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Tuesday, October 07, 2008

GOOG: Wall Street Stock Analysts Oblivious to Impending Bidding War

Google stock (GOOG) is down near $350 today, partially due to a reiteration (not a downgrade!) by a Stifel Nicolaus analyst:

stifel nicolaus on goog

Notice this text (emphasis mine): "While thinks GOOG's online search advertising biz is resilient and measurable, believes ad budgets are likely to be reassessed during current period of economic weakness." I don't think this Stifel Nicolaus stock analyst nor the other Wall Street analysts cutting GOOG estimates are aware of a seemingly trivial but potentially massive change to the AdWords system. I'm talking about the recent change to display first page bid estimates instead of minimum bids. This change went into effect last month so will be in place for the full 4th quarter. Are stock analysts taking this into account?

Why is this significant? I believe this seemingly subtle change to AdWords will lead to a bidding war. Now, whenever advertisers (or agencies on behalf of advertisers) review their keywords via the AdWords interface, they will see first page bid estimates displayed prominently for any keyword which is not triggering an ad on the first page of search results. Here's an example:

Google AdWords first page bid estimates

What advertiser does NOT want their keyword ad on the first page? (Zero.) How many will start raising bids as Google offers this bid guidance? (Thousands, I suspect.) If most advertisers do raise bids, what will these first page bid estimates look like after a few weeks? Whether or not this was Google's intention, I think this will trigger a bidding war. These higher bids will clearly boost Google's revenue. Think about that. And, if you see a Wall Street stock analyst talking about this, let me know. I'm sure Google will mention it during their 3Q conference call.

P.S. Yes, I do own some GOOG stock.

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