with my smartphone to deposit it years before it became mainstream. It is a great example of how constraints build value. By constraints I mean, they have had to deal with military customers stationed in far flung places for years. This built their capability to conduct business virtually.
  - thecoffman 13y ago
    I will second pretty much everything you just said. I have renter's and auto insurance, checking, savings and a credit card all through USAA and they are fantastic. Many banks are just beginning to catch up with their technology and none can match their customer service.
- chii 13y ago
  i like the business model of USAA, where it isn't a corporation, but that everyone who becomes a member gets some sort of benefit. its almost like voluntary communism. I wonder if this model would work for other sorts of institutions.
austenallred 13y ago
As someone who sells car insurance leads for a living, this is an interesting discussion. First, Geicko isn't ranked number 1, affiliates who mask themselves as Geicko are. In high rewards markets like insurance (where 30% of the overall price of insurance goes to affiliates) it's actually about which affiliates convert the best and have the best payout. Those SERPs are dominated by black hat SEO. None of that is organic. The larger issue (percentage of the page dedicated to SERPs vs ads aside) is that Google's formula worked best in a world where people weren't trying to game it. In the end it breaks down to relevance and links. Relevance is based on tags and keywords, which everyone can get a perfect score on. So in the end it comes down to links. Is a link there because someone just loves the site, or because some SEO schmuck built it? There are correlations, but there's really no way of knowing. The key to spam is mimicking a human process closely enough that a computer (or algorithm) can't tell the difference, then making that scale. Google does manually review the SERPs for the highest grossing terms basically daily to try and find foul play, but those can be beat, too. So why doesn't Google just manually find and serve up the best pages of content? Because you just described Yahoo. So it's a very complex game that evolves every day as both parties advance and become more sophisticated, often in response to each other. If you think you can do better you either have to out-engineer Google or find a way to rank sites based on something other than links.
- webjprgm 13y ago
  Could Google Analytics data be used as "something other than links"? They can track traffic, bounce rates, how long people stay, how often the same people return. Would that provide a better indicator of quality pages? It would only apply to sites that opt-in by using Google Analytics, but if it made them rank higher than everyone would do it. (How many don't already?)
  - josephlord 13y ago
    No Google already know too much about all of us.
  - austenallred 13y ago
    Just because blackhat SEO ranked it doesn't mean it's not a page people will use or stay on. That would also require every site to have Google analytical installed. Google is a big company for sure, but not quite that ubiquitous.
Terretta 13y ago
> Can you give an example of an auto insurance company that is a non-profit? Privilege Underwriters Reciprocal Exchange (PURE) is not "non-profit" but theoretically "policy holder owned" with surpluses to the benefit of subscribers. To your point about credit unions, insurance 'unions' are interesting: Overview: http://www.pureinsurance.com/about/index http://www.pureinsurance.com/about/index That said, there is a marketing arm that extracts value as fees for marketing and management, and a financial stakeholder umbrella seeking return on capital. It's an interesting structure: Structure: http://www.pureinsurance.com/about/pure_group http://www.pureinsurance.com/about/pure_group In any case, my experience with PURE has been superior to my experience with other insurers (except Met-Life who was excellent but unable to competitively insure my property), and my costs have been 30% less than the most competitively priced usual players.
rogerbinns 13y ago
> Can you give an example of an auto insurance company that is a non-profit? AAA who do my insurance: http://en.wikipedia.org/wiki/American_Automobile_Association http://en.wikipedia.org/wiki/American_Automobile_Association
jrochkind1 13y ago
> Can you give an example of an auto insurance company that is a non-profit? I couldn't find any. Perhaps you mean a mutual insurance company? Aren't mutual's non-profit? They aren't trying to extract a profit for investors or other owners, but just need to charge enough to pay business expenses (including salaries, as well as the main expense of an insurance company, paying out claims and funding reserves to pay out claims, etc.) USAA mentioned in some other followups is... even weirder than a mutual insurance company, but it's legal structure is effectively the same as a mutual insurance company.
- leephillips 13y ago
  "Aren't mutual's non-profit?" No, they distribute the profit to policyholders, who are effectively shareholders of the corporation. I belong to one, for auto and home. I get a dividend each year of 20 - 25% of the yearly premium, which is competitive even without considering the dividend. It's not open to the public.
deleted 13y ago
[deleted]

netcan 13y ago

It's not quite like that. What advertisers can afford to pay is margin X conversion rate. If people search for cheap socks and you have high margin socks, your conversion rate will be lower. In super competitive markets, the conversion rate is usually what makes one win. For something like insurance quotes, that probably means the one with a known brand, supporting advertising in tv & radio, etc. The quality of the sites and the margins will probably be pretty similar among most players. Where the dynamic you're describing happens is between product categories where you have a high margin per unit in one product category. Eg. If you want to sell a 'diy divorce kit with a $5 margin' you will have to outbid divorce lawyers who expect to earn thousands per client. The lawyers will drown everyone else out.

