Part 7 - Parking Company Challenge
Posted by Michael Gilmour , Wednesday, 21 May 2008
This article continues directly on from Part 5 in the series. The articles in this series on the domain industry and links to them are listed below:

Part 1 - Google and the domain industry
Part 2 - Google and the quality myth
Part 3 - Smartpricing traffic
Part 4 - Google, TV and Analytics
Part 5 - Google's quest for traffic
Part 6 - Google's future growth path

What we don’t have a clear picture of is what percentage of the advertising dollar is paid to parking companies. Since they are under strict non-disclosure agreements this is unlikely to be forthcoming any time soon. What we do know is that the average Google margin for the network channel is 11.9%.

We also know that from the previous years data the domain channel did approximately $300 million last quarter. A calculation based upon reported revenue would suggest that this was split largely between Google (73%) and Yahoo (27%). This would then mean that $219m of revenue from the domain channel went via Google and this represents 14.7% of the payouts to Google network partners.

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 If Google was to double its margin to 23.8% for the domain channel then it would mean that to maintain an average of 11.9% it would have to take 0% margin for an equivalent sum of money. This would mean a lot of publishers would need to be getting 100% or more of the advertising revenue from Google. This is unlikely to be the case therefore I would imagine that the average revenue share for tier one parking companies to be in the range of 84-92% (around the mean of 88.1%).

If you are the CEO of a parking company and know that your revenue share is not in this range then it's likely that you're not a tier 1 company. What it means for these companies is that they need to compete more aggressively for clicks rather than on earnings per click. Where the "fuzzy" factor comes in is when Google applies its "smartpricing" algorithms and manipulates the percentages to a greater or lesser degree.

If you're a tier one parking company then there are a number of challenges.
1. Maintain your tier one status by increasing your traffic.
2. Maintain your margins in a highly competitive fluid marketplace.
3. Get ready for your next round of negotiations with Google.

The type of information that I've alluded to in this article could prove quite valuable for parking companies in negotiations with Google. For example, if a parking company is currently with Yahoo and has a relatively high quality score then they should be able to command greater than 88.1% revenue share.

In fact, a parking company with high converting traffic should be able to make the argument that Google lose money on their traffic for the sake of “washing” non-performing traffic. The key for the parking company is to get either or both the Google/Yahoo quality scores and combine them with real live conversion data. At the very least conversion data should be readily accessible from conducting a limited trial on an affiliate network.

The more I write about this the more I think that it’s just the sort of problem that could be really interesting to solve on behalf of a parking company. While there continues to be a large shortage of traffic the parking companies should be able to move beyond the “give me a better deal or I’ll go to the other guy” type negotiation.

With Yahoo getting demolished by Google in the market place (and possibly taken over) it could be the opportune time for some analytics combined with creative thinking to grow the pie as partners. I wonder if I'll get a call from any parking company....?

Source: Posted on WhizzBangsBlog by Michael Gilmour -- Reprinted with permission -- May 20, 2008 

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