Sunday, September 28, 2008

There has been quite a bit of static lately about the proposed deal between Google and Yahoo! Some advertising giants, various uninformed pundits and Microsoft (of all companies!) have argued the deal is anti-competitive. On the contrary, for the millions of small businesses that fuel the economy, including mine, the Google-Yahoo! arrangement is both beneficial and pro-competitive.

In fact, the deal will allow us to better compete with the behemoths and help level the playing field for the small guy. So it’s time to rotate the tuning dial to allow some additional facts to be heard to clear up the confusion and correct some misinformation about this very important development.

First, let me explain that I buy ads from Google, and many of my products are sold from ads that appear on Yahoo! as well as Microsoft’s search engine. As a result, I have personal insight as to how the system really works. The ad auction that runs on Google is dynamic; the pricing is determined by ad buyers like me and indirectly by consumers who click different ads and not by Google. It’s the purest of auctions because it gives enormous power to clever, creative and nimble small businesses.

Here’s how it works. If I write an ad and tell Google I am only willing to pay them 10 cents per click, my ad could appear on top of an ad from a giant Fortune 500 company that is willing to pay a dollar a click. How is this possible? The advertiser that pens the most creative ad that gets the attention of consumers has a great chance of doing well in the real-time ad auction. As that ad gets clicked more, it can generate more sales for the company that wrote the ad and in turn, more revenue for Google. Because the ad is doing so well, it gets preferred placement on Google’s search pages and Web sites that are in Google’s content network.

This means an ad buyer with a small budget can actually trump a larger company that is willing to pay more per click. Assuming the ad is driving more sales, the small company increases its ad budget each day as sales climb. This gives the little guy the opportunity to compete and win against giant companies that have huge marketing departments and expensive ad agencies.

Perhaps this is one reason the Association of National Advertisers opposes the deal. If Yahoo! goes out of business or gets swallowed whole by Microsoft, we advertisers are going to have less ad inventory. It’s possible big businesses - which comprise most of ANA’s membership - want less ad space available, i.e., less inventory, so their larger ad budgets can squeeze out small businesses like mine.

Keep in mind that the proposed deal between Google and Yahoo! could open up tens of millions of page views per day to small businesses that employ millions of people in the United States. On these millions of Web pages, there could be hundreds of millions of ad placements each day, creating even more competition between those that are buying the ads.

Now, let’s turn to the so-called monopoly fears. Imagine that Google decides to change from its current auction system to a model similar to traditional media where a company pays a given amount for a certain ad position, regardless of the ad’s effectiveness. Were that to happen, the vacuum created by the loss of the dynamic auction system would be filled by another search engine faster than you can say Google.

Keep in mind there are several reasons Google enjoys such enormous success in such a short time. First, this advertising model works well and is the fairest and most transparent system there is. A small business like mine can activate an ad account in minutes and have ads seen by millions of people within an hour.

What’s more, I can see in a few hours or even in minutes which ads do the best and what it costs to convert a prospect to a paying customer. That was not possible 10 years ago. Can you see why this might be terrifying to big businesses? Rather than being afraid, big business should embrace this amazing paradigm shift.

On the other hand, anxiety about government intervention in all this is cause for concern, at least for small businesses. Why? Yahoo! has a Web site just like mine. They can lease or rent the space on their pages to any company they please. I do the same, as can any other small Web site. But Yahoo! happens to be one of the most-visited Web sites in the world each day.

If I become the most popular home-improvement Web site in the world with the most traffic, is the U.S. government going to tell me what ads I can and can’t display? If they do, we might as well take a sledgehammer to the Liberty Bell and finish it off.

We should not forget, nor should the Justice Department, that in the history of media and advertising, there has never been so much power and potential available to small and large businesses.

In the past, small companies with tiny ad budgets got the least desirable advertising placements because they could not afford to pay as much as big businesses. The marketing landscape has changed, and those comfortable with the old business model are screaming as people like me take a seat at the table. Excuse me, but please pass the salt.

Tim Carter is founder of and author of the nationally syndicated newspaper column “Ask the Builder.” He also is a licensed amateur radio operator whose call sign is W3ATB.

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