This article continues immediately on from the first 5 parts that may be viewed via the following links:

By enabling publishers in many of these foreign countries to have Google Adsense on their pages Google will be dramatically expanding their advertising inventory space. Some of these regions have huge numbers of relatively untapped Internet users. For example Asia has 512 million Internet users as compared to North America's 243 million. In terms of domain names this is the place to be!

Local online advertisers in many of these countries have begun the cycle of pouring money into Google Adwords. As we have discussed before in the initial stages of the keyword auction process the system automatically works on behalf of the advertiser. Keyword prices haven't maxed out as yet as the system is in its infantile stages of growth.

The challenge for Google is to quickly drive the advertising expenditure upwards in regions that are awash with traffic but are still in a largely cash based economy. The penetration of credit cards is often a precursor to greater amounts of advertising spent online. The reason for this is that advertisers can see a direct link between dollars spent and sales. Without an online method of payment this is almost impossible resulting in online advertising becoming almost a leap of faith.

Even though the revenue per click is still relatively low in these countries the volumes of clicks are enormous. In addition, publishers that are using Google Adsense are paid commensurately lower for their traffic and due to the lower GDP per capita in many of the countries they are still able to be profitable. Google's challenge will be to successfully orchestrate the balancing act between publishers and advertisers. This will likely be accomplished via cross subsidising these emerging online economies from more established Internet markets.

The growth rate and potential growth in numbers of new Internet users in some of these emerging online behemoths is staggering. The Middle East and Africa has grown by over 900% since 2000 and Latin America by over 600%. In the same time period Asia has grown by 348% and still has 3.3 billion potential users that can come online. This dwarfs Africa by over 3.3 times! These areas are the future of the Internet and Google isn't absent in these markets.

So what does all of this information mean for the domain name industry? What I hope to do in the next article is wrap up some of these points for the benefit of parking companies and eventually domain owners. I hope that it also provokes some discussion around how to out Google, Google.

The last two weeks have been good and bad. The bad was getting sick for about 4 days with only enough energy to push the channel button on the remote control. I think that I now know everything there is to know about World War II from the History channel and no myth has gone "unbusted" by the Mythbusters.

There was nothing like being quarantined by my wife and kids at dinner time, banished to another room so that I would infect them with my germs. I thought all of this was pretty bad until I saw the number of emails that mounted up in my inbox.

I love getting emails but sometimes it's a challenge when you don't keep on top of them. I would like to apologize to everyone that I haven't returned an email to for the past week or so.

Now for the good news! Just prior to getting sick I took my first solo flight in a Piper Warrior airplane at the local airport. After going through 20 or so hours of training it was an interesting but liberating experience running towards the end of the runway with the full throttle wide open prior to takeoff.

Telling the tower that I was turning downwind for circuits and knowing that about a thousand other people were listening was pretty exciting as well. Training is a wonderful thing though. Once the initial exhilaration had passed my fingers and feet seemed to know what to do resulting in my lining up with the runway on "finals" for landing.

I've always dreamed of just "kissing" the runway with the tires after a smooth gentle glide but that day it still remained as elusive as a mirage. All the same I got down safely (wheels firmly hitting the runway) and my nerves were a little raw but the feeling of having done it was amazing! Just for the record the picture here is the actual plane I flew.

Upon reflection these two experiences epitomize domaining. There is nothing like seeing a domain's revenue takeoff and soar into the heavens and like being sick there is also nothing worse then seeing the reverse happen. The market is crazy at the moment so if your numbers are down hang in there because beside every valley is a mountain.....but also the reverse is true.

In the meantime.....I'd better go and catch a plane to TRAFFIC in Orlando.....and no I'm not flying across the Pacific in the plane pictured. LOL!  I hope to see you all there this coming week.

This article continues immediately on from the first 4 parts that may be viewed via the following links.

My theory is that as Google has shifted gears to increase their revenue line through expanding the volume of traffic. It's unlikely that they will be able to increase advertising spend per click for market verticals due to the trend advertisers will have towards a profitable asymptote for keyword bid prices.

