As a small business, if you are spending advertising dollars online and paying an agency or some other third party provider to manage this service for you, it is only a reasonable assumption that you would know what you are spending and what you are receiving in return for that spend.

Google’s recent announcement of a change to its 3^rd party reporting requirements is a strong indicator that businesses remain ignorant of the information they should be rightfully receiving from 3^rd parties. Though ignorance and information asymmetry may play a role here; simple business common sense also appears to be lacking on the part of the businesses allowing themselves to transact with 3^rd parties who offer close to no reporting transparency.

Google’s New Transparency Rules

To highlight the new requirements, this example has been taken directly from Google’s AdWords Help Center:

For those third parties that don’t provide any reporting today, they should, at a minimum, provide advertisers with monthly data on AdWords costs, clicks, and impressions at the account level.

In July, the AdWords account for Joe’s Plumbing accrues 1,400 clicks on 12,000 impressions for an AdWords cost of $700 (the exact amount charged by AdWords).

Joe’s Plumbing – AdWords report for July 2010
Clicks: 1,400
Impressions: 12,000
Cost: $700

There are no bells and whistles here – the 4 lines above are the absolute basic reporting that 3^rd parties will be required to provide as of February 2011. One’s first reaction should be to baulk at the fact that there are in fact 3^rd parties out there who make a living by literally cheating advertisers out of their money by offering no level of transparency.

Receiving basic AdWords cost data on a monthly basis at an account level only really tells you how much you spent on AdWords in a particular month. The only really useful thing that you can do with this data is make a basic calculation that may have been difficult previously if you were paying your 3^rd party provider a lump sum which was then invested into AdWords at their discretion, following a ‘management fee’.

[Total Monthly Search Marketing Costs] = [Exact Monthly AdWords Cost] + [3^rd Party Management Fee]

Currently, if you are not working with a transparent 3^rd party, the calculation may look like this:

X = ? + ?

You may know what your total monthly search marketing cost is but if you do not know exactly how much the 3^rd party is keeping in their pocket versus actually investing in your AdWords account, then it is difficult to ascertain how effective the actual AdWords investment is.

How ‘nice’ of Google to force 3^rd parties to share this information with their clients, yet, one must ask, what’s in it for Google?

Google’s Magnanimity?

The simple truth is that the barriers to entry into AdWords advertising are extremely low. Anyone can set up a basic account and be spending money on AdWords within 24 hours. On the flip side, you can stop spending money on AdWords just as quickly, as it takes literally minutes to pause an account or shut it down completely. This is a business concern for Google – no business likes to see its customers walk away.

By forcing 3^rd parties to disclose ‘the exact amount charged by AdWords’ Google is trying to create a distinction to the advertiser between the money actually spent on AdWords versus the total payed to the 3^rd party. In this way, if the advertiser is not happy with their return on AdWords they do not immediately discount the medium as ineffective but can do the arithmetic that may indicate to them that the problem lies with their 3^rd party provider.

If the 3^rd party is pocketing a large percentage of the fee, the AdWords system is not to blame for an unsatisfactory return. Thus, the advertiser may opt to change the 3^rd party, while still investing in AdWords. With higher advertiser retention, Google will go singing to the bank, while at the same time be the hero for forcing the ‘bad guys’ to ‘fess up and be transparent with how money is being spent for their clients.