It's been a busy week for those who rely on Google (NASDAQ:GOOG) for more than just great search results. Throughout the day Tuesday, Google began to implement its new bid pricing policy for its contextual advertising customers. AdWords customers who once had to bid at least a nickel for each interested click and had poorly performing ads automatically disabled were granted a little more leeway. Well-performing ads and keywords can now result in minimum bids that are as low as a penny per lead.
However, the minimum bid on other keyword campaigns have risen well above the original five-cent floor. Google will no longer disable poorly performing relevant text ads. As long as the advertiser agrees to pay the minimum bid on a particular search term, it will remain active in Google's growing inventory of ads.
Website publishers -- big and small -- that rely on Google to duplicate those ads were also eager to see how it would all play out. Google shares its AdWords revenues with AdSense publishers, and the notion of penny bids running rampant had to sound alarming at first.
So how did it all pan out? Over at the Webmasterworld.com forum, it seemed as though most advertisers were upset with the change, which now has them anteing up higher bids for choice keywords. Naturally, AdSense publishers were pleasantly pleased with the initial results.
It's how most would have expected the episode to play itself out. Google had been doing so well -- having topped analyst targets in all four of its first public quarters -- that it was unlikely to implement a change that would result in less revenue for the company.
However, with 99% of the company's revenue coming from its sponsors, it's important to temper this positive financial shift with one caveat -- it's a rewarding move for Google investors as long as the site's advertisers remain faithful.
For a few years now, Yahoo! (NASDAQ:YHOO) has been banking on new sponsors paying no less than a dime per click. Yahoo! has been slow in rolling out a contextual marketing program similar to Google's AdSense for small and medium content sites. That program went into beta earlier this week with only a handful of publishers, and as the offering expands, one would think that Yahoo! would become more aggressive in filling out its inventory with new advertisers. Targeting Google's AdWords crowd at a time of flux may be just what the doctor ordered.
That's because this is pretty much a race between Yahoo! and Google. Between their organic audiences and their reach through third-party sites, any sponsor wanting to launch a wide ad campaign based on targeted keywords to draw quality traffic just can't do it without the assistance of one or both of those key players. Microsoft (NASDAQ:MSFT) has been slow to come around, and others, such as InfoSpace (NASDAQ:INSP) and MIVA (NASDAQ:MIVA), are just too small at this point.
So maybe it was bold for Google to try to fix what clearly appeared to not be broken. Especially after Motley Fool Stock Advisor selection eBay (NASDAQ:EBAY) was stung with a critical backlash earlier this year after a poorly received fee increase on its most active sellers, Google could have just taken the safe path and stuck to the status quo.
It didn't. And in a sense, that's what makes Google special. The beauty of the new bid pricing policy is that it will encourage AdWords sponsors to become more effective advertisers (in three lines of text or fewer). If that improves click-through rates and results in better leads, all three parties -- Google shareholders, AdWords customers, and AdSense publishers -- will be cheering the shift.
Longtime Fool contributor Rick Munarriz digs Google, but he does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
