Google collects a 32% sales commission on ads it sells for non-Google websites

election2008.jpg

Today, “in the spirit of greater transparency with AdSense publishers,” Google posted a message on its AdSense Blog that 68% of the revenue that Google collects for ads appearing on AdSense partners websites (i.e., websites that are not owned by Google) is “shared”‘ with the publisher.*

In the past, Google has never reported such a “publisher share” of revenues. However, in this January 16, 2006 article in the New York Times, such a figure was used without citation of a source:

“Google.com and the company’s foreign search sites contribute more to Google’s bottom line than AdSense, because for every dollar the company brings in through AdSense and other places that distribute its ads, it pays roughly 78.5 cents back to sites…that display the ads.

Again, there was no citation for the 2006 78.5¢ figure that the Times characterized as “a shadow payroll.” I, however, did characterize it (as I have since about 2003) in this post on that same day as not being a “share” or “shadow payment” or, as Steve Baker called it, “a payback”, but described it as a classic advertising sales agency commission model — one in which Google was collecting a 21.5% commission.

While I continue to characterize that portion of the revenue Google retains as a “commission,” Google never will label it such, as doing so would dramatically lower their top-line revenue number. In their quarterly and annual reporting, they treat the total amount paid by the advertiser as gross revenues and label the publisher portion as “Traffic Acquisition Costs” or “TAC.” As I have said regularly for years, calling it “traffic acquisition costs” is akin to your realtor describing the 94% of the sale price you pocket on the sell of your house as their “buyer acquisition costs.”

I feel, without a doubt, Google’s lawyers and accountants are spectacularly savvy and I’m sure there are very sound reasons they can accurately call the publisher portion of gross revenues as something Google “shares” rather than describing the portion they extract “a commission.” And, to be clear to any and all such savvy lawyers and accountants, I’m in no way remotely suggesting Google is doing anything that is mis-applying names of century old business practices. I’m merely suggesting that water fowls who quack and waddle are called ducks.

Also, for the record, (despite the New York Times’ 2006 ten-percentage points higher figure of 78.5% going to publishers vs. the transparently reported 68% that actually flows the publishers’ way) I think the one-third commission rate is fair as it includes all of the marketing and sales-support costs typically incurred by the publisher.

*The post also revealed the “publishers’ share” on “Adsense for Search” that originate on a publisher site is 51%. The 51% “search” share is, in my opinion, not a commission as the revenue is being generated on incremental advertising inventory created by content provided by Google.

About Rex Hammock

Founder/ceo of Hammock Inc., the customer media and content company based in Nashville, Tenn. Creator of and head-helper at SmallBusiness.com.
This entry was posted in advertising, humor and tagged , . Bookmark the permalink.