Direct” May Hurt You in the Long Run — How “Google

Google Adsense for Domains’ mass-market approach will strain domain name industry.

Almost all of us were surprised today when Google (NASDAQ: GOOG) stated it was opening up its Adsense for Domains program. It used to offer domain advertising relationships only to people with massive traffic, then it shut down the application process completely, and now it’s offering it up to anyone with a domain. From talking to a couple sources, it sounds like Google partners were notified of this the prior week.

To be sure, what Google is offering Adsense account owners is a far cry from the advertising feeds it offers DomainSponsor, Sedo, and Fabulous. But this is a still a major development.

Some of the initial reaction was jubilation. People think that going direct to Google means cutting out the middleman.

I doubt it. Even if there’s some increase in the near term, it allows Google to lower the payouts in the long term. (And a short term increase is doubtful; my tests with the service shows almost all ads are from the content ad feed and quality landing templates are lacking.)

Consider what domain parking firms bring to the picture. First, they bring traffic aggregation. This gives them bargaining power when negotiating payouts with Google. Second, they bring technology that improves earnings and minimizes fraud. There’s a reason DomainSponsor has mathematicians on staff. They’re tweaking everything to maximize earnings. Parking firms have to get the fraud part right since they often times pay earnings to clients ahead of they get their final note from Google.

These benefits cannot be understated.

Now consider what you bring to the table: A little bit of traffic and no technology. If everyone went direct to Google, there would be just as much traffic but no bargaining power and no technology. Whereas parking firms have long term payout contracts with Google, individuals get their payout percentage changed at will.

Soon I’ll be writing regarding “the Google squeeze” in which Google is able to dial back the revenue share with many of its publishers. It has found a way to do it with parking firms even though they have fixed percentage payouts. By going direct to domain owners, you can expect an even more drastic pullback on payouts.

Is Google doing this to gain bargaining power with the parking firms? Perhaps.

There’s one other angle to consider here. Perhaps Google doesn’t have grand plans. Perhaps it is targeting people that wouldn’t normally qualify to use a domain parking service. Joe Adsense Publisher who has a few spare domains. Google can make money from him. With revenue under pressure, Google is looking for anything to keep the machine going.

But I’m going to bet the firm has bigger plans.