Why Google's Algorithm Concentrates Your Budget (And Why You Can't Fix It Alone)

The Question Every CMO Should Ask

If algorithmic concentration is quietly killing growth for thousands of eCommerce brands, why does it keep happening?

More importantly: Is this how the algorithm is supposed to work?

The answers might surprise you. And they explain why solving this problem requires more than just "better optimization."

Is Algorithmic Concentration The Desired State?

From Google's Perspective: YES, Working Perfectly ✅

Google's algorithm is doing exactly what it's designed to do:

1. Minimize Google's Risk

Concentrate on proven converters = predictable revenue
Avoid "wasting" impressions on unknowns
Protect the platform's overall conversion rate

2. Maximize Revenue Per Impression

High CTR + High CVR = More ad clicks = More revenue
Efficient impression allocation = higher platform margins
Happy advertisers (good metrics) = continued spending

3. Optimize Their Metric

Google cares about platform efficiency, not individual business growth
They're measured on aggregate conversion rates, not your market expansion
Algorithm success = consistent, predictable performance

4. Protect Conversion Rate

Google gets paid on clicks, measured on conversions
"Wasting" budget on exploration hurts their metrics
Concentration = certainty = good for Google

The algorithm isn't broken. It's just optimizing for Google's goals, not yours.

From Your Perspective: NO, This Is Quietly Killing You ❌

Let's be clear about what's happening to your business:

✅ Metrics look "optimized" (good ROAS, low CPA, solid CVR)
✅ Dashboard is green
✅ Agency reports look great
❌ Revenue plateaus month after month
❌ Can't scale past a certain threshold
❌ Feel like you've "saturated the market"

You think it's working. The algorithm is creating your growth ceiling.

The problem is invisible because it's hidden in aggregate metrics. You see "450% ROAS" and think everything is fine. You don't see that:

4% of products get 90% of conversions
70% of budget goes to remarketing the same 1,000 people
Your total addressable market shrinks every month
New customer acquisition is dying

You blame the market, your products, or competition. The real culprit is sitting in your campaign settings.

The Core Tension: Efficiency vs. Growth

Here's the fundamental conflict:

Google's Goal: Maximize conversions per dollar (efficiency) Your Business: Maximize total profit and market expansion (growth)

At scale, these become OPPOSING objectives.

Example: The Efficiency Trap in Action

Path A: "Optimized" Campaigns

Spend $100K/month on your proven 20 products
Generate $450K revenue
ROAS: 450% ✅
CPA: €42 ✅
Algorithm says: "Perfect! Keep doing this!"

Path B: Growth-Focused Portfolio Strategy

Spend $100K across 200 products (including exploration budget)
Generate $380K revenue in Month 1
ROAS: 380% ❌ (algorithm panics)
CPA: €58 ❌ (looks "worse")

But here's what happens by Month 6:

Path A (Efficiency):

Still spending $100K on same 20 products
Revenue: $450K (flat)
Discovered: 0 new winners
Growth ceiling: Locked in

Path B (Growth):

Discovered 50 new profitable products
Now spending $300K across 70 products
Revenue: $1.2M
Growth ceiling: Expanded 3x

The "inefficient" path unlocks growth capacity. The "efficient" path creates a trap.

The algorithm will ALWAYS choose Path A because:

It looks better in the short term
It minimizes risk (Google's risk)
It can't see 6 months ahead
It's not measured on your business growth

Why Can't The Algorithm Fix This Itself?

This is the crucial question. If algorithmic concentration is bad for advertisers, why doesn't Google just... fix it?

Reason 1: Missing Critical Business Context

The algorithm doesn't know, and can't access:

❌ Your Profit Margins

It optimizes revenue, not profit
Might push budget to 15% margin bestsellers while ignoring 60% margin products
You make less money while ROAS looks great

❌ Your Inventory Levels

Wastes budget on out-of-stock products
Misses in-stock opportunities
Can't prioritize by stock urgency

❌ Your Strategic Priorities

Doesn't know which categories you want to dominate
Can't align with your competitive positioning
Ignores your business strategy entirely

❌ Your Pricing Strategy

Treats promotional products same as premium products
Can't distinguish loss leaders from profit drivers
Doesn't understand your pricing tiers

❌ Your Supplier Relationships

Can't prioritize products with better supplier terms
Doesn't know which products have exclusivity
Ignores wholesale cost differences

❌ Your Competitive Moats

Doesn't know which products differentiate you
Can't identify defensible categories
Ignores your unique value props

Real Example:

Algorithm pushes 80% of budget to Product A: 5.2% conversion rate, 18% margin
Ignores Product B: 2.8% conversion rate, 65% margin
You're making 3x less profit while metrics look "better"

The algorithm literally cannot optimize for profit without this data. And Google Ads doesn't have access to it.

