Google’s Declining CPCs

Google’s CPCs have declined yet again. 9% year on year, 15% quarter on quarter. They still trousered enormous profits, and once again the market responded by catapulting their share price even higher.

But that decline in CPCs is quite an important little niggle. I’ve remarked before that the profit margin for fungible goods trends to zero, meaning that at some point advertising using the pay per click model becomes unsustainable. Ultimately only a handful of big retailers have enough play in their margins to afford to fund advertising with a sub 5% conversion rate on desktop, and an even lower conversion rate on mobile.

This is why Google are scrambling to sell bigger ads and looking for ways to crank up mobile CPCs, with the same ultimately self-defeating logic. If Google take more money out of the market, then fewer retailers can compete. And if fewer retailers can compete, CPCs have to come down. Economics 101.

In a normally functioning market, falling CPCs should entice other retailers back in, but a lot of retailers have been so burnt that they’ve either gone out of business, or would rather just suck up transactional fees on eBay or Amazon – which they only accrue on an actual sale, rather than spending lots of money getting people to a website that might not even convert.

By shifting to Amazon or eBay, all the usability work is done and they effectively get brand protection, because people will think “I bought this from Amazon” and not “I bought this from Company X through Amazon.” Another reason then for businesses wonder why they should subsidise a brand and a website when there’s a whole ecosystem to sell through with a captive audience and where agencies can’t intervene with fees and advice that might turn out to be wrong.

Average CPC itself is a fairly useless metric to look at, but it does point to the bind Google now finds itself in. To increase revenue in a time of decreasing CPCs, they can only increase the number of ads or the eyeballs they serve – hence their ever-increasing cycle of acquisitions and search for revenue streams outside paid search. When you look at Google Play, Android Store and the various automotive initiatives, you can see what they’re gunning for: alternative revenue streams and a way to stay inside the customer journey in a way that appeals to advertisers with sufficiently deep pockets.

Case in point: the rolling out of the “store visits” metric. Google want to show that people who searched on Google then turned up in store – presumably with the intention of buying. Android users or people logged into the Google app can physically be traced. If I search for toasters on Google today, then turn up in John Lewis or Argos within a couple of weeks, that is a demonstration of Google’s value to a retailer. It’s a high tech version of a coupon in the local paper.

There’s a hint of desperation to that, in my mind. Almost any purchase with a research cycle is going to involve Google today, so the unique attribution (and therefore value) is pretty thin. Consequently, there’s not much value to the retailer to warrant spending more on Google.

Google is now so much of an infrastructure it’s almost like the Highways Agency saying you should advertise on billboard because people drove to your shop on a road they built. It’s true, but doesn’t quite add up.

And, irony within irony, Google’s conscious strategy of favouring big brands means that SEO and PPC alike make it almost inevitable that anyone searching on Google will encounter a big brand, even if the big brand spends a relatively minimal amount on either of these approaches.

In effect, Google are increasingly selling AdWords to a smaller subset of customers who actually don’t rely on Google in the first place. If you are a small business, you cannot compete on price in an auction based system if you sell physical goods. And the sort of proof-of-attribution model Google are working to is useless if you are a single site who sell nationally through the internet as your footfall is effectively zero. You’re also locked out of the SEO sphere by the big brands who can afford massive marketing pushes, and who escape penalties that would literally finish you because Google has to show them for the sake of their own credibility.

What’s that all mean? Well I’ll be damned if I know. If the last year has shown me anything it’s that I’m a terrible prognosticator. But, if I were a betting man, I’d say that Google is going to continue its trend towards being a playground for big brands and that small business in physical goods will continue to migrate to the Amazon/eBay model. The service industries will hang on to their local/personal diversity for longer, but in the end the same logic will apply: for a small local business, is there any point at all on spending money on a website when it’s primary function is actually to be a line at the bottom of your business card.

Or in short: will the “free internet” be reduced to a wasteland of useless, expensive advertising hoardings?

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Sidebar: search Google for “Google declining CPCs” and the first page is horrible. Apparently that’s a query that deserves neither quality nor freshness. That no fewer than 3 of the top 10 results for that query don’t mention “CPC” or “decline” at all is further evidence (if you’re so-minded) that Google’s focus on search quality is less than stellar.

Google in the mobile ecosphere

Mobile is a problem for Google. It’s a paradigm shift that few saw coming just 5 or 6 years ago, but the launch of the pocket web has begun to completely reshape our experience of the internet, which sites we interact with, and how we organise our spending. There are two reasons this creates problems for Google.

