Stuck in Google’s Doghouse

**Banned: dn-101** · 09-15-2008, 10:53 AM

Stuck in Google’s Doghouse
By JOE NOCERA
Published: September 12, 2008 - NY Times

A few days ago, Dan Savage had his lawyer send a nine-page, 4,000-word letter to the antitrust division of the Justice Department. Mr. Savage, 59, runs Sourcetool.com, a business-to-business Web site that acts as a directory, listing — and ranking — hundreds of thousands of companies that sell industrial products.

Like many Internet entrepreneurs, Mr. Savage built his business model around Google when he started it in late 2005. Using Google’s AdWords program, he planned to make bids on specific search terms — “ball bearings,” say — that would ensure that a Sourcetool ad would be placed high on the right-hand side of the Google page whenever someone searched for places to buy ball bearings. That’s how paid search works.

But because his was a free site, he needed to generate his revenue from advertising. For that, he used Google’s other ad program, AdSense, which placed targeted advertising on the right-hand page of the Sourcetool home page whenever a user “clicked through” to Sourcetool to find a company that would sell him ball bearings.

Mr. Savage estimates that he was paid around 10 cents every time someone clicked an ad on his site. The difference between that and what he paid Google to advertise against search terms — usually around 5 or 6 cents —was his profit.

According to the letter Mr. Savage submitted to the Justice Department, Google at first gave him nothing but encouragement, even naming Sourcetool its AdSense site of the week at one point. By May 2006 — with the company barely six months old — it was making around $115,000 a month on $653,000 in revenue. According to Mr. Savage, his biggest expense was paying Google to advertise against search terms, which was costing around $500,000 a month.

In the summer of 2006, however, Google pulled the rug out from under him. Suddenly and without warning, Google raised Sourcetool’s minimum bid requirement from 5 or 6 cents to $1, and in some cases to as much as $5 or $10. Mr. Savage discovered this was happening only after he saw that Sourcetool’s traffic had dwindled drastically and began looking into the reasons. Because the new Google-mandated minimum bid was so much higher than the maximum he allowed for (usually around 10 cents), Sourcetool’s ads had disappeared from the Google search results page. That’s why his traffic had dropped off.

When Mr. Savage asked Google executives what the problem was, he was told that Sourcetool’s “landing page quality” was low. Google had recently changed the algorithm for choosing advertisements for prominent positions on Google search pages, and Mr. Savage’s site had been identified as one that didn’t meet the algorithm’s new standards. (As Google defines it, landing page quality includes a series of attributes — loading speed, user friendliness, relevancy, originality and dozens of other characteristics — that it deems appropriately “googly.”)

Although the company never told Mr. Savage what, precisely, was wrong with his landing page quality, it offered some suggestions for improvement, including running fewer AdSense ads and manually typing in the addresses and phone numbers of the 600,000 companies in his directory, even though their Web sites were just a click away. At a cost of several hundred thousand dollars, he made some of the changes Google suggested. No improvement.

When he pressed Google to explain why the changes hadn’t helped, he said, the company gave him the brushoff.

“Your landing pages will continue to require higher bids in order to display your ads, resulting in a very low return on your investment,” a Google executive named Nathan Anderson wrote on Jan. 2, 2007. “Therefore AdWords may not be the online advertising program for you.”

Two days later, in another e-mail message, Mr. Anderson told Mr. Savage to “please refrain from repeatedly contacting our team.”

As he stewed about his predicament, Mr. Savage came to believe that there was something more nefarious going on than a subpar landing page. Google, he believed, didn’t like his Web directory because it was a search engine itself — though much more narrowly focused than Google’s search engine — and Google found it a competitive threat.

What’s more, Sourcetool competed directly with business.com, which was one of Google’s “content network partners,” meaning it gets additional advertising revenue because Google directs AdWords ads to the site as well as AdSense ads. (The New York Times is also a Google content network partner.)

As Mr. Savage saw it, Google’s near monopoly in search ads (its market share is approaching 70 percent) put it in a position to decide which business models it would tolerate and which ones it wouldn’t. “Google can use AdWords to pick winners in every category,” he told me.

Mr. Savage is hardly in a position to sue Google for antitrust violations, of course. But he did feel there was one thing he could do: tell his story to the Justice Department, in the hope that it might help stop the Google-Yahoo advertising deal that was announced in June. Hence the letter. “Google’s conduct is plainly consistent with acts of monopolization and attempted monopolization,” Mr. Savage’s lawyer wrote in his letter to the Justice Department. He added that “Google has achieved and maintained its market share through anticompetitive exclusionary conduct.”