

The huge-scale real-time auctions that power the Google profit machine - berrow
http://www.wired.com/culture/culturereviews/magazine/17-06/nep_googlenomics?currentPage=all

======
patio11
I'd hesitate at calling AdWords an auction. It is a non-transparent black box
process, some aspects of which are auction-like. (And I _like_ Google.)

If it were an auction, the highest bid would win every time. That is
catastrophically untrue with AdWords -- quality score, account history,
Google's desire for variety, and a few hundred types of secret sauce mean that
lower bids routinely float over higher bids for the same keyword.

Contrary to what many people believe, Google also sets essentially a reserve
price on their keywords -- if you manage to discover a credit card keyword
that nobody has ever used before (highly unlikely, but roll with it), that is
probably worth well in excess of a dollar per click to you. Will you get it
for 5 cents? Nope. Google will establish the minimum somewhere close to
neighboring keywords, and you'll end up paying over a buck to be the only add
on the screen. (Real auctions have a word for when you're bidding against the
house, but I'll try to be polite.)

~~~
berrow
Aside from the lack of full transparency, are you saying that generalized
second-price auctions are not really auctions or that auctions with reserve
prices are not really auctions?

~~~
patio11
I'm saying that if the auctioneer can assign prices unrelated to the content
of bids received, then yes, that is not an auction.

Compare with eBay, a true auction:

Single bid at 5 cents, hidden reserve of $1 (eBay): no sale takes place.

Single bid at 5 cents, hidden reserve of $1 (Google): no sale takes place.

Single bid at 5 cents with maximum bid of $1, hidden reserve of $1 (eBay): no
sale takes place.

Single bid at 5 cents with maximum bid of $1, hidden reserve of $1 (Google):
sale takes place at $1. (I think almost nobody knows this happens.)

Two bids of 5 cents and $1 (eBay): the bid of $1 wins.

Two bids of 5 cents and $1 (Google): the side who Google says wins, wins, at a
price which is somewhere between 0 cents and $1.

------
mattmaroon
"Varian is an expert on what may be the most successful business idea in
history: AdWords"

How about selling oil?

~~~
mahmud
for Wired, "history" == "since Google IPO".

~~~
zandorg
Yup, Wired used to try and predict the future, but now it just reports on the
recent past.

------
mynameishere
_Varian is an expert on what may be the most successful business idea in
history: AdWords..._

And there I stopped reading.

~~~
zandorg
I think photocopiers (with Xerox's patent) were very very profitable. A
royalty on _every_ sheet of paper copied...

------
djehuty
"Why does Google give away products like its browser, its apps, and the
Android operating system for mobile phones? Anything that increases Internet
use ultimately enriches Google, Varian says. And since using the Web without
using Google is like dining at In-N-Out without ordering a hamburger, more
eyeballs on the Web lead inexorably to more ad sales for Google."

Very silly. Google's browser generates searches in the title bar for free
which Google pays Firefox and the others for. Mail, Talk and the apps are
vehicles for showing ads to people. The extra internet use is _just not_ the
primary purpose of these things. What confuses people, even Wired, who should
know better, is that not _everything_ Google does has an immediate payoff
every time. They're willing to develop something, like maybe Android, which
can make them money later, maybe.

~~~
neilk
No, the primary reason for these apps isn't advertising. I don't know if they
have finally given up or what, but people reading email or composing documents
just aren't that distractible.

Google likes the idea of putting your documents on the web because (a) it's a
potential business, especially at the enterprise level; (b) they want more
structured data on the web to mine; (c) they want a better way to profile you.

Android I don't know enough about, but it's more like an attempt to make
phones work more like the PC -- an open-ish standard, rather than specialized,
incompatible devices under the control of carriers. I assume Google feels they
will do much better in that kind of market.

~~~
djehuty
There's no doubt you're right about the profiling. I don't know how much they
generate from the ads but they're context sensitive. Is it better or worse
than ads next to a search? It would be interesting to know.