Less space for ads + different user XP

Here is a current screen cap of a typical Google search for “used ford kuga”

kuga

I’ve highlight the ads in yellow. Of the 10 available positions on the page, no fewer than 8 of those are paid ads. Given this experience, there is plenty of choice for the consumer even without scrolling down. In the desktop-only world in which Google’s ad model was conceived, this is wonderful – as you have many advertisers, all trying to appear in those top 8 slots, plus another 3 or 4 willing to appear further down the page.

On mobile the story is different. Here is the same result – again with the ads highlighted in yellow.

mobile1

As you can see, the amount of screen space given over to ads is similar – with only one organic result. But that screen space includes just 2 ads.

That means greater competition for those two spaces, which in theory means higher CPCs for those wishing to compete in that space.

But, from a user perspective – and assuming we value choice – there is very little utility there. If I want to see diversity, I scroll. And here’s the rub: we DO scroll with our thumbs.

The old rubrick about organic listings in particular was that most of the traffic went to the top 3 sites and that anywhere further down the list was almost invisible (I exaggerate a little). But that was driven in part by the mouse-point-click metaphor that belonged to the desktop. With a scrolling interface, we can are accustomed to the easy flick of a thumb to see more: hell – the interface demands it.

Thus, on mobile, it is likely that fewer people will actually click the ads as they will assess what they see and move down the page.

In short, whereas equity on desktop is split across potentially 12 different ads, the opportunity for Google on mobile is less. Even if you include the bottom of the page that’s still just 3 additional slots.

mobile2

5 slots instead of 10-12 means fewer opportunities for clicks. All things being equal, Google would have to see double the CPC or CTR from these ads to generate the same revenue from a mobile search as from a desktop search. And here we hit the wall of reality: in most markets, vendors are selling the same product with the same costs and the same margins. Investors might have been impressed by the stunning growth of the internet and Google’s revenues, but very real limits exist driven by real-world costs.

If I can buy Blue Widgets at £5 then so can my competitors. Having first-mover advantage on the internet might mean a window where I can buy clicks for 10p, sell the widget for £10 and thus make a profit according to my conversion rate. That doesn’t last, however. As more people come in, the market matures, margins narrow and thus the money available to spend on clicks declines. According to economic theory, the marginal profits on fungible goods are effectively zero. No wonder then that Google’s CPCs have been in decline for some time.

This probably is a peek behind the curtains as to the resurgence of brand building and display – none of which favours Google.

Apps are… better

Compounding Google’s problem on mobile is the very core of the mobile experience: the app.

I’ve opined before how a horizontal search engine such as Google is actually pretty clumsy when it comes to vertical searches like holidays, clothes shopping etc (other opinions are available)(other opinions are available). I’ve booked a couple of dozen hotels over the last year or two and the number of times I’ve used Google as part of that process? Zero*.

There’s always a danger of reading too much into your own personal experience (after all: I’m quite experienced and savvy these days) but specific apps just seem to make so much more sense than meta engines.

If you were actually looking to buy a Ford Kuga as per my example, downloading the AutoTrader app would make for a whole better experience than clicking through 5 or 6 different websites while trying to learn their varying internal logics and navigational methods.

In conclusion…

Google are still a money printing machine – even on mobile. That isn’t going to change any time soon and any advertiser who can afford to, has to be in the game. The day that the mobile web is the web is already here, and Google recent ‘mobilegeddon’ update is tacit acknowledgement of that fact.

In display, Google rule the roost – with the world’s most popular video channel, largest display network, and other native advertising tools for marketers to take advantage of: all of which yield good results if handled properly.


 

*Actually, that’s a small lie. A small example: when I stayed in Glasgow recently, I used Google to find out where the hotel was in relationship to various things I wanted to see and visit but the important bit – the transaction – was carried out through the booking.com app. What Google couldn’t do was monetise me.

Google as Paid Directory

Last night, I was searching for wellies for my sister’s Christmas present. Despite all the grumbling I do about Google, it was still the place I began my search (although I eventually ended up back on eBay.)

The first page of results had one organic search result above the fold on a 1366 x 768 monitor resolution. And that was Amazon, who were also taking multiple paid slots. In fact, increase the screen height to 1000 pixels and there was still only 1 organic result, with no fewer than 18 paid slots (if you include Google Shopping).

wellies

Congratulations to Amazon there for taking the sole organic slot (as well as 4 of the paid slots).

