Google increased ad prices to meet targets. What does this mean?

Introduction

This week, Bloomberg reported on the comments made by Jerry Dischler, Vice President for Google’s advertising products, during the ongoing federal antitrust trial.

In those comments, Dischler noted how Google adjusts certain prices in the ad auction to meet revenue targets, specifically the minimum spending ad or “floor pricing”, largely impacting long-tail or low-competition terms. 

There were also comments regarding manipulation of top ad spot places, switching first and second place advertisers in specific circumstances (usually involving Google competitors, like Amazon).

This information comes at a time when some Paid Search professionals may be feeling fatigued by the rapid change experienced over the last 24 months. Most of this change has followed the larger paid media trend of widespread adoption of artificial intelligence to facilitate a greater utilization of existing platform inventory (i.e. broad match expanding search term coverage, Performance Max expanding creative format and placement opportunities, and Advantage+ shopping campaigns expanding audiences).

In short, this has given Paid Search professionals the familiar feeling of less insight and control, creating fertile ground for frustration towards anything that continues this trend.

Key considerations

These frustrations are understandable. However there are a few key points to consider:

1. The auction, by its very design, is not a perfect marketplace. There are weights and biases specifically built and tweaked by Google, such as Ad Rank, that influence individual advertiser bids for the same positions, similar to most other digital media auctions. Many of us have fallen into the trap of feeling that this is a fair marketplace, free from direct human intervention. 
2. Google is not the only platform that adjusts prices within the auction. Naturally there are recent examples where these numbers have been reduced i.e. The Trade Desk's removal of floor bids for supply side platforms earlier this month (reported by Digiday) and to a certain extent X’s (Twitter) reduction of ad costs to lure back advertisers, reported by Search Engine Land. For better or worse, the fact that these prices are being changed is clearly evident.
3. Google Ads is by far the most effective performance marketing platform, achieved through scale and its market-leading bidding algorithms. That means it is raising prices for what is essentially a highly sought after commodity. On the flip side, Business Insider reported last month that the cost per thousand impressions across Google were actually down year-over-year due to the huge increase in short-form video inventory (reported here). Even within a single partner offering, supply and demand will have its say on pricing.

The question of fairness

Was this change ethical? Fair? Probably, probably not. The answer to that is both hard to determine and also somewhat irrelevant for Search professionals. What’s more important is understanding if performance media spend is achieving its best return, and if not, where should it be deployed instead. In the majority of cases, a small change in Google floor prices isn’t going to impact that calculus.

Regarding fairness and legality, the antitrust case against Google looms large, and positions them as having a monopoly in Search, but this is more specifically referring to the general Search landscape. 

The non-general Search landscape has changed dramatically over the last 10 years. 50% of product searches now start on Amazon (report by Search Engine Land). In a 2022 study, 40% of young people used TikTok to search where to get lunch (report by NY Times). According to Statcounter, Google had 92% market share in the traditional search engine space in 2010 and 92% in 2023 - but the broader Search ecosystem in those two years looks very different. Despite that winning stat, Google is aware of this and it’s clear in the expansion of Google Ads products like Discovery, Performance Max and Demand Gen - all of which tap into various different inventory types and placements outside of the search engine results pages.

Overall, the most effective and in-demand performance media inventory will continue to increase in cost, likely in ways we may deem as fair or unfair, squeezing advertisers who focus purely on the easy low hanging fruit. 

Long-term success will be built on platform, inventory and creative format diversification. If you’re overly annoyed or surprised at a 5% increase in long-tail Paid Search cost-per-clicks, you’re probably doing something wrong. 
To learn more on how to make the most of your paid search strategy, get in touch with our team here.