Google change could stir more advertiser angst

Google's love-hate relationship with the advertisers that pay its bills could hit another rocky patch following its latest AdWords policy change.

Google announced last week that starting next month it would begin allowing certain companies to purchase advertisements that use trademarks--even ones they don't own--in the text of their ads on Google search results. Previously, Google hadn't allowed anyone but the trademark owner to use a trademark in the text of an ad, but the search giant reversed course, saying "we believe that this change will help both our users and advertisers by reducing the number of overly generic ads that appear across our networks in the United States."

But the move could anger companies who are already sensitive about the use of their trademarks as keyword triggers in searches, the subject of two lawsuits pending against Google. According to an industry group called the Alliance Against Bait and Click, which includes companies such as 1-800 Contacts and Starwood Hotels, "this (policy change) further exposes the self-interest guiding Google's advertising policies, which permits dishonest marketers to mislead consumers," it said in a statement.

In some ways, the decision makes an awful lot of sense. Some third-party resellers, for example, were not allowed to use the trademark for goods they were authorized to sell in their Google ads if the trademark holder objected.

Google compared the policy shift to turning its ads into the online equivalent of a grocery store ad circular in a Sunday newspaper, where no one raises a trademark eyebrow if Safeway advertises a sale on 12-packs of Coca-Cola. Google said it would limit the use of trademarks in text ads to three types of companies: resellers, component sellers (buy memory for Hewlett-Packard laptops here!), and information providers.

That brings Google's policies in line with those of Yahoo, which allows trademarks to be used in text ads with similar restrictions. In the past, advertisers have been more willing to sue Google over trademark disputes because the search giant said it wouldn't allow trademarks in the text of ads, but such trademarks would appear anyway from time to time on certain ads, said Dave Kelly, a trademark lawyer with Finnegan.

"This policy is better than what they were doing before," Kelly said. "This means there is an editorial policy and the number of misleading ads should be smaller than under their policy before."

Still some groups, such as the Alliance Against Bait and Click, believe it's possible that the move could grant deceptive advertisers looking to trick searchers onto click farms or e-mail harvesting sites an additional weapon to deploy.

For example, a company could theoretically sell just a single iPhone case on its Web site, advertise under searches for "iPhone cases", and redirect ad clicks to sites that mostly sell competitive smartphones or consumer electronics gadgets. Or, it could force a visitor to provide his or her e-mail for more information before revealing that flashy iPhone case.

More money
What's more likely, however, is that companies interested in preserving their brands could be forced to pay more in Google's ad auction process to make sure their legitimate ads appear on those searches.

Winning Google's keyword auction process involves a combination of the maximum amount an advertiser is willing to pay per click as well as an ad quality score. Without the ability to use a trademark in the text of their ads, third-party retailers were forced to write generic ads that likely didn't see as high a click-through rate as ads with the trademark, hurting their quality score.

But if the playing field is leveled on the quality score side of the equation, then the maximum bid has to go up. AdAge reported that branded advertisers now feel they'll have to increase the maximum amount they are willing to pay per click in order to ensure ads with their trademark appear above ads from companies that don't own that trademark.

Financial analysts who follow Google agree. "Advertisers will likely bid more if the ad can have product names and brands that will help drive CTR (click-through rate) conversions," said Ben Schachter of Broadpoint AmTech in a research note last week. Combined with Google's announcement last week that advertisers in many parts of the world can now bid on keywords that involve trademarks, Schachter said "these two changes will be positive revenue drivers when allowed and into 3Q and beyond, however, we believe trademark holders will undoubtedly, and loudly, raise legal challenges."

Kelly, who has followed issues with Google and trademarks very closely for years, isn't so sure.

"Although the updated policy may not affect those trademark owners who want to sue Google simply because they object to the act of Google selling their trademarks as keywords, it should reduce the amount of litigation over the appearance of Google's keyword-triggered sponsored ads," he said. That's because Google is now responsible for reviewing the content of the ads to make sure trademarks are being used properly.

In what is likely not a coincidence, the decision comes following a quarter in which Google's cost-per-click numbers (the average cost that advertisers are willing to pay for a click) fell for the second-straight quarter while overall click-through rates remained flat. Issues around Google's trademark policies on search keywords have also heated up in recent weeks, with an appeals court's decision to reinstate the Rescuecom case and a new lawsuit filed this week over Google's practice of allowing anyone to bid on search keywords containing trademarks.

Some of Google's partners will hate this decision, and some, such as retailers, will like it. Either way, Google should benefit from the sale of more relevant--and more expensive--advertising.

This article was first published as a blog post on CNET News.