Analysis: Google Ad Share Numbers Provide No Clarity
Google today made a big deal out of disclosing how much money it shares with web site publishers hosting its AdSense advertisements.
"In the spirit of greater transparency," wrote Neal Mohan, Vice President, Product Management, he revealed that it pays publishers 68% of advertising revenues around content, and 51% for ads related to search.
However, some large publishers, such as the New York Times receive a larger share, some have received 100%. So what does this revenue share percentage represent?
As one commenter wrote:
I didn't get from the article how they came to that 68% figure. Is it an average, mean or mode?
... it may mean that a handful of huge publishers are getting a revenue share of 90%, a fair number of medium publishers are getting 50% and the vast majority of small publishers are getting 20%.
If we don't get more information about how the 68% and the 51% figures were calculated and about whether all publishers get the same or similar rates, then I will still consider that I have no idea what my effective rev share is.
Anticipating the meaningless nature of the disclosure, Mr Mohan urged Adsense partners to "focus on the total revenue generated from your site, rather than just revenue share, which can be misleading." Misleading it certainly is. How this improves transparency is a mystery -- It's as clear as mud. However, Google watchers applauded.
Jeff Jarvis from BuzzMachine took credit for pressuring Google to reveal the numbers. And John Battelle indicated it was a good split since "as recently as two years ago, sources I know to be extremely reliable were actively negotiating with Google to get a 65% cut."
Both are authors of books about Google.
Because the accounting isn't clear, a key question is if Google can vary payouts in order to meet Wall Street expectations, a form of cookie jar accounting. Small variations in publisher payouts could have a large effect on its share price if GOOG exceeds Wall Street quarterly estimates.
Mr Mohan says the percentage Google keeps for itself hasn't changed since 2005 for search, and 2003 for content. However, Google has considerable lee way within those figures.
The revenue share it keeps for itself is used to cover costs comprising of expenses and investments in AdSense. Mr Mohan admits that these costs "can vary significantly," which means Google could choose to reduce investments in AdSense over the short term in order to boost income and meet or beat financial targets.
Also, Google has been actively trying to shift revenues to its own web properties so that it can keep 100% of ad revenues.
When Google went public in 2004 its revenues were equally split 50/50 between it's own online properties and third party sites. Google's own sites now account for 66% of total revenues while third-party sites generated just 30% of total revenues -- a 40% reduction.
The quickest way for Google to boost profits is by further reducing the percentage of total revenues paid out to its AdSense partners.
It's a strange business when you can make more money by competing against your publishing partners. Where's the incentive to improve payouts and the AdSense platform?
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