Adsense – Google’s Money Machine

Here’s my interview with one of the founders of Adsense — Eytan Elbaz.

Here’s today’s New York Times:

“You can see very, very quickly if anything is amiss,” said Mr. Fox, director of business product management at Google.

Mr. Fox and his “ads quality” team can also quickly see whether something is working particularly well. Google runs a complex auction-based system that determines which ads will appear where, and in what order. Google reveals little of these forces to the outside world. In recent months, for instance, analysts and investors grew increasingly worried about reports of a decline in clicks on Google ads in the United States, which they interpreted as a sign that Google’s business could be suffering from the economic slowdown. But inside Google, Mr. Fox and others were growing confident that the company would do just fine.

As Google’s engineers developed their own search advertising system, they understood early on that giving top billing to the highest bidder would have little benefit for Google if that ad did not attract clicks. That is because advertisers typically pay Google only when a user clicks on their ads.

So Google decided to rank ads based on a combination of bid price and “click-through rate,” the frequency with which users click on a given ad. Yahoo tried to catch up by building a new search advertising system that works more like Google’s. It helped increase revenue, but by Yahoo’s own account, Google still earns 60 percent to 70 percent more on average than Yahoo on every search. Users might be clicking on more high-priced ads and fewer lower-priced ads. This internal benchmark helps Google get a clearer picture of its performance.

As measurements improved, Mr. Fox’s team unleashed a stream of experiments meant to optimize the ad system. Over time, the company also looked beyond click-through rates to rank ads. Google now takes into account the “landing page” that the ad links to, and, for example, gives low grades to pages whose sole purpose is to show more ads. Quality scores work as an incentive to advertisers to improve their ads, which benefits users and, in turn, benefits Google, Mr. Fox said.

Not all advertisers like Google’s approach.


About Luke Ford

I've written five books (see My work has been noted in the New York Times, the Los Angeles Times, and 60 Minutes. I teach Alexander Technique in Beverly Hills (
This entry was posted in Economics and tagged , , , , , . Bookmark the permalink.