Google AdSense pays out over $1bn in revenue every quarter of the year to publishers. For many of these publishers, especially smaller ones, AdSense is a primary source of revenue.
Yet there’s something interesting about AdSense: publishers don’t know the exact percentage they’re being paid by Google for ad revenue their sites generate.
One possible reason for this: if Google disclosed the percentage it pays publishers, competitors might look to beat that percentage, making it harder (and costlier) for Google to retain its most important publishers.
But there are indirect ways to estimate what Google is paying publishers. As a publicly-traded company, Google breaks out ‘Google Network Revenues‘, which represents the amount of revenue generated by AdSense, as well as ‘Traffic Acquisition Costs‘ (TAC), which represents — for the most part — the amount it pays to AdSense publishers.
Amit Agarwal has used these numbers in the past as a proxy for how much Google is paying to publishers in the aggregate and yesterday he posted about the decline in the relationship between TAC and Google Network Revenues.
In the first quarter of 2009, Google reported $1.64bn in Google Network Revenues and $1.23bn in TAC. That means 75.0% of the revenue generated went back out to partners. By the fourth quarter of 2009, that percentage had dropped to 72.1%. Had Google maintained the 75% level in Q4, it would have paid out $60m more to publishers.
Naturally, I’m sure there’s a debate to be had about whether or not Agarwal’s methodology for assessing the AdSense publisher payout is really meaningful, and I’m sure there are some who would point out that $60m is a rounding error to Google.
But I do think Agarwal’s post is a good reminder: AdSense was launched in 2003 and more than half a decade later, publishers still don’t have any concrete knowledge about the revenue share they’re receiving. When you think about it, that’s quite astonishing if only for the fact that Google has been able to maintain such an arrangement so successfully for so long when the web has in so many areas worked to favor transparency and competition.
There can be no doubt that Google’s position gives it a lot of flexibility as a company. Much of its success in delivering solid earnings despite the economic downturn has been related to cost-cutting. In theory, it appears Google can dial up or dial down the amount it pays to publishers to squeeze greater profitability out of AdSense at any time at its choosing. I’m not saying it has done that, but I don’t see any reason it can’t.
The question I have is how long Google will be able to maintain its opaque relationship with publishers. While it’s hard to imagine AdSense being dethroned anytime soon, one has to think that Google’s AdSense secrecy could be as much a disadvantage to it someday as it is an advantage today.
Photo credit: Yodel Anecdotal via Flickr.