Reason 2: Misaligned Objectives

This is the uncomfortable truth:

Algorithm's Objective: Protect conversion rate → Concentrate on certainty Your Business Objective: Expand market share → Explore uncertainty

These are fundamentally incompatible at scale.

Google makes money when:

You spend more ✅
You convert more ✅
Platform efficiency stays high ✅

Google does NOT make more money when:

You discover that Product #847 could be a winner ❌
You expand into new customer segments ❌
You build long-term portfolio capacity ❌

In fact, exploration might temporarily lower Google's revenue because:

Conversion rates dip during testing
CPA increases short-term
Efficiency metrics worsen

Why would Google's algorithm do something that hurts Google's metrics?

It wouldn't. It can't. It's working as designed.

Reason 3: Time Horizon Mismatch

The Algorithm Optimizes For:

Next click
Next conversion
Next 7 days
This month's performance

Your Business Needs:

Portfolio capacity for next 6-12 months
Sustainable growth trajectory
Market position in 2-3 years
Strategic competitive advantages

The algorithm can't sacrifice efficiency today for capacity tomorrow.

It's mathematically optimizing the wrong timeframe. There's no "strategic vision" parameter in Smart Bidding.

Reason 4: The Exploration-Exploitation Tradeoff (A Proven Impossibility)

This is a fundamental problem in computer science called the multi-armed bandit problem:

To find the best options, you need to EXPLORE (test unknowns)

Requires budget allocation to unproven options
Temporarily lowers efficiency
Creates learning data
Discovers new winners

To maximize short-term results, you need to EXPLOIT (use known winners)

Allocate to proven converters
Maximizes immediate ROAS
Looks "optimized"
Prevents discovery

You cannot simultaneously maximize both.

It's mathematically impossible. You must choose:

Explore more → worse short-term metrics, better long-term growth
Exploit more → better short-term metrics, growth ceiling

The algorithm chooses exploitation because:

It has data there (certainty)
It minimizes risk (Google's risk)
It shows "good" metrics in your dashboard
It can't value future unknowns

You need to force exploration because:

Your business needs new winners to grow
You need portfolio diversification for risk management
You need growth capacity to scale
You're willing to sacrifice short-term efficiency for long-term expansion

But the algorithm can't make that strategic choice. It's not programmed to.

Reason 5: The Algorithm Can't Override Itself

Even if Google wanted to solve this (they don't), the algorithm faces a logical impossibility:

It cannot:

❌ Intentionally bid higher on "worse performing" products (violates optimization function)
❌ Allocate budget to data-poor products (looks like waste in its calculations)
❌ Sacrifice efficiency for strategic goals (doesn't understand "strategy")
❌ Value future potential over historical performance (no forward-looking model)
❌ Integrate business context it doesn't have access to

To explore, you need a HUMAN to override the algorithm's recommendations.

The machine can't argue with its own programming. It needs external intervention.

Why You Can't Fix This Yourself (Why You Need A Service)

Okay, so the algorithm won't fix it. Can't you just... do it manually?

Technically yes. Realistically no. Here's why:

Challenge 1: Recognition (Invisible Problem)

Most brands don't even know this is happening.

The problem is invisible in Google Ads UI
Aggregate metrics look "good"
Requires portfolio-level analysis to diagnose
Hidden behind campaign-level reporting

You need: Specialized diagnostics and metrics that Google Ads doesn't provide.

Challenge 2: Strategic Layer (Algo Only Does Tactics)

The algorithm can't answer strategic questions:

Which products are strategically important? (Not just "high converting")
Which categories should we dominate long-term?
What's our acceptable efficiency/growth tradeoff?
How much can we afford to "lose" in exploration for future gains?
Which products build competitive moats vs. just generate revenue?

You need: Business strategy integration that the algorithm can't provide.

Challenge 3: Business Data Integration

The algorithm doesn't have access to:

Profit margins by product
Inventory levels and stock urgency
Supplier costs and terms
Pricing strategy and tiers
Category prioritization
Competitive positioning

You need: Data infrastructure to feed business context into campaign decisions.

Challenge 4: Portfolio Architecture

Solving this requires:

Campaign structure that CONSTRAINS the algorithm's concentration tendency
Custom labels that segment by profit/strategy, not just performance
Budget allocation rules that force exploration
Bid strategies segmented by portfolio tier (Core/Growth/Discovery)
Asset group organization that prevents concentration

You need: Technical expertise in campaign architecture design.

