Today, The New York Times had an excellent piece on how Google sells search ads through an auction system that, surprisingly, doesn't always award top ad placement to the highest bidder on a given keyword. The story has great details and an explanation of how the auction business functions and the team within Google that monitors and optimizes it.

One passage I found particularly interesting:

"As Google's engineers developed their own search advertising system, they understood early on that giving top billing to the highest bidder would have little benefit for Google if that ad did not attract clicks. That is because advertisers typically pay Google only when a user clicks on their ads.

"So Google decided to rank ads based on a combination of bid price and 'click-through rate,' the frequency with which users click on a given ad."

Scott Cleland, a tech analyst and free markets advocate, follows the story with a thorough dissection of what is known and what was revealed about the auction system in the article. He criticizes the lack of openness or oversight of the powerful auction system.

"Google's ad auction model has become one of the world's most important public markets. Google is increasingly becoming the world's primary public information broker. ... Google is also not open or transparent," Cleland writes, adding, "Google has no independent auditor or third party to vouch for the integrity, fairness or nondiscrimination of their auctions."

This raises Cleland's hackles.

"The most serious problem with non-transparent auctions is where buyers and sellers cannot discern what is necessary to win an auction, so that the auction is run for the benefit of the auctioneer not the market participants," he writes.

Both the Times article and Cleland's critique will make valuable reading for those keeping up with the online ad business.