The logic of google ads | Hacker News Reader

The logic of google ads

aaronsw.com

26 pointswglb9 comments

This post is pretty weak on economics:

First, customers often give you more money over time. Maybe they buy level one of your video game when they click on the ad, but then they may buy levels two and three the next day after they beat level one...In the first case, the worst that happens is you don’t buy as many ads as you should.

It should make some difference to you whether the lifetime value of a customer is equal to the value of your first sale (e.g. you sell caskets) or the value of the customer is many, many times the first sale (e.g. you sell heroin). A casket seller should try to make a profit on every sale; a heroin dealer can pay 5X or 10X the cost of the first sale to acquire a customer, and still come out ahead.

Similarly, AaronSW claims that it's okay to advertise to people who were already going to buy your product, since the money you lose would just have been used to fund more ads. But that seems equally true whether you lose the money by buying ads or by flushing it down the toilet.

Aaron's assumptions aren't key to his argument, but they betray a real willingness to simplify his model past the point of absurdity.

Right now Google takes a 20% cut of every auction price. What if you were willing to take just 10%? You could give ad sellers a slightly higher CPM — they’d gladly run your ads when they paid more and Google’s the rest of the time. Then you can offer ad buyers a slightly lower CPC. As long as the money people made was more than the cost of setting things up, they’d switch. I’m actually not sure why this hasn’t happened.

"You've never heard of me, but I'm 10% cheaper than the best company in the business. Why not trust me with the task of introducing your brand name to thousands of potential customers?"

That's why.

He's 50% percent cheaper, no? But your point stands, obviously.

His commission is 10% lower, but in principle your customer doesn't care about commission, just total cost. If a stockbroker charges .2% rather than .1%, that's a .1% lower cost, not a 50% lower cost.

Paul Buchheit in Founders at Work (p. 162): "AdSense, the content-targeted ads, was actually something that, if I recall, I did on a Friday... Everyone hated it. Many people were kind of mad at me because they didn’t really go for the whole concept. It was something that had been talked about, and people agreed that it was not workable, it was not a good idea. So, to some extent, they were agitated that I wasted my time."

"It seems like this should be pretty easy, and indeed Google does provide tools to calculate ROI, but apparently not to optimize it. What they do provide is a tool to optimize your cost-per-action. Does anyone know why this is?"

I think you're wrong. Google does not and cannot optimize your cost-per-action -- you need to figure your CPA out because that is dependent on your business execution and flow. How can Google optmize your CPA if they don't even know your operational costs?

With google's conversion optimizer, you are optimizing your ROI if you find the right CPA figure for each ad. IMO they did a great job with the conversion optimizer, by turning the complex problem of adwords ROI optimization into a much simpler problem of calculating your CPA.

Aaron is really out of his range of expertise with this one. Did he just read a book on Adwords or something? Almost as bad as his attempt to re-explain Keynesian economics to the world. Among other things, his comments about Google not trying improve CTR are just flat out wrong. Everyone should realize an advanced beginner level of knowledge does not enable you to make profound insights into any complex subject.

"Another is to group related websites together and run ads evenly across all of them. This is how most smaller ad networks work."

I help design ad ops software for ad networks, and ads definitely don't "run evenly" across ad networks.

Some campaigns are broken out into hundreds of parts, where a particular part will target a certain set of creatives at users/ad spaces with certain parameters. The parameters include browser, BT, time of day, connection speed, geo location, and more.

It is actually quite rare to have a straight run of network campaign.

Nice job application.

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