If you look at the rate of growth in Google's revenue line acrossthe last three years it's been in steady decline. Google's rate of revenue grow in 2006 was 73% over 2005, 56% in 2007 and projected to be 34% in 2008. This decline is in spite of the fact that Google's share of the global online marketing spend has expanded from 32% in 2005, 41% in 2006, 49% in 2007 and projected to be 54% in 2008.

I believe that in the earlier years Google achieved remarkable growth due to many market verticals becoming aware of the Google Adwords platform and started pouring in advertising dollars. Naturally as market verticals became filled with advertisers they began to "cap out" Google's payment per click, hence the slow down in year-on-year earnings growth.

Now the challenge is to find a "Google super-sized" volume of traffic. If it's not paying particularly well now then that's OK as "smart pricing" will scale the profits upwards. What needs to be accomplished is to pick up a huge volume of bad non-converting traffic as well as a proportionally large enough volume of high converting traffic.

For the past few years Google has been buying up large volumes of traffic either through acquisitions or via network publishing partners. Consider that the Internet has been growing at about 10% per year while Google has been growing its revenue line on the back of all of this traffic by an average of 55% per year for the past 3 years. Assuming that there is a direct correlation between revenue and traffic this means that Google has been sucking in traffic to fund its growth from other entities at the rate of 45% per year! After establishing a commanding position in the U.S. domestic market how is this growth going to be sustainable?

This is where the international market fits in perfectly. When you look at Google's revenue line back in Q4 '05 only 38% of the revenue was generated in international markets. For the first time ever Q1 '08 has the international revenues at greater than the U.S. domestic with 51% international and the 49% U.S. I anticipate that the discrepancy between the international and U.S. will continue to expand into the future.

During the last couple of years domain name owners have been purchasing international traffic in vast quantities as they have aggressively entered the ccTLD markets. Although the traffic is not paid an enormous amount per click at the moment it will only be a matter of time before the Google advertising auction system begins to bite.

The challenge for advertisers in many of these countries is that due to the lack of credit card penetration there currently is not a direct link between advertising dollars spent online and sales. I am personally keeping a close eye on the level adoption of credit cards as I believe it will be the precursor to a surge in advertising spending.

This series of articles continues directly on from one another. I would encourage you to read the prior articles before this one.

So if Google has created the perfect system for manipulating traffic and advertisers then why have they been lowering their margins? The first thing to realize is that traffic is a finite resource and is in massively short supply. For example, if we were to convert television to Internet terms it would look something like this.
Average number of advertising spots seen per hour = 25
Average number of hours watched per day = 4
Number of people watching TV in the USA = 300m
Number of views per month = 900 billion

Sure, this is back of the envelope calculations but my guess is that it will be reasonably close to a huge number. Compare this to Google's traffic. If the average user searched once per day at Google and there are about 200 million Internet users in the USA then this equates to a traffic level of 6 billion (ie. 200 x 30 days). This is a fraction of the TV audience measurement. Compared to TV advertising traffic is in short supply.

In particular, as we saw in part 3 that good traffic is worth its weight in gold but bad traffic is worth even more to the bottom line as long as you mix it with a little good.

If we were to use the example from part 3 the challenge for Google has been to try and determine what the sustainable click through rate is per market vertical. In other words you don't want really happy advertisers and you don't want really mad advertisers you just want them satisfied. Getting to that satisfied point is critical for Google's business model.

The gap for Google has been how to determine the typical conversion rates for each market verticals so that they can appropriately mix the good and bad traffic. In the past as soon as a click left the Google network it was no longer visible therefore Google had no idea whether they had happy or mad advertisers. Often the only way to determine this was to wait until advertisers began exiting the network and this is not a sensible methodology. What they needed was a plan to know more about a customer than the customer themselves knew.

Out of the Google research labs materialized a product so good and so helpful that it dazzled the netocracy with its shear ingenuity. The product was Google Analytics. Just plug Google Analytics into your site and you can find out everything about your visitors, from geographical location to time spent browsing. The problem is that Google now knows all of this as well.

