Google’s business model depends on two things. Firstly, selling links. 99% of Google’s revenue is from their AdWords and AdSense advertising products.

Secondly, using monopoly power to protect their position. Google provide strong disincentives to third parties buying or selling links elsewhere. Get caught, and Google will penalize your site, or ban you altogether (eg, John Chow).

Every SEO blog is talking about paid links after this week’s SES San Jose panel on the subject. Even whiter-than-whitehat Rand Fishkin is offering tips on how not to get caught selling links.

The truth about Google’s stance on paid links is:

1. Google’s algorithm depends on link popularity to determine rankings
2. Paid links work
3. Ergo paid links erode Google’s monopoly power.
4. Selling links renders AdSense redundant, except for splogs, arbitrage or hobby sites
5. Buying links renders AdWords redundant, since paid links often offer less variable costs than AdWords’ pay-per-click pricing model (NB. organic traffic often converts better than PPC traffic, too)

Google’s fatwa against paid links is corporate protectionism. Google’s failure has been to not diversify revenue sources and so now relying on monopoly power to strongarm website owners to playing by their rules.

Sound familiar?

“Don’t be evil” - unless it earns you cold hard cash.

That’s the message from Google, who have finally admitted the truth behind ‘improvements’ to AdWords, their flagship advertising service.

The last year has seen a number of ‘quality score’ updates to AdWords, each leading to many AdWords advertisers complaining of ever-increasing AdWords bills (See Graywolf, Threadwatch [1] [2], PPC Discussions, PepperJam & more).

Google have always dressed these updates as improving user experience (um, because users don’t mind seeing junk provided the advertiser paid well for the privilege?).

But for the first time, Google has come clean. They’ve admitted the motivation for the latest updates is purely financial:

Even if you have a high quality ad, if advertisers below you are not bidding very much, your actual CPC may not be high enough to qualify your ad to appear in a top position.
[Full article]

(NB. The Google share price graph is a snapshot from Yahoo’s impressive new Finance Charts}