Google Should Give You Some of Its Ad Revenue

Here’s a link to a Marketplace radio commentary that aired yesterday in which I argue that search engines should give you a cut of their ad revenue when you click through on an ad. Microsoft’s cashback system pays you if you click through and buy. But just the act of consuming the ad should have some value even if you don’t buy.

We’re used to thinking of Paypal and Google checkout as micro-payment services, but they can also become micro-compensation services. If you watch a commercial on Google TV, Google could credit your account.

I’ve written a (long) academic article showing how compensated calling could be easily incorporated into the current “do not call” regs — so that you could even set whatever price you wanted to listen to telemarketing calls. (I’ve also published OpEds on the idea here and here.) Instead of making an all-or-nothing choice about whether to block all telemarketing calls, a lot of consumers would prefer to set an intermediate price and just block those calls that aren’t willing to pay their price.

Compensated advertising fits perfectly with Google’s revolutionary model. It gives advertisers even better incentives to make ads relevant for specific consumers. Compensated ads are literally valuable.

Of course you have to worry about moral hazard. Some consumers will insincerely click through just to get the compensation. But advertisers have simple counter strategies to limit these shenanigans — such as limiting the total compensation or blocking consumers who click but never buy.

A bunch of other firms besides Microsoft have started down this path. After my commentary aired, I got an email from the president of mindshare.com. Mindshare will compensate you if you click through on their ads (but it seems you have to accumulate $100 before you can actually retrieve your compensation).

The big question is whether larger services — like Yahoo or Microsoft — will push Google toward a system where consumers can trade their attentions for dollars.

Microsoft’s cashback service is an important step in the right direction.


Clint

@ Steve, #2

No. I should be allowed to make any demands I want of advertisers, and they should compensate me according to their budgets. It's how it's always worked.

http://www.youtube.com/clintosterholz

Dunc

I remember the program, and how the company that made it is now defunct because people would cheat the system with bots. How is "compensated advertising" like this not just coupons, which have been around online and off forever? Doesn't seem that revolutionary.

Steven Thacker

Sorry to be blunt, but I think that you need a reality check. Your idea is ridiculous.

First off, getting such a system comes at a cost both to Google and to the consumers (they have to take the time to learn and think about such a system, consider it for themselves, and then sign up for it and monitor its progress. It adds one more complication to daily life. Don't underestimate this cost as the massive amounts of money spend on advertising by firms is proof that informing consumers is one of the major tasks of our economy.) The costs of implementing this system are indeed almost certainly not worth it.

Second, the possibility for exploitation of this system makes it absurd. A cat and mouse game between advertisers and exploiters would develop, again being a major cost that makes this proposal economically inefficient. For example, a sophisticated programmer could create macros and/or simple artificial intelligence that identifies profit opportunities and takes advantage of them, while disguising itself as a genuine consumer. This would be the essence of the cat and mouse game as advertisers adapt and then exploiters innovate continuously.

My third criticism is that your proposal is overly idealistic and lacking in pragmatism. Particularly, Google's business is somewhere between perfect competition and a monopoly. Allow a brief tangent while I explain. As we know, price discrimination occurs only in instances other than perfect competition. So, every time we see a sale or coupons offered, this means that the company is somewhere between perfect competition and a monopoly. We see discount sales and coupons all the time, so I think the appropriate explanation is that your grocery stores and retail stores offering discounts have aspects of monopolies in the sense that there is only one Ralphs that is located closest to me, and only one Nordstrom that is located closest to me, etc. The same thing occurs in the search engine market. Google has aspects of a monopoly because it is the only place that I can get a clean simple webpage without clutter (such as Yahoo), and it has by far the quickest and most efficient web search capabilities in the world. Google operates the largest computer network in the world to facilitate their proprietary search technology. Their are actually massive barriers to entry in the search engine market as enormous computing power is necessary to be successful. Not to mention the difficulty of coming up with a search algorithm that could be competitive with Google. So Google's business has aspects of a monopoly. Your proposal might make sense in a perfect world where every industry exhibits perfect competition. However, not only is this world not perfect, but perfection would come at a great cost that no one is willing to pay.

Your idea only makes sense of course if this would create greater profits for Google. I think arguing that it would bring greater profits doesn't make too much sense. It would create far more problems than benefit.

You should focus on two questions:

1) Will your proposal create greater economic efficiency, counting the cost of setting it up?

2) Will your proposal cause greater profits and shareholder equity at Google?

As you know, the answers to these two questions must be yes for your proposal to be a wise plan of action.

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Matt

People are clearly willing to tolerate the ads without being paid in order to use Google's services for free. So why should Google pay?