Challenge 5: Active Management

This isn't "set and forget" - it requires:

Monthly exploration budget allocation (against algo's "advice")
Quarterly winner graduation from discovery to scale campaigns
Retirement of aging winners before they become budget traps
Portfolio rebalancing as business priorities shift
Constant fighting against the algorithm's re-concentration tendency

You need: Dedicated portfolio management, not just performance reporting.

Challenge 6: Custom Metrics & Reporting

Google Ads doesn't show you:

Portfolio concentration ratio
Discovery rate (new products getting traction)
Profit-weighted ROAS (vs. revenue-weighted)
Portfolio capacity score
Product lifecycle stage progression
Exploration budget ROI (6-month view)

You need: Custom analytics infrastructure to track what actually matters.

Challenge 7: Expertise in The Tradeoff

The hardest part isn't technical - it's judgment:

When to accept lower ROAS for discovery
How to sell CFO on "exploration losses"
When to graduate products from explore to exploit
How to prevent algo from re-concentrating after you rebalance
Which efficiency sacrifice is investment vs. waste

You need: Experience managing the explore-exploit tradeoff across dozens of accounts.

The Fundamental Answer: You're Fighting The Algorithm, Not Using It

Here's what makes this a service, not a software tool:

The Algorithm Says:

"Bid higher on Product A - it converts at 8%! Ignore Products B, C, D - they're only at 2%!"

You Need To Say:

"Yes, AND we're forcing budget to Products B, C, D even though they're at 2% conversion, because we need portfolio capacity for Q4, and these products have 3x the margin, and this category is strategically important for our positioning."

The algorithm can't argue with itself. You need human strategy to override machine efficiency.

It's like having a very enthusiastic employee who only wants to do the easiest, most certain tasks. They're being efficient! But they're ignoring all the important, uncertain work that will grow the business.

You can't just "let them optimize." You need management.

The Uncomfortable Truth About Most Agencies

Here's what most advertisers don't realize:

You're paying agencies to:

"Optimize" campaigns → Let the algorithm concentrate further
"Improve efficiency" → Shrink your portfolio more
"Trust smart bidding" → Abdicate strategic thinking
"Hit ROAS targets" → Lock in your growth ceiling

You're literally paying someone to help the algorithm kill your growth.

Why? Because agencies are:

Measured on efficiency metrics (ROAS, CPA)
Incentivized to show "improvement" (which means concentration)
Paid on % of spend (not % of growth)
Lacking access to your business data (margins, strategy, inventory)

They're optimizing the wrong thing because they're measured on the wrong metrics.

What You Actually Need

Someone who:

✅ Understands the algo is doing its job WRONG for your goals
✅ Integrates business strategy into campaign architecture
✅ Forces exploration even when efficiency metrics protest
✅ Manages the portfolio, not just the performance
✅ Measures success in growth capacity, not just ROAS
✅ Has skin in the game for your long-term expansion

That's why this is a service, not a software tool.

Software can't fight itself. Strategy requires human judgment.

The Portfolio Strategy You Need

Here's what fixing this actually looks like:

Phase 1: Recognition & Diagnosis

Portfolio concentration audit
Identify algorithmic bias patterns (products, audiences, geo, queries)
Calculate current growth ceiling
Quantify opportunity cost

Phase 2: Business Data Integration

Feed profit margins into product scoring
Integrate inventory levels
Apply strategic priorities
Define category targets

Phase 3: Campaign Architecture Redesign

Core/Growth/Discovery tier structure
Custom labels by profit/strategy/lifecycle
Budget allocation rules that force exploration
Bid strategy segmentation

Phase 4: Active Portfolio Management

Monthly exploration budget allocation
Quarterly winner graduation
Performance tier rebalancing
Aging product retirement

Phase 5: Custom Metrics & Iteration

Portfolio health scorecard
Discovery rate tracking
Profit-weighted performance
Capacity expansion monitoring

This isn't a one-time setup. It's ongoing strategic management.

Why This Matters More Than Ever

A few years ago, you could manually manage campaigns and force diversity through campaign structure alone.

But automation has made concentration worse:

Smart Shopping → Concentrates products
Smart Bidding → Concentrates audiences and queries
Performance Max → Concentrates everything + removes visibility

The more Google automates, the more concentration accelerates.

Which means:

The problem is getting worse
It's getting harder to diagnose
Manual intervention is more critical
Strategic oversight is mandatory

You can't opt out of automation. But you can't succeed without strategy.

