CNN reports that some advertisers participating in Google's paid search program (which auctions the ad space to the right of search results) have filed a class action suit against Google in Santa Clara, CA alleging that Google charged in excess of the advertisers' daily budgets.  The suit alleges that Google "engaged in conduct which injured members of the general public" and relates to the company's pricing practices (A distinction should be made between payments for "ad space" and payments to be listed on the top of a Google search, which, btw, search engines used openly until July 2002 when the FTC warned in this letter that such practices might be deceptive without disclosure).

    A few thoughts about Google and paid search competition.  First, as I blogged here about payola in the music industry and in this paper about slotting allowances, payments for product distribution, placement, and premium advertising space are a crucial part of competition in many industries.  The market for search engine placement is one of these industries.  Both Yahoo and Ask Jeeves compete with Google for paid placement revenues in a market that is reported to be worth about $5.4 billion.  As I posted previously, economic analysis suggests that these payments ultimately benefit consumers.

    A more interesting question is whether these types of payments should be disclosed as a matter of law.  Vic argued here that the deceptive nature of these fees violate a trust that consumers have for the distributor, at least when that distributor is a DJ or supermarket.  I agreed that disclosure could not hurt, and was certainly a better alternative that Spitzer's payola ban, but was skeptical that it would ultimately amount to any significant changes in the market (did you switch search engines pre-2002 because you didn't trust Google's paid results?  I didn't.)  But I have some questions.  Do search engine users feel that the use of paid search placement is less deceptive because they "know" that the payments are determining the content of that space?   Is the relationship between consumers and search engines different from that with supermarkets or radio stations?

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