NetZero used to "pay" people to use the internet by offering free internet service to those willing to put up with constant ads. Similarly, Google already "pays" people to look at its (much less annoying) ads by offering the best search engine, email, online docs, etc available. The only reason MSN is offering to pay people to click through is because it is a crappy engine, so people don't consider use of the search engine "payment" enough to tolerate the ads. Until Google is surpassed by another search engine, it has no incentive to introduce a monetary payment scheme, as free use of the best way to search the greatest compendium of information in the history of mankind is payment enough.

Carl

As an advertiser, I would never want to advertise on a service that paid people that way. I just wouldn't feel comfortable with it. I don't think it would work unless they paid people just to use their search engine exclusively and not per click or per viewing.

Sonya

I'm pretty sure they already do - in the form of well built and well maintained applications like gmail, google calendar, google earth, etc.

Mike

And the "Ohhhhh SNAP!" of the day goes to Halle T.

Steve

Isn't getting to view the content of almost every web site for free enough compensation?

Josh

I always wonder when I google something like "Circuit City" whether I should click on the sponsored link, or the top result since both will take me to the same page. It usually depends on how I feel about the company (or Google at the moment) and whether I want to make them pay for my click. The idea here is that Google would be giving me an incentive to click on the sponsored link, which also helps Google.

I never look at the side bar advertisements and never pay attention to the Google Ads on other sites, so that's not really an issue for me.

The problem here is that the compensation would be so small it would be too trivial to have any effect.

steve

see mintshot.co.nz

you watch adds to earn mintshot dollars that you then use to bid on goods/prizes

Silvanus

No thanks. I consider advertising a cancer to the human imagination; virulent and destructive. "Reality Television" is only the most recent incarnation of the impending death of commercialized television. Services like TiVO and online websites that cut commercials proves--- people hate commercials.

@2: Steve- a fundamental truth about information... it is free until someone puts a price tag on it. Then its called extortion. The unimaginable gains of the Internet are based upon treating information as free.

I do not tolerate any one I do not know calling me, especially if they are hocking some POS.

Shawn

Sorry - previous comment needed context, scour.com is already out there trying to facilitate ian's thesis already.

cmg

No thanks! Some browsing at work is easy to justify as keeping up with trends or technology or etc. The last thing I need is someone to make the argument that there's a conflict of interest between me browsing the web (and getting some money) at the same time I'm working.

Christopher

Ian, its been tried a million times and failed every time. Microsoft is the latest to attempt it, and I guaruntee it'll fail.

Even the most avid- or obsessive- searchers and surfers would pocket maybe $10 or $20 per month. That's pretty meaningless to people, especially considering the hours they'd have to work to do it.

Its a nice idea in a vaccuum, but you're not thinking through all of the various things that would have to happen.

You'd have to spend at least an hour per month (or so) managing your account!

Kent

Silvanus: "A fundamental truth about information… it is free until someone puts a price tag on it. Then its called extortion. The unimaginable gains of the Internet are based upon treating information as free."

No. Information is the most precious commodity there is. Why should anyone give you information for free when they had to spend effort, time, and money to obtain it or to create it? This is why we have a whole section of our legal code dedicated solely intellectual property. By your argument, books, teachers, schools, and professors are all extortionists. So are newspaper publishers, authors, and inventors.

The unimaginable gains of the Internet are based upon people finding a way to to make money off of information in a way that is palatable to the average consumer--i.e., advertising. The Web's been around for quite a few decades, providing free information to anyone with a connection and a directory. It didn't take off until the late 90s, when people learned how to make money off of that information.

"I do not tolerate any one I do not know calling me, especially if they are hocking some POS."

It doesn't matter what you "tolerate" or not. It's happening anyway. Walk down the street and you're seeing an ad, whether or not you tolerate it. Unless you lock yourself up like a luddite/hermit, you're getting marketed to. Deal with it.

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Kaan Aksoy

I dont understand your point. So every company should pay us some of its profit every time we make them earn money? Google pays you back by giving search results. If it did not give use accurate results no one would use Google. Google also pays publishers with their adnsense programs. The way they "pay" consumers is providing accurate search results and keyword or content related advertising. Fair enough.( for me )

AaronS

I OUGHT to be paid for having to endure pop-up ads! I spend valuable time trying to find that nearly-invisible "close" button.

Jared

A guy I went to college with started an online betting site called centsports.com (feel free to edit that if you don't want to supply the free advertising) that allows you to bet real money for free as long as you watch advertising.

jh

Newspaper writer,

First of all, I feel for you. The 4th Estate is incredibly important. I really worry about how they will survive in the future.

But before you hammer Google too much for its role in this transformation, it might be worth considering that every web site can choose to allow or block web crawlers such as Google from all, some, or none of its pages (using the robots.txt standard). So if the newspapers really thought they were losing out by having Google "parasitically" index and link to their content for them, they could flip that switch at any time.