Comscore, a U.S. based web tracking company, released data earlier this year showing significant slowing in Google’s main revenue source, Adwords (or Pay-Per-Click – PPC – also referred to as paid clicks). This kicked off speculation that Google’s Superman strength is weakening with added kryptonite from a slowing global economy that could lead to overall reduction in online advertising spend.
The data shows no Y-O-Y increase in paid clicks for Google in January and a mere 3% Y-O-Y growth in February. This is alarming as they are used to seeing Y-O-Y growth anywhere from 25% to 40%!
Google was quick to launch defensive measures by stating that the reduction in paid clicks was due to:
1. Efforts to increase the ‘usefulness’ of each click (translation – increasing the accuracy of each paid ad in order to increase conversions for advertisers).
2. The reduction of the number of Adwords appearing on search result pages (translation – instead of 8 paid ads on a Google search result page you only see 2, giving the user fewer choices, increasing the chance they will click on your paid ad).
In my experience with paid clicks, Google always provided more clicks, fewer conversions but at a lower average cost when compared to Yahoo!. Yahoo! meanwhile delivered fewer clicks but they were higher quality, leading to more conversions but at a higher average price.
I also experienced a much higher rate of click fraud on Google versus Yahoo! but we can leave this for another posting.
Thus, Google is saying that they are focusing on higher quality clicks which yield higher revenues given the advertiser’s desire for better return on their paid clicks investments. This means that although the overall paid clicks are reduced the amount being paid for these clicks moving forward will be higher or at least they hope so.
Industry analysts are mixed on this data as the growth in paid clicks has always been an emphasis and rightfully so. Their forecasts vary as do their interpretations of the data but if you are an investor I would be watching closely as you have seen this stock drop from its 52 week high of nearly US$750/share to today’s US$440/share.
For advertisers, there are a few things to keep in mind:
1. The Comscore data only includes United States data. International paid clicks account for almost half of Google’s revenue and has been growing at a faster rate than United States search. Therefore, if you are only using Google in the United States now would be a good time to open your Adwords campaigns to other markets.
2. Increased click quality will increase click-to-conversions which is great as this should increase your return on Adwords investments. But with this will also come higher competition and cost per keyword. Therefore, you will need to study your best performing keywords and bidding trends as your Adwords could quickly lose their current positions.
