By Jack Nicas
Alphabet Inc.'s Google runs the world's largest advertising
business, selling space atop its search results. Google is also
among the biggest buyers of those ads, promoting products from its
music service to its app store.
These days, Google often pushes its growing list of hardware
products, from Pixel phones to Nest smart thermostats, in the top
ad spot above its search results.
A Wall Street Journal analysis found that ads for products sold
by Google and its sister companies appeared in the most prominent
spot in 91% of 25,000 recent searches related to such items; and
43% of the time, the top two ads both were for Google-related
products.
The analysis, run by search-ad-data firm SEMrush, examined 1,000
searches each on 25 terms, from "laptops" to "speakers" to "carbon
monoxide detectors." SEMrush ran the searches Dec. 1 on a desktop
computer, blocking past web-surfing history that could influence
results.
The results show how Google uses its dominant search engine to
boost other parts of its business and give it an edge over
competitors, which include some of its biggest advertising
customers.
A Google spokesman said the company has "consciously and
carefully designed" its marketing programs not to affect other
advertisers.
The Journal's analysis highlights a rarely discussed apparent
conflict of interest in the $187 billion digital-advertising
industry: The leading sellers of online ad space, including Google,
Facebook Inc. and Microsoft Corp., also compete with their
customers for that space.
Google searches for "phones" virtually always began with three
consecutive ads for Google's Pixel phones. All 1,000 searches for
"laptops" started with a Chromebook ad. "Watches" began with an
Android smartwatch ad 98% of the time. And "smoke detector" led
with back-to-back ads for internet-connected alarms made by Nest, a
company owned by Google parent Alphabet. In all instances, the
stores these ads pointed to were also owned by Alphabet.
After the Journal shared the analysis with Google on Dec. 15,
many of the ads disappeared, including nearly all from Google's
online store. A second analysis on Dec. 22 showed Google or Nest
ads in the top spot on 19% of the searches. Google declined to
comment on the disparity.
Google's practice of promoting its other products and services
on its search engine has drawn regulatory scrutiny. The company is
facing charges from the European Union's antitrust regulator that
it favors its comparison-shopping service over rivals in its search
results -- charges that Google disputes.
Television stations and newspapers, including The Wall Street
Journal, have long used so-called house ads to market their own
products, but they generally charge set prices -- instead of
auctioning the spots -- and often advertise in unused space.
Internet giants sell ads via auctions, meaning they bid against
their customers, potentially affecting the prices other advertisers
pay.
Google runs auctions for each appropriate search result, or
millions a minute. Marketers choose bid prices and terms they want
to advertise on. Google determines ad placements and prices based
on a secret algorithm that weighs bids and Google's assessment of
an ad's relevance and quality, calculated partly by its past click
rate and landing page.
Google said that when it competes for ads, other advertisers are
charged as if it wasn't bidding, meaning its participation doesn't
directly inflate prices. That is one of a series of house-ad rules
set by an internal Google committee designed to minimize
conflict.
Google said that its ads only appear atop results because of the
ad's quality and the price Google is willing to pay. Google said
its house ads are also subject to marketing budgets.
The strategy does have a cost: Google forgoes potential revenue
from ads it displaces.
Online-marketing executives and analysts say Google's ads can
still affect the price, placement and performance of its customers'
ads. Advertising slots on many pages are limited, so Google's ads
can prompt others to increase their bids to compete for the
remaining slots.
"It's definitely problematic," said AJ Kohn, head of a small
search-marketing firm called Blind Five Year Old. "You have to take
Google's word for it."
In the Journal analysis, Google ads most frequently ranked above
the ads of Best Buy Co. The electronics retailer said it values
"Google's search capabilities to market our products and
services."
Google is the dominant player in online advertising, capturing
31% of digital ad revenue last year, according to research firm
eMarketer.
Facebook, the second-largest seller of online ads, said it bids
for space on its sites "like any other advertiser." Facebook
promotes its own products -- like its Instagram photo-sharing app
-- in users' newsfeeds, according to a person familiar with the
matter. Likewise, Microsoft said it bids "on a level playing field"
against its customers for ads on its Bing search engine.
In the year ended in May 2016, SEMrush said Google bid on
roughly 2.7 million search terms a month, second only to Amazon.com
Inc.'s 3.7 million terms. Target Corp. was the only other company
that bid on more than one million terms a month on average.
Google declined to comment on the SEMrush figures. It said its
house ads appear on a significantly smaller portion of searches
than in 2010, but declined to say whether the total number has
declined or increased. Google says it handles trillions of searches
a year, significantly more than in 2010.
Russian software firm Bitrix Inc. said Google house ads made its
ads less visible and more expensive.
In January 2015, Bitrix ads appeared next to 24% of searches
related to customer-relationship-management software, making it the
most prevalent advertiser on that term, according to data Google
supplied to Bitrix and seen by the Journal. At the time, Google
wasn't advertising on that term.
By August 2016, Google ads appeared in more than 70% of CRM
searches, making it the most frequent advertiser on those terms,
according to the data. Bitrix's ads appeared with 14% of searches,
even though it paid Google 26% more for those ads than it did in
January 2015.
The Google spokesman said competition from other advertisers --
not Google -- prompted the changes in Bitrix's ad placements and
rates.
Ads from CRM-software sellers like Salesforce.com Inc. and
Microsoft appeared more often than Bitrix's ads last August, but
Google had by far the biggest spike in visibility over the
period.
Google doesn't actually make CRM software; the ads were for its
cloud service, which can be used to launch CRM tools. The Google
spokesman said its ads were relevant to the search.
Write to Jack Nicas at jack.nicas@wsj.com
(END) Dow Jones Newswires
January 19, 2017 07:14 ET (12:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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