How Google Inflates AdWords Bids

For a while now, Google has been busy handing out $75 to $100 AdWords vouchers as a means of drumming up more advertiser activity. I've redeemed multiple such vouchers on my partially inactive account over the last year. I also received one with an invitation to sign up within 48 hours of accidentally hitting the AdWords site from a new Google account.

But what impact do these vouchers really have? By giving away free money in an auction based system, Google is essentially putting upwards pressure on AdWords bid rates. Let's break this down and look at the short term effect:

1. Give free money to those who are not spending
2. Some of the non-spenders are suddenly spending. Since it's not money they earned, they are more likely to bid higher than they normally would have, potentially lowering ad positions of real advertisers
3. Advertisors who are spending real money find that they have to increase bids to maintain the positions of their ad campaigns and end up paying more for less clicks
4. Google watches from the sidelines as their advertisors burn through their budgets faster

How about the long term? Does the inflation go away when they stop handing out the vouchers? Well, in theory, this should be the case. However, given that Google actively sends notifications when bids are too low, I think advertisors are quicker to increase their bids than to decrease them.

Although this strategy of a blind auction with artifical inflationay pressures is absolutely brilliant, I strongly recommend looking at other platforms before spending more money on AdWords.