Now that's not nice Google...

Google has apparently made a change to their ad placement formula. John Battelle has the details here:

"Under the new system, Google will change its eCPM calculation by using a CPC that is equal to, or less than, the advertiser’s max bid CPC. This change will result in increases to advertisers’ actual CPC paid when a CPC that is equal to or less than the advertiser’s max bid CPC generates an eCPM that exceeds the threshold eCPM required for north promotion...."

The language around this change is extremely washed out and even misleading, so the change sounds quite benign... But here's what's really going on...:

Google's auction system sorts ads by eCPM (or - effective cost per thousand ad impressions).  Yahoo's Panama and Quigo's AdSonar (disclosure: I'm founder of Quigo) do essentially the same.

These auction systems charge the advertiser 1c over the price needed to secure the highest possible placement (but of course, never over the advertiser's bid). This means that the advertiser can rest assured that the only thing affecting their actual cost-per-clicks are the real market forces - advertisers changing bids, other advertisers getting more clicks, etc.

What Google is now doing is sneaking secret reserve prices into their auction and artificially pushing advertiser bids up. Essentially this is rigging parts of the auction to Google's favor, without disclosing what the reserve prices are (I assume they are different per keyword).

This is a very slippery slope... there are a hundred hidden corners where artificial reserve prices can be snuck into the auction system and Google should be called out on shenanigans like this...

[UPDATE] - Google puts a great spin on this scheme, flipping it all into a wonderful improvement for the advertisers. Google advertisers, believe me - all this does is take more money from your pockets and puts it into Google's already overflowing pockets.