I'm Feeling Lucky_ The Confessions of Google Employee Number 59 - Douglas Edwards [143]
That one idea was worth billions and billions of dollars. So who came up with it? "I think you're going to find very little agreement on that," Eric went on. "It's true that each of us who was involved thinks we contributed. The sum of those numbers adds up to much more than one hundred percent."
But brilliant as the idea was, it wasn't perfect. Two things were still needed. The first was a method for determining the "quality" rating for each ad.
"When Salar was originally talking about multiplying by clickthrough rate," Eric explained, "what he meant was the historical clickthrough rate. If we had shown their ad a thousand times and somebody had clicked on it ten times, they would have had a one percent clickthrough rate." Eric thought that was the wrong approach. "The problem is, that kind of stuff is just, well, garbage really. You have to show a bad ad thousands and thousands and thousands of times to get any good information about how well it's doing."
"The clickthrough rate needed to be a predictive thing," Eric insisted. "It needed to be what we thought the chances were of somebody clicking on the ad given all the information we had about the query right then." That required enormous computing sophistication. And secrecy. Eric didn't want advertisers to know how Google was determining the quality of their ads, so that Google could keep refining and improving the algorithms without advertisers' trying to game the system. He insisted that Google retain complete control—that the ranking mechanism remain a black box. He knew that would frustrate and anger advertisers, but it would benefit users, who would see more relevant ads on every page.
While our competitors made trivial adjustments to their ad programs, Eric led an effort to build one of the biggest machine-learning systems in the world—just to improve ad targeting.
The second fix the new system needed was to correct a big problem that GoTo faced. GoTo displayed the price bid by each advertiser, and advertisers kept lowering their bids because they could see they were paying more than they needed to. If the high bid was twenty-five cents per click and the next bid was twenty cents per click, the top bidder was paying four cents too much. A smart advertiser would lower his bid to twenty-one cents.
Salar was intent on getting advertisers to tell us right at the start the maximum amount they were willing to pay for a click. He wanted to charge that full amount, just as Overture did, but he didn't want the advertiser to keep rebidding to lower it.
Eric showed him a solution. "The amount that you bid shouldn't be the amount that you pay," he said. He envisioned an eBay-type auction where the advertiser would pay the minimum amount necessary to win a position in the rankings. Eric had never heard of William Vickrey, the Nobel laureate who had created a "second-price auction" model; he worked out the idea himself. It just made sense to him that instead of charging as much as an advertiser was willing to pay, we should automatically lower the cost to the minimum amount required. Then advertisers would have no incentive to lower their bids, but they would have an incentive to raise them when the bids below theirs increased.
At first, Salar resisted the idea of a second-price auction, because it would confuse advertisers. They would have to trust us to lower their bids, and Salar wasn't sure they would be willing to do that.
Eric saw a fundamental difference between his approach and Salar's. "We both contributed to the design," he said, "but Salar was always looking at the product from the point of view of the advertisers, who he knew were the customers. They wanted transparency. They wanted control. I was looking out for the users."
Eric believed we should only show advertising when it was useful. He refused to put anything into the product that would weaken that principle. He and Salar went back and forth