Google Adsense Referral Hydra Had To Be Clobbered

 

Google Adsense Referral HydraLots of talk today about Google changing the terms of their referral units for Google Adsense. Good coverage by both Darren and Jeremy.

Lets take a little look at why they might have done this.

Google Is A Business

It is actually quite a large business, and each division within a division is probably accountable for their own earnings. The Adsense referral program for new business is probably individually accountable.

Current (Old) System Earnings

Based upon quarterly and yearly reports, Google on average pay publishers only 29% of advertising revenue. Larger publishers probably get a larger piece of the action, so it is quite possible a new publisher only receives 25%

For every dollar earned, Google receive $4

Referrals Changes the Math

For the first $5 of earnings in 6 months, they pay a referral fee of $5, thus Google only make 50%

If a publisher earns $100 in 6 months, Google pay a referral fee of $250, thus of the $400 they receive in advertising revenues, they pay out $350… plus there is a bonus

For 25 people who make $100 within a 180 day period you get a bonus payment of $2000, that is $80 per person

In theory, Google could pay out $430 for every $400 received

This is potentially a loss leader…

In practice only a small number of people make it even to $5, and even less to $100 within 180 days. Darren mentioned in his article that he has never achieved the bonus, though if he comes close, those $250 fees for the ones that do make $100 must be reasonably lucrative.

The New System

The Adsense Team are reverting back to $100 for $100 earned in 180 days with no bonuses
Also the countries are now restricted to North America, Latin America, or Japan – for the referrer

What Darren and Shoemoney didn’t pick up on is that is existing referrals don’t qualify by the time this is introduced, it seems like you will only receive compensation based upon the new structure, not the old. That is significant if you were in some way paying for advertising based on anticipated earnings over 6 months based upon prior statistics.

Gaming Adsense With Referral Hydras

For me the obvious reason why they would restrict this to only partners in certain counties is fraud, or gaming the system. Google is made up of regional offices, so it would be hard to separate Eastern Europe from the rest of Europe, or Australia from others in the Pacific region.

If you look at this from the point of view of a person in a low income country, there is a potential $430 that could be earned instead of $100 for the clicks you might receive on a website you own that has reasonable traffic, all you need is new Adsense accounts.

Here is how such a system could work

  1. Find 25 people who would be interested in earning $100 from Google just for providing their personal details
  2. I can’t honestly imagine this wouldn’t be hard in many developing countries

  3. Place the advertising units from those referrals on your own websites such that they will earn $100 within a month
  4. The person referred gets $100 in Adsense earnings
  5. You get to cash $330 instead of $100

Rinse and repeat

If you don’t want to give $100 away, you could always set up shell companies., but I don’t think it is really worth the effort, it would be easy to find people willing to earn $100 for doing nothing.

If you are just doing blackhat stuff this provides an unlimited supply of fresh Adsense accounts, and you earn everything 100% “legitimately” as just the referrer.

Can It Really Be That Many People Doing This?

If you were a slightly shady blackhat, wouldn’t you like to keep your Adsense earnings 100% clean, and earn 3x as much?

Especially if you were living in a slightly poorer country, or had contacts in one… China, Russia..

Would This Hurt Google Financially

Certainly if it got out of hand. Most of these referrals would earn their $100 and then drop off the face of the earth after they cached their checks.

Could It Be Another Reason?

I am sure growth rates outside 1st World countries are fast enough without the financial incentive for referrals, and there is always a question of scaling up support costs, and the lack of competitive advertising.
With low paying clicks outside the English speaking world, those that are active Adsense publishers are often more inclined to experiment with more grey or blackhat methods, because they don’t necessarily have to create their own content to make money.

Too Good To Be True

I always looked on the referral program to be full of holes

  • You don’t know who you referred so you can’t help them, unless it is by arrangement
  • You can’t honestly declare you make money by referring people, it is against the referral program terms, though they encourage word of mouth marketing.
  • The reporting was always a little on the basic side
  • The time period for qualification was far too long and it seems that has come back to bite people

For a negative change such as this, you would expect a full 6 months notice, or for referrals who qualify within 6 months to be paid at the old rate.
For referring publishers outside North & South America, and Japan, they are effectively being told that all those referrals they have made that haven’t quite earned $100 by the end of January will not be paid.

I am glad I haven’t promoted Google Adsense for 2 years.

Update

The vocal reaction to the changes encouraged a change of heart for Google Adsense Referrals, though it still isn’t perfect. I can understand the decreases, but they shouldn’t affect existing referrals, at all.
With the Adsense referral program, your task is to get people to sign up, you have no influence on their performance and how quickly that is achieved. All existing referrals should be under the original terms, as many affiliates may have to pay advertising costs which they assumed, based upon expected earnings.

