How does Google auction ads

There are several steps in the process.

1) Each advertiser enters a list of keywords, ads, and bids.

2) When a user enters a query, Google compiles a list of all the ads whose keywords match that query.

3) The list of ads is then ordered based on the bids and the Ad Quality Scores, which measure the relevance of the ad to the user.

4) The highest ranked ad is displayed in the most prominent position, the second highest ranked ad gets the second most prominent position, and so on.

5) If the user clicks on an ad, the advertiser is charged a price that depends on the bid and Quality Score of the advertiser below it. The price charged is the minimum necessary to retain the advertiser's position in the list.

A simple example is when all ads have the same Quality Score. In this case, the ads will be ranked by bids and the price an advertiser pays per click will just be the bid of advertiser below it in the ranking. Hence the amount that advertisers pay is no more than what they bid and typically less.

In the general case, where ad qualities differ, the price an advertiser pays for a click will depend on its Quality Score relative to the quality of the ad below it in the auction. Roughly speaking, an ad that has twice the quality of another ad will tend to get about twice as many clicks, and will only have to pay half as much per click as the competing ad.

From the Google's official blog.

Microsoft's Steven Ballmer's letter to Yahoo's Jerry Yang on abandoning of the deal

Yahoo's trick of outsourcing ads placement to Google seems to have paid off.

Below is the text of the letter from Microsoft CEO Steve Ballmer to Yahoo! CEO Jerry Yang.

May 3, 2008


Mr. Jerry Yang
CEO and Chief Yahoo
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089


Dear Jerry:

After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.

I first want to convey my personal thanks to you, your management team, and Yahoo!’s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.

I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Also, after giving this week’s conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.

We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:

· First, it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth.

· Given this, it would impair Yahoo’s ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.

· In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.

· This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.

· It could foreclose any chance of a combination with any other search provider that is not already relying on Google’s search services.

Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.

We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.

I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.

But clearly a deal is not to be.

Thank you again for the time we have spent together discussing this.

Sincerely yours,
/s/ Steven A. Ballmer


Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

Here is the threatening letter Microsoft had send to Yahoo few weeks back regarding hostile takeover.

Inside AdSense: A word of caution

From the blog post of Adsense blog Inside AdSense: A word of caution here is an excerpt

Of late, we’ve received a few emails from new AdSense applicants about not being accepted into the program despite paying a specific amount of money or buying a CD package.

We’d like to take this opportunity to state that we're not affiliated with any third-parties that solicit payment to join the AdSense program or that sell CDs with money-back guarantee offers. AdSense is a free product offered to publishers by Google Inc., and there’s no cost or obligation involved. As a result, we recommend that prospective publishers exercise caution when presented with such offers.

Google seems to ignore the fact that these third parties use Adwords to advertise their schemes. Isn't Google partly responsible as these ads which appears on its sites makes it seem like Google endorses these services or product or affiliation.

Google must buy PayPerPlay to increase profits

There were signs of a slowdown at Google after it reported disappointing profits in its most recent quarter.
Google's profits were up 17% to $1.21bn (£608m) for the three months to the end of December.
Google's shares have fallen more than 18% so far this year on concerns that the slowing US economy will cause advertisers to cut back on spending.

Google's main source of income is through Adwords. Clicks generated on it PPC network Adsense bolsters it's profits. But lately, Adwords advertisers have been cutting ad spend due to various reasons. The CPC has also reduced. In this situation Google has to look at various alternative methods of advertising. Last year it bought digital advertising company DOUBLECLICK to increase profits. Doubleclick has the best solutions for banner advertising. Now greatness of Google's advertising is that even small advertiser can advertise and get good result. But, due to this big advertisers who spend big do not stand out.
Google should take over PayPerPlay Media. It is a unique audio ads concept which is contextual as Adsense. Unfortunately, PayPerPlay Media does not have the technology or the innovative power of Google to get huge profits. Advertisers spend huge on TV to capture audience. The super bowl is one event where ads spending rockets moon-high!! Youtube is one such part of Google that it can match Super Bowl. It's top videos has captured more eyeballs than Super Bowl. And with Google present in almost all major countries,it can easily deliver regional language audio ads which PayPerPlay media cannot offer(at least soon). Google can easily help advertisers target top sites like Youtube,orkut,etc and charge a premium. This will not only help advertisers get good results but also will reduce their unnecessary spending as small sites can be avoided if they want.
Also Adsense publishers will get even more ways to monetize their site.

Rahman more expensive than amitabh,shahrukh

Yes, it is true according to adwords. Advertisers pay more for keyword a r rahman than Amitabh and Sharukh. What is more abhishek is more expensive than Amitabh and Shahrukh but behind Rahman

Google to pay searchers

My friend who works in Google in USA told me that Google is planning to introduce new experimental search types. Google is going to pay select searchers who apply to search and give feedback. Google will pay according to their work from $50 to $150 per hour via checks or will credit it to their AdWords account.
The application will be released in mid-December .