Does Google Artificially Inflate Bids During the Holiday Season?

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Over the last few weeks, I’ve received email notifications from basically every comparison shopping engine with the same message – CPC rates are increasing for the holiday season. The most recent one I received came this week and said: “Effective November 1, 2007, Smarter.com will apply a 20% cost per click increase to base CPC rates across all categories. This holiday adjustment is temporary and will end on December 31, 2007. Our past experience has shown that merchants typically see increased clicks and conversion from leads throughout this period and as such you should expect consistent levels of ROI at the new rates throughout the holiday season.”

To put it another way, consumers are more likely to actually buy something during the holiday season, and thus comparison shopping engines (CSEs) raise their rates to share in the bounty (increased prices but “consistent levels of ROI”). I’m not knocking the CSEs for doing this by the way – they need to make money from the holidays just like retailers need to make money. It’s just business.

What I’ve wondered for some time now is whether Google has a similar way to squeeze more pennies out of their retail advertisers over the holidays. My suspicion was initially aroused on November 6, 2005, when Google made a major enhancement to their quality score algorithm. The thing that struck me about that enhancement was the timing – early November. Because quality score is (and definitely was) a very murky concept, it would be pretty easy for Google to use the ‘quality score card’ to artificially increase bids for some or all advertisers for the holidays.

And unlike CSEs, Google can’t just outright announce “hey, we’re raising bids for the holidays.” Anyone who advertises on comparison shopping engines understands that part of the game is that the CSEs can and will raise minimum bids at will. But Google has always professed to running an automated blind auction, where – in theory – you could get amazingly awesome clicks for $.01 if you had the right combination of quality score and low competition. So if Google came out and announced that the minimum bid on “digital camera” will be $2.50 until December 31st, they’d face a firestorm of advertiser and media backlash. Which leads me back to the “quality score” update theory. It’s the perfect back-door to raising bids without explicitly raising bids.

Now I know some of you are thinking: “Even if bids go up over the holidays, it’s not because Google is secretly manipulating the system, it’s because advertisers are just raising their bids.” I’m sure that this is true – savvy advertisers will anticipate the increased conversion rates over the holidays and proactively increase their bidding. But the key here is the term “savvy.” I suspect that there are a lot of advertisers who don’t make holiday bid adjustments, either because it never occurred to them to do so, or because they just don’t dive into that level of detail on their campaigns. This is likely what the CSEs encounter and why they need to artificially juice the system. So if Google just sits back and let’s the market dictate bids, I’m sure that they would experience a market-driven seasonal CPC lift, just not as great a lift as they could achieve by some behind-the-scenes bid increases.

At the end of the day, I have no way of proving this theory, other than through circumstantial evidence. Over the next few weeks, however, I’ll be looking for two signs that might support this idea: 1) any announced changes to the quality score algorithm and 2) changes to my keywords’ minimum bid prices. In January, I’ll write a follow-up post with the results.

About the Author

David Rodnitzky is CEO of PPC Associates, a leading SEM agency based in Silicon Valley. PPC Associates provides search, social, and display advertising management to growing, savvy companies. To learn more, visit ppcassociates.com, or contact David at [email protected]

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4 Comments

  1. Great article. I always thought that the quality score "enhancements" were just a way for Google to soak their advertisers. I've seen crazy min. bids pop up out of the blue on important keywords with high click throughs, high ROI, relevant and optimized. My suspisions were confirmed when several client's names/keywords, which are on their websites, URLs, ads...got min bids jacked up to $5.

  2. David, It is interesting how you simply accept that companies like smarter.com raise their prices and acknowledge that they need to make a buck too, yet when Google does the same thing, it is unacceptable :) Would you rather have Google say outright: "I'm raising minimum bids starting tomorrow"? Don't get me wrong, I am not a fan of these covert tactics either but we should be careful here not to have double standards. Just my two cents...

  3. Gareth

    I haven't noticed this happening, with my own campaigns which have high click through rates I`ve noticed that bids which were 30p a month ago have gone down to 8p now, for a higher ranking than the 30p originally got me. Whilst it may be that some bids go up for Christmas, it does seem that if you have a good quality ad, coupled with a good landing page, you are rewarded with much lower CPC's. From my own experience, it is the competitors who drive the bids up, and then everyone else copies and you end up with grossly inflated prices.

  4. I'm definitely experiencing this myself. In the last 30 days, I've seen about a 10% rise in my avg. CPC, and I'm paying more and more daily to compete for lower and lower rankings. It's frustrating to say the least.