Is Google keeping banned account money?

A post by Tom Foremski got me thinking recently about how Google is operating its AdSense program. I believe that the figures that he analyses may explain not only why some publishers have seen a drop in adsense income but also explain what is happening to money withheld from AdSense publishers who fail to reach the $100 payout mark before being banned.

Google shares rose recently and Foremski did an analysis of the third quarter 2007 results.

He examines in some detail Googles traffic acquisition costs (TAC) and claims to have noticed something very interesting. TAC is mainly the money paid to Google’s publishing partners - the web sites using AdSense. In the third quarter they received $1.116 billion or 29 % of total revenues.

Google does not reveal what share of Advertising revenue its publishers receive but according to Foremski

With large sites such as the New York Times, there is a set agreement on revenue sharing. Google will even pay 100 per cent of the AdSense revenue to some large sites–usually done for strategic business reasons.

Smaller AdSense publishers of course get a lot less - Foremski reckons it may be as little as 40 per cent.

According to Foremski from the total aggregate payment to AdSense publishers each quarter the overall split can be worked out–He estimates that this has been usually around 80 per cent with Google keeping 20 per cent.

What Foremski has spotted is that Google is sharing less of its advertising revenue with its publishers. He shows that for the third quarter 2007 numbers

" I noticed that payments to AdSense publishers had dropped by $24m compared with second quarter 2007.....
In the second quarter Google paid out 78.62% of AdSense revenues to publishing partners or $1.063 billion.
In the third quarter Google paid out 76.70% of AdSense revenues to publishing partners or $1.116 billion. "

Foremski points out that the difference is about $24m. The suspicion is that Google has changed the ratio of payouts to AdSense publishers in order to boost it's earnings.

A change to the ratio of payouts is of course one area where Google could make changes on the fly as a means of boosting earnings. Each individual publisher would notice some drop in earnings but it might not be substantial enough for publishers on mass to realise what is going on.

Another possibility strikes me which may be operating here as well. Google periodically has purges of MFA sites and also seems very ready with relatively new publishers to find some reason not to pay them out as they meet the $100 payout mark.

Could it be that in these circumstances Google is not refunding the accrued money in full to AdWords users? This of course would be another way for Google to increase it's earnings - and again it would be difficult to detect.

Whether Google is operating one or both of these strategies their business practice is certainly less than transparent. They need to think carefully about the way they are operating because they risk losing the loyalty of publishers if this is what they are doing.