Google AdWords: Paying Paul to rob Peter and…you

A few weeks back I received a direct mail offer from Google AdWords. It read: Come back to AdWords and get $100 in advertising credit on us. In the past similar offers were in the $50 to $75 range so this $100 credit certainly caught my attention. My first impression was that Google obviously loved me and that they were sticking to their “Don’t be evil” mantra. I bet you have the same impression.

However, that warm and fuzzy feeling didn’t last very long. About a week ago a client asked me to do another on-demand review of their Google PPC account. I checked this. Tweaked that. And adjusted the next thing. The usual routine. Everything seemed in order except for one thing. All the minimum bids for first page ad placement were up. There seemed to be increases even for campaigns and keywords where there has historically been little interest and movement.

Bingo! And then it hit me.

What’s misleading is that the credit promised isn’t on Google. The reality is that money is coming out of the pockets of anyone else who advertises on AdWords. Think about it. There are a finite number of ad slots/placements. That is, supply is more or less fixed. Suddenly Google injects a large number of $100 credits into the market. That is, Google artificially increases demand. So what happens when supply is static and demand increases? Prices go up.

Bottom line: What Google might lose in giving away that $100 they make it back because those same $100 injections drive up prices across the board. Isn’t being generous with someone else’s money somehow evil?