What is secret about it? For as long as there has been a Google Adsense program, I have been describing the business model as just what it is: a very traditional advertising brokerage service in which the sales agent (Google) takes a standard commission for selling the ad. For some reason, this concept of commission-based advertising sales is a hard concept for some to grasp. This NY Times story even calls it “A Shadow Payroll” that is “no longer a secret” and reports that Google takes a, gasp, 22% commission (although they mischaracterize it as a 78.5% “pay back” to the publisher — I guess, that’s in the same way the realtor who sales your home gives you a 94% “pay back” after they sell it). That 22% commission rate is in line with what the magazine advertising sales commission for independent sales reps (around 20%) and probably in line with the overhead costs the New York Times has for the advertising it sells. (Like with Google, the commission paid to independent sales representatives is negotiable depending on the size and volume of sales involved.)
Steve Baker picks up on the “pay back” meme and asks if the “small fry” get 78% back (or, more correctly, do they have to pay a 22% commission?)? They likely have a higher commission, but those same rules of economics (math?) work on all things small business vs. big. With Yahoo! and others entering the marketing place, the commission rate Google pays publishers of all sizes will correct itself if they are paying too little. One doesn’t have to be a math wiz to know that.