Wednesday, March 10, 2010

3 Ways that Google Benefits From Its $100 AdSense Payment Threshold

Google AdSense is the most popular and lucrative advertising program on the net. It's also among the easiest to join (especially on Google's Blogger/Blogspot platform, which lets bloggers seamlessly add customized AdSense widgets).

Each publisher doesn't have to track down advertisers selling products in their particular niche. AdSense's contextual algorithms ensure that relevant ads appear on each page, which drastically increases the chances that readers will be interested in the products, click the ads, and thus generate revenue for the publisher.

A law of one price argument could be made that AdSense can pay lower rates and insist on more demanding terms than could other advertising programs. These other programs must pay higher rates (or offer better terms) to compensate publishers for relative inconvenience of using their services.

Take, for instance, the minimum payment threshold. AdSense will not pay a publisher until he or she has earned $100, while Chitika's and Amazon Associates' minimums are both $10.

A high payout threshold benefits Google in several ways:

(1) Transactions and Accounting Costs

It's cheaper to pay publishers larger amounts less frequently than it is to pay them smaller amounts more frequently. Fewer transactions means lower bank fees and accounting costs.

(2) Interest

The time value of money can be calculated from interest rates; in short, $100 today is more valuable than $100 a year from now. If Google paid a publisher $10 every month instead of $120 at the end of the year, he could invest the money along the way and come out with more than $120. Instead, Google keeps the interest, which substantially lowers the cost of making payments when they come due many months down the road.

(3) Small Accounts

Many small Web publishers will give up long before reaching the $100 payment threshold. They may shut down their Web sites, cease to publish new content, or switch to a more lucrative advertising network.

Although a publisher can cancel his relationship with AdSense and receive a payout if his account has earned at least $10, there is an expected 90-day delay before he will see the money (and again, Google is not compensating him for the lost interest).

But not everyone below the threshold who is no longer earning AdSense revenue will cancel. Google's advertisers pay Google for each and every their ads are clicked, but Google will never have to pay some of its AdSense publishers their share because of the hurdles described above.


Zuri Berry said...

I'm glad you're thinking about this. Now a quick question for you, when do you think you're going to cash in? How far away are you from your initial pay date?

I noticed you added AdSense pretty early on. That's good. You even did it on a Blogger account so you don't have to worry about hosting/domain fees. Even better. You're thinking with dollars and cents in mind. Now I realize you're working your way through this "blogging" thing, which is why a lot of your posts have veered in this direction. But my question for you is anything but simple: Why?

If you already know, and understand, the barriers, why get in the game? What good does it do you?

I've been blogging for six years and utilizing AdSense for the last two or three (can't remember). I'm only halfway to the threshold. I have no problem talking about this because it's not income. Income is steady. The $100 I'd receive, whenever that occurs, will be a bonus. I think that's a distinction that's important to your argument from the user end, rather than Google's.

Greg said...

Thanks for taking the time to bring up these issues.

I don't have an agenda to promote on this site, and I don't think I'll be showing it to potential employers. I see the benefit of this site as twofold: it helps me think through economic situations on a regular basis, and it helps me practice writing about economics for a general audience. Both will be valuable skills for my career going forward.

Like you, I would consider any income from this site as a bonus. I figure since I've already created the site, putting ads up won't hurt my readers that much and might generate some income down the road.

Zurii said...

Very nice.