Ad Buyers Dismiss Google’s Claim of 5% Ad Price Hike as ‘Too Low’

Google’s admission to quietly inflating ad auction prices up to 5% for search advertisers, potentially increasing them by 10% for some queries, during the U.S. v. Google antitrust trial comes as little surprise to ad buyers.

According to industry execs, the 5% figure is viewed as rather conservative, and the actual inflation rate could be considerably higher.

During the trial’s second week, Jerry Dischler, Google vp and general manager, admitted to changing the search ads and reserve pricing by as much as 5% to meet revenue targets.

“[Google] claiming 5% is a more conservative number to make it sound like the natural ebb and flow of a marketplace,” said Christine Yang, vp of media at Iris.

While the practice of inflating ad prices, also observed with Facebook and Amazon, might not shock marketers, it’s another frustration with the tech giant. While Google’s exclusive inventory cannot be bought elsewhere, its history of lack of transparency has long frustrated the ad industry, underscoring the complex relationship between advertisers and these tech platforms.

According to Yang, the actual range of inflation can sometimes exceed 100%.

For a brand campaign focused on a niche product, she said the average CPC at $11.74 surged to $25.85 over the last six months, amounting to a 108% increase. However, there wasn’t an incremental return on sales.

“The level to which [price manipulations] happens is what we don’t know,” said Yang. “It’s shady business practices because there’s no regulation. They regulate themselves.”

Giovanni Sollazzo, CEO of Italian media agency Aidem, noted that the actual cost-per-click (CPC) for Google search brand campaigns frequently increased, and the 5% figure is at the lower end of the spectrum. In some cases, the inflation can reach between three to five times higher.

As recent as this summer, Sollazzo found that Google’s ad CPC surged from $0.26 to $0.53 while maintaining the same impression share despite no keyword competition.

“If we accept impression share within +-5%, CPC went from $0.14 to $0.53—almost four times increase,” he said. This led his agency to reduce its ad budget by 70%, with no observable impact on the top line.

“Search ads costs are the result of a real-time auction where advertisers never pay more than their maximum bid,” a Google spokesperson told Adweek. “We’re constantly launching improvements designed to make ads better for both advertisers and users. Our quality improvements help eliminate irrelevant ads, improve relevance, drive greater advertiser value, and deliver high-quality user experiences.”

Dischler’s trial testimony, first reported by Bloomberg, on ad auction price manipulation revealed that Google had adjusted ad auctions to meet revenue targets set by CFO Ruth Porat to meet Wall Street’s demands, at times increasing prices by up to 5%. These changes often involved raising the cost of ads and setting minimum spending thresholds, known as reserve pricing. However, Google did not disclose these price adjustments to advertisers.

“We tend not to tell advertisers about pricing changes,” said Dischler.

A redacted email from Dischler read: “I care more about revenue than the average person but think we can all agree that for our teams trying to live in high-cost areas, another $100,000 in stock price loss will not be great for morale, not to mention the huge impact on our sales team.”

Search ad manipulation in the rearview mirror

The price manipulation is a central point in the Justice Department’s case against Google, which alleges illegal monopolization of the online search market by financially incentivizing web browsers and smartphone manufacturers with billions of dollars to favor its search engine.

“People have been aware that something is going on for a long time,” an industry executive who requested to speak on background told Adweek. “We are looking in the rearview mirror here. The schemes covered in these documents will have been replaced by new ones by now.”

Google’s search ad revenue, constituting approximately 60% of its total earnings, amounted to over $100 billion in 2020, according to Dischler.

During cross-examination by DOJ lawyer David Dahlquist on Tuesday, Dischler admitted that in a sworn 2020 interview, he stated that certain auction adjustments resulted in a 5% uptick for a typical advertiser. He also said it’s “possible” some changes to price hikes went up to 10% for certain queries.

However, Dischler acknowledged Monday that a 15% increase in prices could risk driving advertisers to competitors like Meta and TikTok, making it a perilous move for Google. Dischler also disclosed that Google boasts approximately 5 million advertisers, and retail ads account for nearly 35% of Google’s search ads—its biggest ad category.

“Whether it’s pricing or brand safety, there needs to be an overall increase in transparency,” said Avi Ben-Zvi, GM of North America, Winclap. “These are platforms that advertisers are going to be on no matter what.”