Google's Performics problem

Bundled in the DoubleClick acquisition came Performics, which provides search-engine marketing (SEM) and search-engine optimization (SEO) services.

This has created concern for SEM and SEO service providers, which now face Google, a key partner, also as a rival.

"It puts us in the awkward position of competing with Google's own [SEM/SEO] agency for client accounts," said Lance Loveday, CEO of Closed Loop Marketing, an SEO and SEM firm.

Over the past seven years, as Google's popularity with advertisers and end users has boomed, so has the SEM and SEO business. Marketers began spending significant amounts to advertise on search engines, primarily Google, and they realized that they needed help from SEM firms to design, fine-tune and track the effectiveness of those campaigns. At the same time, those marketers recognized that they also had to make sure that their companies' Web sites ranked well on search engines when users entered keywords relevant to their businesses, which is what SEO service providers specialize in.

Before the DoubleClick acquisition, SEM and SEO firms saw themselves as providers of complementary services to Google, but now that Performics is part of Google, things have changed.

For starters, there is a concern that Performics will get special access to inside information about Google's search-engine algorithms, allowing Performics to provide SEO services that are more effective that its competitors'.

Then there is the worry that Google will push its in-house Performics SEM services at highly discounted prices, or maybe even free, in direct competition with SEM service providers.

Due to these and other clash points, SEM and SEO providers say their relationship with Google will inevitably get strained. This will likely be bad for Google, considering that SEM providers have a lot of influence over how their clients allocate their search advertising budget.

But there are other reasons why holding on to Performics could be bad for Google, and they have to do with perceived potential conflicts of interest that could spook Google advertising clients.

For example, Performics is supposed to help its clients get the highest return on investment (ROI) from their paid search campaigns by recommending they spend what's necessary -- and not more -- in order to get their desired results. But Google's business is to sell as much advertising as possible, said Scott Buresh, CEO and owner of SEO/SEM firm Medium Blue.

Closed Loop's Loveday also foresees Performics clients worrying whether Performics will now have an incentive to increase their spending on Google advertising for the benefit of its parent company. "Now, the reality is that Google has the dominant [search advertising] platform and in most cases Google probably should get most of a client's search campaign budget, but there's definitely an appearance of a conflict of interest," Loveday said.

U.S. companies spent about US$10.2 billion in search advertising in 2007, and Google grabbed 79 percent of that pie, followed, distantly, by Yahoo with 12 percent and Microsoft with 6 percent. Search was the most popular ad format last year in the U.S., accounting for 40 percent of the overall online ad spending, according to IDC.

Ron Rule, lead developer for Web analytics company iWebTrack warns that with DoubleClick in general, Google now has access to significantly more data about users' behavior and ad campaigns, creating a potential for abuse. Advertisers can protect themselves by measuring their ad campaigns' effectiveness with independent Web analytics companies like iWebTrack, he said via e-mail.

"The merger effectively gives Google more pricing power and without proper unbiased analytics, large amounts of money can be wasted very quickly on [pay per click search advertising] campaigns, which Goggle and competitors like Yahoo are glad to take," Rule said.

The Performics ownership also puts Google in a delicate and difficult situation regarding its claim that its search results aren't influenced by commercial considerations, Buresh said. With Performics, Google is now in the business of taking money from clients in exchange for helping them rank better in search-engine results, he said. While Performics will not sell paid inclusion into Google search results, it does offer fee-based SEO services, he said.

"Google has maintained consistently that there's no amount of money you can spend with them [in paid search] that will help your site in the organic rankings, that they maintain a Chinese Wall between the two," Buresh said. "Now that it owns an organic optimization company, you're paying Google for better placement in search results."

In addition, Performics does provide paid inclusion services -- something Google has sworn never to do -- into search engines that engage in this practice, in which a company pays a search engine to include its Web site in its index. This puts Google and its new Performics division in a serious philosophical conflict, as search industry expert Danny Sullivan argued in his Search Engine Land blog recently.

"Google was the lone hold-out against paid inclusion at the time [2004] and often used this as a marketing point to help promote itself. Not only was it used for marketing, but Google's cofounders strongly believed the practice was wrong. That's why in the letter from the founders that formed part of the IPO filing, they called it out several times," Sullivan wrote.

For all these reasons, a consensus exists among SEO and SEM firms that Google should divest itself of Performics, but reached for comment, Google remained noncommittal, providing this prepared statement:

"We intend to spend the next several months assessing all of DoubleClick's products and services including those offered by Performics. In the near term, we intend to operate Performics as a stand-alone business unit consistent with its past practices. Upon the completion of our integration planning with respect to Performics, we will be in a better position to announce our future plans for this business."

For Loveday, the situation is clear: "I don't understand how it serves Google's interest to maintain Performics."