Nate Elliott has a great article on Google’s problems with AdSense. The ClickZ article is called Google’s House of Cards and here’s a quote:
“The true reason Google refuses to budge is the program is built on a shaky foundation. To secure the large distribution network AdSense needs, Google must pay publishers good prices. But if advertisers make separate bids for contextual ads, most would bid significantly less than they do for paid listings. Publishers would see revenue fall dramatically. This, in turn, would lead many sites to either remove the AdSense tags from their pages or demand a better revenue share.
AdSense is a house of cards, built on a foundation that forces advertisers to overpay for contextual ads. If Google allowed separate bids, it would risk losing revenue on multiple fronts: from the lower bids, the loss of distribution, and the loss of revenue share. The company bet it could keep prices high and revenue shares low as it built this program. But with smart advertisers turning off their AdSense ads, it’s time for Google to give advertisers what they want.”