Point 6 of the terms of service for Google Analytics outlines what Google is allowed to do with your data collected by Google Analytics.

Is this a conspiracy theory? I don't really think so. If you consider that Google's core competency is its ability manipulate massive amounts of data (search is now been applied to text, video, human genome project, images plus a host of other applications) then Analytics just provides more data to digest.

The challenge for parking companies is how to negotiate with a partner that has perfect information about all aspects of the click stream. The only real negotiating point could be to up stakes and go to a competitor (eg. Yahoo) but this poses a lot of problems and with Yahoo in a complete state of flux it's probably not a direction that many Google based parking companies would like to take. 

The next option is to learn about the complete "click stream" and to offer a Google Analytics type service to advertisers to select market verticals or to partner closely with advertisers so that they are prepared to release their conversion data. I wouldn't be surprised if one of the parking companies either purchases an analytics company for this purpose or develops a technology for expanding their understanding of the "click stream". Until the parking companies understand the complete "click stream" they will always be at a disadvantage when negotiating with their upstream advertising partners.

I believe that the race is on to be the first parking company that completes the "click stream" picture. A first mover advantage in negotiations and the subsequent flow through of revenue to the domain owners will place that company in a very strong position as more traffic begins to flow through them.

So now that Google has finally achieved perfect information in the pricing side what does it need to do now to increase its revenue line? The next article in the series will tackle this question and how it will impact domain owners.

This article continues directly on from the Part 2 in the series on Google and the domain industry. I would highly recommend that you read these articles prior to this one.

Since Google is really smart what they now introduce is a concept known as "smart pricing". Google really doesn't want to lose the good publisher to a competitor as we have seen they've become a real money earner for Google. So that this doesn't happen they "smart price" the traffic up and they could pay the good publisher $2 per click. This is double what Google themselves are paid! As we will soon see what they pay the good clicks is almost irrelevant. It's the bad clicks where they make their money.

What they also want to do is punish the bad clicks (as there are lots of those available) so they "smart price" them downwards and pay only $0.10 per click.

The result is that Google still earns $100 from the advertisers but now they payout $20 (ie. 10 clicks x $2 per click) to the good publisher and $9 (ie. 90 clicks x $0.10 per click) to the bad publishers. Miraculously Google now only has to payout just $29 and therefore earn $71 (ie. $100 - $29) for their efforts. This is a windfall of $90 - $29 or in other words "smart pricing" just added $61 to the bottom line!

What's even better about this is that the good and bad traffic publishers are patting themselves on the back. They are both saying, "it's really what my traffic deserves". The advertisers are also happy because they've done their maths and worked out that the current conversion rates warrant paying $1 per click.

The best part about this is that Google is able to launder a lot of bad traffic with good traffic and make it all pay the same while they themselves can discriminate on what they pay out. This is a great business model! What's even better is the lack of transparency in the whole process means that they are accountable to no one.

Let's put this into context. Google receives money from advertisers and then pays out whatever it really wants because of its "smart pricing" system. Let's imagine that you're a domain parking company and you've just negotiated your contract with Google to receive 88.4% (the average payout rate for the Google network) of the advertising dollars that are paid to Google.

As I understand it Google always has a clause that allows them to "smart price" the traffic therefore how can a parking company be assured of the 88.4%? Unless they are able to audit Google then they can't ever be assured of their share of the revenue. I know of no parking company with a Google feed that has ever audited Google to ensure that they are being paid correctly. I do know of some parking companies that have a right to audit but do not invoke that right due to fear of retribution from Google.

This is extraordinary behaviour considering that Google produced a paper that indicated domain traffic was twice as effective as search traffic. Given the above calculations this means that domain traffic should be paid not 88.4% of the advertising revenue but closer to 300-400% due to Google's ability to dilute the traffic with lower converting clicks. The problem is that the parking companies will never actually know how good they convert and what percentage they are actually being paid.