jcampbell1 13y ago
> The lawyers will drown everyone else out. The worst lawyers will drown everyone else out, including the good lawyers. The lawyer that has a high conversion rate by promising it will cost $5000, but ends up costing $30k drowns out the lawyer who legitimately quotes $10k. I agree, for certain searches, the ads are helpful, but I stand by the notion of avoiding SERPs with tons of high value ads. The person paying for those ads will likely be you.
- ericd 13y ago
  Yeah, from what I've seen fraudulent advertising, bait and switch, and various other shady tricks are dominant strategies in adwords advertising within some categories, and I haven't seen any obvious effort by Google to curb it. If there was some way for Google to act as a reliable Better Business Bureau replacement, that rating would be a great addition to their ranking algo.
AJ007 13y ago
I don't know about the sock market, but there are lots of categories where the arms race for user revenue-maximization has either not yet started, or everyone is using very old techniques. A better example would be someone selling "cheap" socks but with expensive shipping. Or, aggressively upselling additional sock products in the checkout, possibly with FTC-unfriendly opt-in vs opt-out methods. Or, hammering their users with advertising after the sale by email and phone. When a particular vertical market gets aggressive, the item being advertised usually brings little, no, or negative revenue to the advertiser, and all of the money is made on the back.

md224 13y ago

I've been doing a lot of thinking about this topic recently, so it's nice to see a discussion on HN. AdWords ad placement is determined by a mix of quality score and bid size. It's good that they're using quality of links to influence ad ranking, but here's what troubles me: We're allowing money to influence information salience. You could say this is how the world works, and I can't deny it. Money = power = eyeballs. But is this a good thing? Is this a dynamic we should be actively supporting? I honestly don't know. Possible counterargument (because I can't help but play Devil's Advocate against myself): Maybe the auction model is about determining the true "market price" of an ad position, in which case maybe this is a good thing?

notahacker 13y ago
Is there any hypothetical search model in which money doesn't influence information salience? High performers for competitive searches in organic search have usually invested heavily in SEO and/or brand-building too. Open reviews can be astroturfed and social likes can be astroturfed or incentivised. At least with "sponsored results" it's blatant, and declared. Ironically, considering the original article starts off by complaining about its effect on search results, the most-free-from-financial-influence way of ranking information salience is probably the Zagat review model (selling aggregated secret shopper info)
- md224 13y ago
  I don't claim that advertising is the only vector of influence, and I realize it is possibly the least worst version (because of labeling), but that hardly seems like a reason to consider it a Good Thing. Your argument seems to be that if we get rid of sponsored search results, this will push advertisers to invest more heavily in less visible forms of opinion manipulation. This is actually a very interesting viewpoint and possibly a valid argument, but it also feels like coercion in some way ("give us ad space or we'll reach you via less ethical methods").
RivieraKid 13y ago
I've been thinking about this too. IMHO, the only reason to advertise that is beneficial for both the consumer and the advertiser, is to provide information. Ie.: our product is objectively better than the competition for certain consumers, but the problem is, they don't know about us. So we create a ad campaign, that will be beneficial for both the consumers and our company.

dano415 13y ago

You are 100% correct! I've thought this for years, but gave up trying to convince friends. It seems like people like paying more for cute advertising?

