Feed providers and revenue share

Most operators never sign a contract with Google, Microsoft or Yahoo. They sign with a feed provider. Choosing one is the most important commercial decision in the business, and the headline percentage is the least informative part of the offer.

What a provider actually does

• Holds the contract. It has the direct agreement and is accountable to the search engine for everything on it.
• Supplies the pages. Many host the article and results pages on their own approved domains, with templates and often content.
• Reports revenue. A dashboard and usually a reporting API, broken down by channel and, with the better providers, by keyword.
• Screens traffic. It reviews sources and creatives, filters suspect visits and enforces the search engine's rules, because its own contract is at stake.
• Pays out. It collects from the search engine and pays publishers on its own schedule.

A provider is like a franchise holder. The brand belongs to someone else. The franchise holder has the licence, sets up the shop fittings, checks you follow the brand's manual and takes a percentage. If you damage the brand, the franchise holder loses the licence, so expect inspections.

Kinds of provider

How revenue share is calculated

Revenue share sounds simple: the provider keeps a percentage. In practice there are three splits stacked on one another, and you only see the last.

1. Advertiser pays the search engineThis is the gross click price. Publishers never see it.
2. Search engine pays the providerUnder the provider's confidential contract. This is the search engine's TAC and the provider's gross revenue.
3. DeductionsInvalid clicks and quality adjustments are removed, sometimes weeks later.
4. Provider pays the publisherThe agreed share of what remains. The part the provider keeps is its take rate.

1. An advertiser pays for a click: Someone clicks a sponsored listing on an arbitrage page. The advertiser’s account is charged $1.00. Every figure in this flow is an example: real shares differ by contract and most are confidential.
2. The search engine takes its cut: The engine supplied the advertisers, the auction and the billing, so it keeps a slice first. Say it keeps $0.30 and passes on $0.70. What it pays out to partners is its traffic acquisition cost.
3. The feed provider takes its cut: Most arbitrageurs do not contract with the engine directly. A feed provider does, and shares the feed onward for a revenue share. Say it keeps 20% of the $0.70: $0.14.
4. What the arbitrageur receives: The arbitrageur gets $0.56 for that ad click, its RPC. Only about half of its visitors click an ad, so average revenue per visitor (RPV) is $0.28. That is its gross revenue.
5. Most of it was already spent: Each visitor was bought from a traffic source for $0.20, paid up front. So the largest single share of the arbitrageur’s income goes straight back out to an ad platform.
6. The spread: $0.28 in, $0.20 out: $0.08 per visitor is the spread, before staff, tools and content costs. Out of the advertiser’s dollar, the business that built the page keeps the thinnest slice and carries the most risk.
7. Invalid clicks unwind the chain: If the engine later decides a click was an invalid click, it credits the advertiser and nobody downstream is paid for it. The arbitrageur sees that as a Clawback (revenue deduction), even though the $0.20 spent on the visitor is gone.

Only one figure in this chain has ever been published by a search engine as a standard rate.

Why the percentage misleads

Suppose two providers make offers. All figures are invented. Provider A offers 85% and Provider B offers 75%. On the same 10,000 visitors, A's dashboard shows 2,000 dollars of gross revenue and B's shows 2,400 dollars, because B has more channels, better keyword data to optimise with, and pages that convert better.

The only fair comparison is final revenue per visitor on the same traffic, after adjustments. Operators test this by splitting one campaign evenly between two providers for a couple of weeks.

Terms that matter as much as the share

• Payment timing. Net payment terms of 30 days or more are common. You pay for traffic daily, so slow payment requires more working capital.
• Estimated versus final. How long before estimated revenue becomes finalised revenue, and how large have past adjustments been?
• Clawback rights. Under what conditions can paid or unpaid revenue be withheld? See clawback.
• Reporting granularity and delay. Hourly data by keyword lets you optimise; daily totals do not. The lag is the revenue reporting delay.
• Channels. How many channel IDs you may use.
• Approved sources and verticals. Which traffic sources and topics are allowed.
• Caps. Whether daily volume is limited. See feed cap.
• Which feeds. Google only, or Bing and Yahoo too.

The provider's incentives are close to yours but not identical. It earns on volume across all its publishers and cares most about keeping its contract. It will sacrifice any single publisher to protect that. Understanding this makes its decisions predictable.