Google's use of AdWords to promote own services is unfair, claims academic

Out-Law News | 20 Aug 2010 | 1:46 pm | 2 min. read

Google could gain an unfair advantage and drive up the cost of advertising for others when it places its own adverts beside search engine results, a US technology law professor has said.

Eric Goldman has written about how Google uses its own AdWords keywords system to place ads, and claims that its use of its own system is unfair and could even generate it more income.

"Auctioneers should not bid in the auctions they run. We all already knew that," he said. "Yet, Google apparently violates this basic rule every time it runs house ads in AdWords auctions. Google should fix this – and restore integrity to its AdWords auctions – by no longer competing with its advertisers in those auctions."

Like other online service providers, Google sometimes runs adverts to promote its services or to explain problems with them. Often, Google's choice of advertising medium is its own AdWords system, in which companies' ads appear beside search results for a term based on the ad's relevance and the amount bid.

Goldman said that he had investigated the way Google used its AdWords system for its own adverts and had concluded that the use was unfair because only Google knows exactly how the 'relevance' that in part determines whose ad appears where is judged.

"Google’s behavior lacks any auditability or verifiability; as outsiders, we have no idea what Google is doing under the hood," he said. "Google has access to better information to optimize its bidding than any other bidder. That information may not be functionally available to individual employees placing auction bids, but because of the first point (lack of auditability/verifiability), we as outsiders don’t know that."

Goldman said that Google had told him that when Google places ads on its own networks these are "subject to internal marketing budgets". There is also, he said, an opportunity cost to the ads – each ad space taken up by Google is a space that is not earning money from a third party.

But Goldman said that this does not solve what he says is Google's conflict of interest, because Google still has knowledge that other companies do not have of how its 'relevance' scoring works.

He also said that Google's bidding could affect the prices other companies pay for ads.

"If the other bidders’ prices stay the same and Google siphons away some clicks from them, Google’s ads have a clear opportunity cost," he said. "However, if Google’s entry into the auction prompts other bidders to pay more, some or all of that opportunity cost will be made up by increased revenue on the remaining clicks."

"It’s even possible that Google’s house ads could create net new profit. From an auction integrity standpoint, it’s unacceptable for Google’s entry into the auction to affect the prices bid or paid by other bidders (its advertisers), whether Google’s profits increase or decrease," said Goldman.

Google said in a statement that it used its own advertising system because it believed that it works, and used it just like any other company.

"As we've always said, all search engines run ads to inform users about services that they provide," said the statement. "Google is no exception to this practice. We believe in the value of our advertising platform and use it in the same way that other advertisers do."

Goldman said that Google advertises via AdWords to promote its services, to explain how its search ranking works when controversial results are returned for certain searches, and to alert people to crisis response pages when disasters strike.

He said that Google could more fairly advertise by only using other  people's search ad systems, such as those run by Yahoo! or Microsoft. It could also refuse any attempts to bid against it for terms it wants to advertise beside, or create new spaces on search pages for its ads so that it was not competing with its own customers, he said.