Google and shrinking TAC

Jeremy posted a question: Google Hoarding the Pie?. The question posed there is why Google’s TAC (Traffic Acquisition Costs) have gone down quarter over quarter and Jeremy wonders if the are slowly decreasing the unpublished revenue share given to standard AdSense users.

I don’t believe this to be the case. First of all, if you are one of the big publishers you will get a fixed and negotiable % share from Google. It’s only the small AdSense sites that do not know what their share is and I presume that this has been left the same the entire time. The decrease of TAC as a % of Network Revenue likely comes from optimization work and lots of deals with fixed prices either per month or CPM based.

Here is an example. If they came out +/-0 in profit in a CPM deal in previous months, it might be that they now make a few cents in profit CPM based and hence their % of TAC decreases naturally. That’s why it is so important for them to continue to work on optimization of the ads. That’s money cash in the bank.

Let’s say they have 1 Billion Banner Ad Impressions per Month bought CPM based at $1 CPM (just to keep the numbers simple). They are not running a profit. The $1.000.000 go in and out per month without a dime in profit. They have an average CTR of 1 and CPC of 1 (again to keep it simple) and now work on their contextual fit, design, better rotation, larger inventory… . Now they manage to increase their CTR by 10% and their CPC by 10% over the entire network of CPM buys. Now they suddenly make $1.210.000 per month on the same costs.

Of course those numbers are a little bit too high, but I think it gets the point across. A decrease in TAC from 80% to 77% can be contributed to simple improvements of CPC and CTR in relation to fixed deals they likely have.

That’s also where their large increase in profits came from by the way. At least to a big part.