Google should have to bite the bullet and assume the cost of maintaining the referral payouts the same for 6 months from date of sign up. It is not like they are going to face financial hardship.

 

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Comments

  1. says

    Very good point. But, I wonder why they have scaled the program back to only the U.S., South America, and Japan? I also wonder about the timing of their decision coinciding with their purchase of DoubleClick.

    • says

      I did try to cover it in the post, but it comes down to corporate logistics and possibly Euro laws.
      Lots of Google operations are out of a central office in Europe for instance, thus the same people will be handling things for people living in different countries.
      I would think Japan might be a separate territory compared to the rest of Asia Pacific.

  2. says

    1)Thanks for the mention :-)
    2)Yeah, I was actually thinking of such things. More specifically, for MSN AdCenter, I was considering offering to pay my users back their $5 activation fee. Trying to avoid excessive sketchiness until I’m sure how they detect such things.
    I really assumed they would have had a way to ensure this doesn’t happen by now. Oh well!

  3. says

    Sorry Andy I haven’t been a subscriber for long but I have to wonder how you can justify a statement like ‘Especially if you were living in a slightly poorer country, or had contacts in one… China, Russia..’ ???

    • says

      Monkey, I don’t pander to saying things that are politically correct. I live in Poland – as far as I know the general standard of living in Poland is slightly higher than Russia, though in Russia and China there are extreme exceptions and some of the most wealthy people in the world.
      How many of the 1 billion people in China have a PC at home and permanent internet connections?

      I thought about doing a version of this when the new rates were introduced. Set up 25+ family members with enough websites to earn $100 over a few months, and earn 25×330$ for myself in the process. The only difference would be those sites would have been in their names, and they would have continued to earn a residual income for them.

      • says

        Cześć!

        I haven’t been to Poland, Russia or China if the standard of living is so good in Poland how come all the Polish are now in England :)

        But I think in any country you have areas of Good living and areas of Bad i’ve lived in many countries and traveled alot! And just didn’t think that such a sweeping statement was relevant.

        Anyway I don’t want to be a protagonist :)

  4. says

    good post Andy – linked up in mine.

    I can understand the need to tweak a program like this – it’s just business. But there are numerous levels that are just plain crazy in what they’ve announced. Either kill the whole program off and payout publishers on what they’ve referred, tweak the payouts for everyone or do something else that’s consistent.

    Crazy stuff.

    • says

      Darren the existing referrals thing really worries me. There are tons of sites that spend money on PPC to promote make money with Adsense guides that derive part of their income from Adsense referrals on the back end.

  5. says

    Darren and Andy, Read both your posts and I have to agree. Blacklisting an entire region or country from participating in the referral program sounds silly to me.

  6. says

    I understand where you’re coming from on this one, Andy, but I’m not convinced that large scale fraudulent use from Eastern Europe is what sits behind this. I’m not denying that what you’ve outlined is not only possible but also very probable but would that really be the sole reasoning behind these changes?

    I’ll say now that apart from thinking that they’re a bunch of clueless numpty megalomaniacs, I have no other answer but the timing of all this post PR slap combined with more publishers complaining about smart pricing seems odd to me and, as TzuVelli points out, the DoubleClick deal.

    Now correct me if I’m wrong, the deal has been approved by the FTC (i.e. it’ll be OK for US publishers) but not by the EU. Coincidence?

    Ackk…maybe I’ve been reading Graywolf too much ;)

    • says

      Mike there could be some regulatory reasons, but that wouldn’t account for Darren in Australia and all the Europeans who are not in the EU.

      Thus the changes seem to me to be based on regional offices.

      There would only need to be a partial fluctuation in earnings for Google to identify a growing problem, that if it got out of hand, could affect their bottom line.

  7. says

    Thats a pretty informative post on google adsense, one of the most complex money making mechanisms that I have ever come across. I would also like to know about the Page rank mechanism that google adopts and also the indexing stuff as Im a novice in this field of blogging. Love to get some help from some one so experienced. Thanks and Cheers!!!

  8. says

    Vijay just check out Problogger for general blogging and Adsense tutorials, I don’t try to duplicate the wealth of information already available.

  9. says

    Google flexing their arms of steel again, not sure the comments in reference to Eastern Europe is fair but hey just my view… Spend a lot of time in Poland great people.
    Glad I found the blog … keep up the hard work
    steve

  10. says

    Thanks for enlightment. I was in debates about removing adsense from our site and you have just made my decision for me. It will be off there by the end of today. Thanks for the very useful information.

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