AJ007 13y ago

I am happy to see other people finally pointing this one out. I will refine your hypothesis a little. a) It isn't companies with the highest margin who win, but the ones which are able and willing to devote the greatest percentage of revenue to performance driven advertising. If the company has a slim margin to begin with, they will never even be able to start in the "race." b) Education is a better example than car insurance. While there are geographic variances to what ads are shown, nearly all of the ads will be for for-profit schools (many of whom spend more on acquiring a single enrollment than on educating them.) Additionally, the organic results will either be for performance marketers driving leads right back to these schools, or it will be objective journalism plastered with banner ads and contextual text ads for for-profit schools (Forbes, Washington Post (who owns and receives half of their revenue from Kaplan but thats another story..)) c) Some markets get so abusive Google puts very heavy handed and aggressive rules in place. For example, if you read the FTC's news releases regularly a common scam is someone operating as a payday loan operator simply emptying bank accounts (not sure why this isn't an FBI/DOJ issue.) Its easy to bid high when your end result is the entire content's of your customer bank account. If you are operating in a market and your competitors start doing this stuff -- your fucked. Google can take years to catch up. d) The "quality score" means little. It largely has to do with how a site looks, not what it actually does. Misleading ads tend promise more and thus get better click through rate which means they are even more likely to show up higher, not less. At the end of the day, Google will let low quality site run, they just charge them a little more. e) The most disturbing thing to me is how Google is trying to wash away organic altogether. The original article points this out. Aaron Wall (SEOBook) has been pointing this out for year. Ben Edelman has been doing an excellent job of busting Google's bullshit PR (even though he may be paid by Microsoft for consulting its academic level work of the highest quality.) Google wants to keep serving that organic content to users, but block them from flowing through to the original source. Google Images' recent changes reflect this exactly. f) All of this makes me think Google's original business model is in serious crisis. Ironically, Google is doing the same revenue escalation to their own users as their advertisers are forced to employ. If desktop revenue is dropping fast, Google has to crank up the "aggressive" meter to milk out more revenue from a diminishing ad clicker user base. g) This is great news for the next search companies. Google is dependent on their ad revenue to fuel their behemoth enterprise. They are sacrificing their own product in an escalating fashion. (If you use AdBlockPlus you probably never even noticed..)

narrator 13y ago

What's funny is how different using Consumer Reports online experience is. What? There's no free content? I have to pay a monthly fee to read content and it's not trivial. Best investment I ever made. Especially when buying new appliances. Ha.. It's kind of pathetic that I flinched at spending a few bucks a month for good content. If you're getting information for free your information likely has a cost you're just paying for it in an obfuscated way in the form of higher margins when you shop at a place that advertises heavily. If you ever look at Hulbert's Financial digest, which tracks the total return of investment letters you'll see that the ones that do well are $120/year. Oh yeah, you have to pay for the digest which will tell you which newsletter performs the best and that isn't cheap either. Of course free investment advice is available everywhere online and usually makes a good contra-indicator. If I see a hype filled story show up in the freebie investment news it usually means the stock is about to take a short term down turn.

npsimons 13y ago
If I see a hype filled story show up in the freebie investment news it usually means the stock is about to take a short term down turn. Good time to short it.
corresation 13y ago
Best investment I ever made. Especially when buying new appliances. Ha.. It's kind of pathetic that I flinched at spending a few bucks a month for good content. I have an entirely different perspective of Consumer Reports (the online variant which has external site ads on it). Understand that they are entirely biased (as we all are): They take home the lucre by keeping you thinking that you need them, and that they're doing an important service. Hence why the big noise about things like not recommending the iPhone -- all just noise to keep the subscription dollars coming and to create a sense of utility. They're also prone to taking complex products and then trying to distill it into easily quantified values that they can put in a chart and categorize, leading to a detachment from real-world value and "need to fill this issue". I was a subscriber for several years and eventually came to realize that their top picks were usually not really top picks, and they were often in areas where they were entirely out of their depth (I discovered that particularly after buying a set of their top pick speakers). After that print subscription ended, years later I was looking at getting a new furnace and saw that the online site listed furnace reviews, though they were hidden behind a paywall. Okay, bought a subscription to find that there were no reviews at all, but some useless summary about basic efficiency levels. Well that's useless. Oh well, a year subscription wasted. A year later I discovered that they auto-renewed (never signed up for that, but whatever), and put it on my todo list to jump through hoops to cancel at some point, wasting my time (as they give NO clear way to cancel, despite subscribing being a trivial painless step). The next year they sent me notice that my credit card had expired -- awesome, easy way to finally unsubscribe from an auto-renew that I didn't opt into without sitting on hold for half an hour! Imagine how funny I thought it was when they guessed my next expiry and just used that, continuing the subscription. I have an extremely poor opinion of CU, and I think the belief that they're more pure or their opinion more useful is a bit naive.

npsimons 13y ago

A thousand times this; when I tell people I prefer buying from companies who aren't blowing my money on superbowl ads, they just don't get it. The ads aren't for you, the existing customer - they're to get new customers. There's a reason I like Vanguard and USAA.

