Monday, August 21, 2006

Revenue Round Trips in Search - Partying Like It's 1999

Remember back before the Internet Bubble burst, when companies routinely did 'revenue round-trip' deals whereby one online company bought traffic, services or product from the other, and the other reciprocated by buying traffic, services or product from the first? Homestore & AOL did it, Enron did it, as did a number of other growth firms trying to maintain investors' enthusiasm for their equity value.

Post-Bubble that sort of thing is frowned upon, not so much on moral grounds but rather because no one wants to end up like Ken Lay (cut to visual: Fred Sanford having 'The Big One', looking up and telling Elizabeth he's comin' to her)

Yet the practice - albeit in slight modified form - is alive and well in search in the form of the AdWords-to-site-with-AdSense-back-to-Google ad model. As an example consider Shopzilla/Bizrate, who is a huge keyword buy and generates leads for merchants in retail and other verticals. In addition to monetizing their Adwords buys via leads, they *always* include AdSense ads on their landing pages, which then send the searcher to other merchants via these merchants' AdWords ads.

This could almost certainly be deemed a revenue round-trip: Shopzilla buys traffic from Google, sends the traffic to their site and then Google 'buys' AdSense distribution traffic back from Shopzilla, thus inflating both firms topline revenues. Granted:

1)Google has hundreds of thousands of advertisers;
2)This relationship, unlike those of Homestore, AOL and Enron in the past, is largely automated/self-service and requires no active involvement or knowledge on the part of mgmt; and
3) merchants monetizing the long tail of their own site traffic makes sense

...but aren't the two firms in essence creating topline revenue out of thin air?


Blogger Niki Scevak said...

I think you discount the fact that take a person who may type in 'digital camera' in Google help them decide that they want a canon 4 megapixel camera and then get them to click on an ad for the specific camera.

They're moving the consumer down the purhcase funnel and creating value.

The other difference with revenue round trips (and money laundering) is that you give a person a dollar and they give you 80 cents back. Here is clearly giving Google a dollar and getting $2.50 back (last time they had publicly disclosed financial data). From Google's end they are getting the originaly dollar and the sales commission on top of the $2.50 that they sell.

8:34 AM

Blogger searchquant said...

You're absolutely right that the CSE's can and oftentimes do add value in moving the consumer down the purchase funnel.

My point, though, is that when users click on an add from a CSE running on Google, go to the CSE landing page and then click on an *AdSense* ad, that in essence becomes a revenue round-trip, or at least a partial round-trip.

Because of that, it would seem to me to be incumbent upon the CSE and Google to recognize revenues appropriately in that situation, rather than take all of the click value as topline revenue.

9:07 AM


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