The Bottom Line

Google's algorithm concentrates your budget because that's exactly what it's designed to do.

It's optimizing for:

Google's goals (efficiency, certainty, conversion rates)
Short-term metrics (this month's ROAS)
Historical performance (what worked yesterday)

Your business needs:

Your goals (growth, market expansion, competitive positioning)
Long-term capacity (next quarter's scalability)
Future potential (what could work tomorrow)

These are fundamentally different. That's not a bug. That's by design.

You can't fix this by:

❌ Trusting the algorithm more
❌ Adding more budget
❌ Trying different bidding strategies
❌ Optimizing harder

You can only fix this by:

✅ Recognizing the pattern
✅ Integrating business strategy
✅ Forcing exploration budgets
✅ Managing the portfolio actively
✅ Fighting the algorithm's natural tendencies

That's why this requires a service. You're not optimizing. You're strategically overriding.

What's Next?

If you've read this far, you're probably wondering: "Is this happening in my campaigns?"

Here's how to find out:

Quick Diagnostic (15 minutes):

Product Concentration: What % of products generate 80% of conversions?
Audience Concentration: What % of budget goes to remarketing vs. cold prospecting?
Geographic Concentration: How many cities/regions get 80% of spend?
Query Concentration: How many search terms get 80% of spend?
Portfolio Trajectory: Has the number of "active" products grown, shrunk, or stayed flat over the last 6 months?

If your answers are:

<10% of products = 80% of conversions → You have the problem
>60% budget to remarketing → You have the problem
<10 geos = 80% of spend → You have the problem
<20 queries = 80% of spend → You have the problem
Flat or shrinking active products → You have the problem

And it's costing you growth.

The question isn't whether algorithmic concentration is happening. It is.

The question is: What are you going to do about it?

Frequently Asked Questions

Why does Google's algorithm concentrate budget?

Google's algorithm concentrates budget because it's designed to optimize for Google's goals (efficiency, certainty, conversion rates) rather than your business goals (growth, market expansion). The algorithm minimizes risk by focusing on proven converters, which creates a self-reinforcing loop where winners get more data and more budget while unknowns stay unknown.

Can the algorithm fix concentration itself?

No. The algorithm cannot fix concentration because: (1) It lacks access to critical business context (profit margins, inventory, strategic priorities), (2) It operates on misaligned objectives (efficiency vs. growth), (3) It has a time horizon mismatch (next click vs. 6-12 month capacity), and (4) It faces the exploration-exploitation tradeoff (mathematically impossible to maximize both simultaneously).

Why can't I just fix this manually?

While technically possible, fixing concentration manually is extremely difficult because: (1) The problem is invisible in Google Ads UI, (2) It requires strategic judgment about efficiency/growth tradeoffs, (3) You need business data integration infrastructure, (4) It requires ongoing portfolio management, and (5) You need custom metrics that Google Ads doesn't provide.

What's the difference between efficiency and growth in PPC?

Efficiency means maximizing conversions per dollar spent (high ROAS, low CPA). Growth means expanding your addressable market, discovering new winners, and building portfolio capacity. At scale, these become opposing objectives because efficiency requires concentration while growth requires exploration.

Why do agencies make concentration worse?

Most agencies make concentration worse because they're measured on efficiency metrics (ROAS, CPA), incentivized to show "improvement" (which means concentration), paid on percentage of spend (not percentage of growth), and lack access to your business data (margins, strategy, inventory). They optimize the wrong thing because they're measured on the wrong metrics.

What does fixing concentration actually require?

Fixing concentration requires: (1) Recognition and diagnosis of concentration patterns, (2) Business data integration (margins, inventory, strategy), (3) Campaign architecture redesign to constrain concentration, (4) Active portfolio management (exploration budgets, winner graduation), and (5) Custom metrics to track portfolio health. This is ongoing strategic management, not a one-time setup.

Want to see exactly how this shows up in your campaigns?

We offer portfolio concentration audits for eCommerce brands managing >€50K/month in Google Ads. We'll show you:

Where the algorithm is concentrating (products, audiences, queries, geo)
What it's costing you in opportunity cost
Your current growth ceiling
What unlocking portfolio capacity could add in revenue

No sales pitch. Just data.

Because once you see the pattern, you can't unsee it.

And once you understand the problem, the solution becomes obvious.

About This Analysis

This comes from managing portfolio strategy for 50+ eCommerce brands with €5M+ in annual Google Ads spend. We've diagnosed concentration in hundreds of accounts, across every industry, catalog size, and campaign type.

The pattern is systematic. The algorithm is working as designed. And most brands have no idea it's happening.

Now you do.