(Updated)
Google’s Adwords is a fair system – with enough money you can outbid anyone and get top position … or .. can you?

Joe Kraus’s last blog post, It’s a great time to be an entrepreneur has become a much -quoted classic.  Part of his argument is how Search Engine Marketing changed everything, how one can now reach millions of small customers just buy buying the right keywords. Following this strategy a lot of startups spend most of their marketing budget to one company: Google.

Online collaboration company  Central Desktop followed the same path: frugal start and steady growth to profitability simply by having a solid good product and focused Adwords-based marketing. (They have  a really good integrated suite that I warmly recommend to small businesses as well as ad-hoc groups in need of  collaborative editing, groups, calendar, wiki, project management, tasks ..etc.)

It wasn’t until one of Central Desktop’s competitors, Joe Kraus’s very own JotSpot got acquired by Google that CEO Isaac Garcia started to investigate how Google plays its system against their own customers.

“You see, I’m not afraid of competing with Google – but I *AM* afraid of AdWords. Here is why……….
Google Cheats
Google holds the top advertisement (Adword) slot for the following key words:
intranet, spreadsheet, documents, calendar, word processor, email, video, instant messenger, blog, photo sharing, online groups, maps, start page, restaurants, dining, and books (somehow Amazon has managed to appear in the #1 ad slot for ‘books’).
For spreadsheet, blog and video, in addition to squatting the premium ad position, Google Products also dominate three of the first four search results.
In such cases, Google Product Links and Ads can account for up to 25% of your viewable screen resolution – 30-40% for lower screen resolutions – almost guarantying that users will click on a Google Product over any other search results, sponsored links or text ads.
What this tells me is if you are trying to advertise a product that is competitive to Google, then you’ll never be able to receive the Top Ad Position, no matter how much money you bid and spend.

How successful do you think *your* ad buys would be if your competitor trumped your position no matter how high you bid your key words? “

His three questions to Google:

“1. How much does Google pay *itself* to claim the top ad position for searches relevant to its own products?
2. Does Google hold itself to the same minimum CTR thresholds for Ads placed?
(In case you aren’t aware – Google recently changed its Landing Page criteria; increasing keyword buys to $5.00, $10.00, $15.00+ for companies who’s Ads were not meeting a minimum (unknown) CTR.)
3. What alterations does Google make to its search algorithm to guarantee top rank for search results relevant to its own products?”

I think Isaac hit on something really big here:

“In the beginning, AdWords was hailed as the revolutionary platform that enabled small start-ups, mom and pop stores and businesses all around the world to ‘compete fairly in an open market bid system.’ It was written that “small businesses can now compete evenly with big business – it levels the playing field.””

Yes, it levels the playing field – as long as Google itself has no interest in your particular field.  So if you’re a small business owner, startup entrepreneur, how safe are you?  Today you don’t compete with Google, but considering Google’s appetite for acquisitions chances are tomorrow you will.  Is Google abusing its monopoly *against* you?

Update (11/8): The Inside Adwords blog responds:

“…our ads are created and managed under the exact same guidelines,principles, practices and algorithms as the ads of any other advertiser. Likewise, we use the very same tools and account interface. As does any advertiser, we aim to give our campaigns a budget which is in line with their value to us in terms of the increased traffic we might see. We actively monitor and manage the success of our ads by adjusting ad copy, keywords, bids, and so forth in the same way any advertiser who is concerned with their account performance would. That said, there are no special buttons to push or levers to pull that give our internal account managers special treatment or leverage.“

Well, if I want to absolutely win a $10 item on eBay, I may auto-bid generously… $12, $15?   I certainly won’t bid $100.  Not that the price would reach $100, but eBay’s system will keep me in the winning position against all other bidders, who in a crazy bidding frenzy might drive my price up to .. $20? $30?  And, this being real money, I’d have to pay “too much”, above the value of the item.  Of course, if eBay as a company was bidding against me, they could afford that $100, or even $1000 bid – after all, it’s only “funny money”, just like Google bidding for Adwords.
Or, as ZDNet puts it:

“A Google AdWords self-promotion at Google.com, however, IS unique in a key way; The house is playing against the paying players.”

Update (11/8): Nick Carr’s When the auctioneer bids is a must-read.

Update (12/20): “Google recently emphasized they need to pay the same budgets as everyone else to advertise on Google using AdWords. What they might not have told us is that Google might simply not use AdWords in the first place… and instead, display a graphical “tip” Onebox on top of the organic results.”  Full story on Google Blogoscoped.

Update (7/7/2008):  Ross Mayfield pondering on why he always gets outbid by Google.