notatoad 13y ago

Internet searches in many categories have always been useless. Searching for a restaurant or car insurance has never ever returned anything useful on any search engine, ever. it's not as though google used to have incredibly relevant results for a search term like "cheapest car insurance" and now it's been replaced by ads. The only thing a search like that has ever gotten you is the websites of the insurance companies who are well established brands. The categories where google is pushing a lot of ads or supplementary features like knowledge graph are the categories where organic results are not a good experience. 9 times out of 10, when i search for something on google i get a traditional SERP with little to no advertising. If you're searching for something that doesn't necessarily lend itself to a web search, google should be trying to find some way to make that useful to somebody, whether that is a feature that gives you better results or an admission that their organic results for that query are useless, so here have some ads instead.

hobs 13y ago
In regards to your first paragraph, you are completely right because the product has always not been the consumer of the search. I dont if it would be possible for a subscription based search service to exist, but as long as they are selling to advertisers and not to the people there is very little incentive for this to change imo.

vacri 13y ago

find a company that doesn't advertise, and is non-profit, that way your premium is spent buying insurance Does economy of scale not apply to insurance?

corresation 13y ago

The best way to win is to open a restaurant with ridiculously high margins (over priced wine and cheap ingredients). That's a rather terrible example: a restaurant that had over priced wine and cheap ingredients would fail miserably in short order, regardless of how many Google ad auctions they won. If you really want the cheapest car insurance, you need to find a company that doesn't advertise, and is non-profit I doubt those two traits have any measurable correlation with providing the cheapest car insurance, or any other service or business, just as it's possible that a company with rampant ads on every medium and high margins provides the best value.

chii 13y ago
> a restaurant that had over priced wine and cheap ingredients would fail miserably in short order, regardless of how many Google ad auctions they won. unless if there's so many restraurants, and the quality of wine is so subjective that most customers cannot really differentiate it. Then exposure is really the only thing a (time poor) customer can rely on, and thus, by massively spending on advertising, and not on ingredients, they can convert more paying customers than the small, but quality restaurant who nobody knows exists. I want some way to have word of mouth recommendations work over the net, without it being game-able. perhaps a system where you must pay (a very small token amount) to review?
- lmm 13y ago
  >I want some way to have word of mouth recommendations work over the net, without it being game-able. perhaps a system where you must pay (a very small token amount) to review? That would make it even more of a money arms race. Ultimately you want something like personal recommendations where people attach their own reputations to their recommendations; google is trying to push something on these lines with google+.
  - chii 13y ago
    but a person's reputation on the net is inherently non-existant, unless they're forced to use their real name, and is somewhat known/famous. Being able to create fake reviews and fake recommendations is the same problem as spam in email (cept spam is easier to filter out). If sending email costs the sender some token amount (say, 1cent per 1000 email), it would probably stop majority of spam, because it just became cost-ineffective. That was why i was suggesting paying token amount for writing reviews - tho i have no doubts there are flaws with that idea….

pitchups 13y ago

True that car insurance ads deliver little or no value - as in the end you always end up at one of the major carriers - and the price is no lower than if you had gone to them directly. The restaurant example assumes that you can continue to fool your customers with overpriced wine and low quality food. If you could stay in business long enough with that strategy you don't really need to run PPC ads! But these two examples completely distort the way Google's Ads are used by the vast majority of businesses - to whom they can and do deliver real customers and value. This includes the vast majority of cases - the long tail of search traffic that converts well for niche products and services that have little or no other way to directly market or get customers. When used correctly, Google Adwords is a godsend for such businesses. This could be a maker of high-end custom furniture cabinets in a little town in the middle of nowhere, or a small software company in a small town in India that has produced a killer app to learn Yoga, or a software developer in New Zealand, that has developed the perfect SaaS app for monitoring your server, and so on. These are the businesses that Google empowers - by giving them access to a potential worldwide market for their products.

dendory 13y ago

I've long ago taken this approach to all ads myself. Whenever I'm forced to see an ad (because I block or skip ads as much as I possibly can) then I make a mental note not to buy from that company. Whenever I go to buy something, I always go for a brand I've never seen in an ad. I find that this on average saves me money.

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ohashi 13y ago

So this comment really resonated with me because I am competing in a space like this. I have a better product but a better product means making substantially less money. Do you have any ideas on how to better compete without the same type of margins?