"It's a great system," said Joshua Stylman, managing partner at Reprise Media Inc., a New York firm that manages search campaigns for advertisers such as Warner Bros. Entertainment Inc., BellSouth Corp. and Guess Inc. "Inherently all of the constituencies have the same incentive."
But it's tricky to do well, and Google in August made it even harder when it began adding other factors to the ad-ranking mix, including some it wouldn't disclose.
"It's become more of a black box, because they don't tell you specifically what those attributes are, nor do they explain the interplay between them," Stylman said. "The opacity of the auction is making it more challenging to manage."
Even people who are making money from Google are puzzled by its secrecy. In addition to search ads, the company brokers ads for display on content sites such as blogs and newspapers; every time someone clicks on one of the "contextual ads," Google shares the revenue with the publisher. But Google won't tell most website owners how much commission it's taking.
The secrecy extends to Wall Street. When it went public in 2004, Google vowed to eschew several standard practices of public companies, including issuing financial predictions each quarter. As a result, seasoned analysts trying to chart Google's growth path often look like hapless day traders.
Wall Street knows how many iPods and computers Apple Computer Inc. ships, how many items EBay Inc. lists for auction and how many vehicles Ford Motor Co. sells because the companies disclose that information.
Google, in contrast, discloses only basic financial information, such as its profit, expenses and balance sheet.
"Google has taken an approach that, in everything from their IPO on down, the less information they convey, the better," said Ellen Siminoff, a former Yahoo executive who now runs Efficient Frontier Inc., a search marketing firm. "They don't have to provide more metrics to Wall Street because people are buying the stock anyway."
CEO Schmidt recognized that Google faced a perception problem, but said that Google could be at a big disadvantage if it unilaterally began releasing more information than its competitors did.
There's another big barrier to disclosure: Google is really complicated.
Schmidt said he relied on a team of engineers with a background in physics to calculate how the company was performing from financial, technological and operational standpoints. The Google system is such "a complex box," Schmidt said, that when he wants an update, "I have to have a one-hour meeting with the physicists to get it all right."
If Google were to start releasing specific data, he said, the company's market valuation could swing by billions of dollars in a single day because investors don't understand how those metrics fit into the big picture.
"That's hogwash," said Rohan, the RBC analyst. "Google doesn't have to give away trade secrets to make the company a little bit more transparent."
All this intrigue shouldn't be such a surprise to people who read the letter that Google's founders wrote to prospective shareholders when they took the company public, UBS Investment Research analyst Ben Schachter said.
"They are running their business as they laid out in their letter to shareholders," he said. "The letter says, 'Trust us.' That's essentially what you have to do if you're investing in this company."
