I'm Feeling Lucky_ The Confessions of Google Employee Number 59 - Douglas Edwards [142]
Eric and Salar bounced ideas back and forth from parallel tracks, though their common destination became clear soon enough. Google would need to build an entirely new ad system to replace AdWords. A new system based on cost per click (CPC) instead of cost per thousand impressions (CPM). Remember that with CPM pricing, an advertiser paid a set amount for each thousand times an ad was shown, regardless of how many people actually clicked on it. AdWords offered three CPMs, at ten, twelve, and fifteen dollars. The more you paid, the higher up on the page your ad appeared, which made your ad more likely to be seen and clicked by users. With CPC, an advertiser paid only when someone actually clicked on the ad, regardless of how many times it was displayed.
Advertisers loved CPC, but it scared the bejeezus out of Google executives. Netscape had offered CPC deals, guaranteeing the number of clicks their clients would get over a certain period of time. The numbers had been very large. When the clicks didn't materialize, Netscape had no choice but to keep running more and more ads. And the more ads they ran, the lower the clickthrough rate went, until every page was saturated with banners that were ignored by users. CPC could spawn a whirling, sucking spiral of death.
Salar, though, had seen a great future. He summed it up in one word: "syndication." Salar believed that to truly grow Google's revenue we needed to distribute ads on other websites. Advertisers would be unwilling to pay CPM rates to have their ads displayed across a network of sites over which they had little control. They would be much more comfortable if they paid only when people actually clicked on their ads. But if we were going to do CPC, we had to do it differently than GoTo. We had to do it better. The question was how.
The engineering director overseeing the ads team in 2001 was Ross Koningstein. Ross had a PhD in aerospace robotics and notions of his own about how the ads system should develop. He thought we could sell ads CPC, but rank them by CPM. By taking data from the logs files, we could calculate how much revenue each ad actually generated for Google, and display them accordingly. Ross told me that he presented his idea to Larry at a meeting in April 2001, but that Larry was not in the mood to hear it.
Larry only wanted incremental changes to AdWords, according to Ross, not a whole new system, even though the other engineers agreed a new system was needed and were already working to make it so. Besides, Ross said, Larry only wanted to communicate with engineers directly involved in writing the code—and with his handpicked PMs. At the meeting, Larry informed Ross that he was making Salar the lead for ads. Salar immersed himself in discussions and brainstorming with the engineering team. They shot down most of his ideas, such as selling keywords in bundles, until one night Salar experienced an epiphany. Google could assign a quality score to each ad. "Quality" would be our prediction of how likely a user was to click on an ad. If that score was factored with the amount the advertiser was willing to pay, we could rank ads by their potential for earning money for Google—their effective CPM. Everyone would benefit. The user would see more relevant ads. The advertiser would get more clicks. Google would make more revenue. It was a brilliant idea.
Ross believed he had already suggested something very similar, only to be ignored. According to Eric Veach, a number of people were arriving at the same place independently. "It's kind of an obvious idea," he claimed, though some of the things evident to Eric made my brain ache.* AdWords already prioritized the ads by CPM. If you paid fifteen dollars, your ad appeared at the top. If you paid less, your ad was lower on the page.
"I know I proposed that at one point," Eric told me about effective CPM ranking. "I said, 'We can prove that it results in