This is where the parking companies need to "out Google", Google and dig into the numbers to find the true value of their clicks. Part 4 will tackle the importance of Google analytics and why it has been released as a free service and how parking companies have the ability to strike back against the upstream advertising aggregators.

This is part 2 in the new series on what are the changes occuring in the domain industry and how Google in particular is controlling the landscape that we all work in. It continues directly on from part 1.

For example, the online games vertical may have a maximum profitable bid price for advertisers of $1 per click. If an advertiser purchases clicks for $1.10 they will eventually go out of business but at $0.90 it's a bargain. There may be slight variations on a day by day basis but they will tend to oscillate around the $1/click price.

As the auction market continues to mature greater numbers of advertisers become more sophisticated and adopt systems for getting the best price for their advertising dollar. This price will be the theoretical maximum bid price for each keyword associated with each market vertical.

This system of selling advertising means that the only way for Google to continue to increase revenues is to expand the market so that there are more possible clicks for advertisers. In other words they need to purchase traffic in greater and greater volumes. This is exactly what they are doing and it's squeezing everyone else out of the marketplace.

What's interesting is that there is an argument that Google should reduce its margins for purchasing traffic to 0% simply to lock competitors completely out of the marketplace. This would allow Google to also sample traffic to identify which is the highest converting for advertisers and then to mix it in with low converting traffic (eg. MySpace). This would further increase the volume of clicks while still keeping advertisers happy.

For example, let's imagine that a Google network publisher had 100% conversion rate for clicks that they supplied for games related traffic. If Google takes their average commission for network traffic of 11.9% (let's round it off to 10%) then they will pay the publisher $0.90 per click and retain $0.10 per click for themselves.  If an advertiser had a budget of $10 then Google needs to supply 10 clicks to the advertiser to consume their expenditure. Google could supply the ten clicks from the high quality publisher (pay them $9) and retain $1 in commission. The advertiser would be ecstatic with the results since every click converted! The problem is that this doesn't maximize Google's revenue line.

Let's now add another variable to the mix. To make the maths easy we'll imagine that Google also has 0% converting traffic. It would make more sense for Google to send one high converting click to each of  ten different advertisers and then follow up with nine "bad clicks". This would mean that ten advertisers would have a 10% click through rate and be paying $10 each to receive one conversion. Google would receive $100 for their efforts.

Google could pay the publishers on an equal footing and like before outlay 90% of the advertising revenue back to both the bad and good publishers. This would mean that Google would pay out $90 and retain $10. Like magic Google and turned the good converting traffic into ten times the revenue it had before. Not a bad revenue model but like a bad TV commercial, "but wait there's more!"

The next installment in the series will explore the impact of Google "Smart pricing" and why there was a strong economic imperative for Google to create it.

For the past few days I've been trawling my way through global Internet reports, advertising reports and through the last five years of Google annual reports. In fact, I think that I'm nearly reported out.

After reviewing the recent Google quarterly report it can clearly be derived that Google is continuing to adopt a very aggressive strategy of cutting off Internet traffic from competitors. Since the beginning of 2006 Google has been progressively reducing its network traffic margins from a high of 22.1% (Q1 ‘06) to low of 11.9% (Q1 '08).

During this same period Google has reduced the advertising margin on its own sites from 40.8% to 39%. Although 1.8% doesn't sound like much when you're dealing with a revenue line of $5.09 billion for last quarter then that 1.8% becomes $91.5 million which is more than the annual revenue line of most domain parking companies.

By constantly squeezing the competitors out of the traffic market Google is continuing to shore up traffic for the burgeoning online advertising boom. Presently the entire Internet advertising market in the U.S. represents just 7.7% of the entire advertising spend. Television (cable, network and local) is still taking 65.9% of the U.S. domestic advertising dollar. Traffic is eyeballs and it's clear that Google wants a slice of that television pie by securing greater and greater numbers of eyeballs for their advertisers.

So why has Google changed its strategy over the last couple of years and where is it getting its new traffic from? The reason for this is that the current Google model of auctioning advertising space is reaching a natural maximum price per click for market vertical after market vertical.