Now, I am not suggesting that every Google result looks like this, but treatments like this for commercial niches are becoming increasingly commonplace, and there is no compelling reason for Google to roll them back. Commercially speaking, filling the page with paid ads is simple logic: after all, Google gets nothing from the sites it shows for free. From a technological perspective too, why plunge billions into fighting spam and ranking an index when you go can whitelist a bunch of sites for most of the big money terms and leave the long tail to random chance?

Seen in this context, domain clustering is no mere mistake. That ‘used ford focus’ today returns a mere 11 domains for the first 3 pages of results makes eminent sense. Google are simply saying to everyone: “you can’t compete in this space unless we think you’re a brand and have whitelisted you as such”.

Of course, when you’ve arrived at that point you’re a whisker away from being a paid directory with an ancillary web search.

Ironically, of course, Google have long proclaimed war on paid directories and have been busily purging them from the rankings for years. Equally ironic is their war on sites that they judge to be “too commercial” by carrying many banner ads or even Google’s own AdWords ads.

For SEO as an industry and a standalone activity, that leaves us expending our resources chasing an ever-decreasing pool of eyeballs. It’s not that you can’t still succeed in driving traffic through organic channels – you can and always will be able to – but we have to be close to the endgame of the idea that you can pitch into a truly competitive space with SEO as your central/only strategy.

While SEOs will continue to do the best they can to make sites friendly to Google and (hopefully) admit defeat and turn off the blog networks and comment spam robots, it doesn’t leave much for anyone to actually do. “Link building” is a philosophical dead end – a mere adjunct to PR, banner advertising and partnership building either through commercial relationships or social outreach.

People will still report success for their efforts and doubtless correlations will continue to be drawn between link building and sporadic SEO success, but if you’re truly looking to the long term: Google isn’t the sandpit it used to be.

New Google AdWords Format?

I’m possibly being behind the times here, as I don’t keep bang up to date with all PPC developments any more, but this definitely interested me. Don’t ask me why I was searching for a bouzouki.

I’ve seen image ads before – particularly for eBay – and have dabbled in them myself by pulling images and individual stock items into the ads through from a Google Products feed, but this is clearly something entirely different (shopping results are also in the results, but inserted midway through the regular organic positions, in the same way that local/news results are).

This is an entire block of ads with imagery and product details pulled into the ads without going through any intermediary such as Google Products. It’s a very interesting model and I’d love to see it rolled out to the car sector, where my interests currently lie!

Naturally, it’s a further distraction from the organic results. As I mentioned above, Google Product results are also injected into the middle of the regular SERPs meaning that with this ad block and the other Google properties on display, there’s very little space for the SEO-led Bouzouki retailer in the UK (now that’s a niche!)

Anyway, no time to give this any further thought at the moment, but if you see anything similar cropping up I’d be interested to hear about it.

Google Profiting from Illegal Ads… but that not’s the real story

I’m quite happy to be cynical and sceptical of Google, but sometimes people are keen to leap down their throat for the wrong reasons.

“Google admits profiting from illegal Olympic ticket ads” screams the BBC headline. In breathless tones, the report unfolds to describe how Google keeps the money it generates from running ads for fraudulent companies. In this case, tickets for the 2012 Olympics. We are introduced to people who clicked ads on Google and who subsequently lost money when it turned out that they did not, in fact, have any tickets.

Naturally, anyone would sympathise with the people concerned: it is certainly unpleasant to find yourself ripped off in this way, by anyone.

But the article then spends the remainder of its running length implying that Google are somehow complicit in the fraud because they allowed these people to advertise with them. An expert is wheeled out to argue that the algorithmic checks that Google run are insufficient to prevent fraudulent advertisers and from there the implication is drawn that it wrong for Google to keep the money they got from the advertising.

Firstly: of course Google keep the money! Let’s imagine that this fraudulent company had an office somewhere and went out and bought sandwiches every day. When the company is discovered, is there some argument that says that the rents should be paid back, or that the sandwich shop should hand back the cash? I’m not aware of it.

If the company in question had advertised in Yellow Pages – or even on ITV, the consequences would have been the same. When people falsely advertise, it is they who are the criminal – not the advertising media they choose to use.

Secondly, there is no system in the world that can perform a background check on a company’s bona fides. Google is an advertising platform that is open to all. I could, if I wish, advertise my services as a wedding singer (ha!) but there is no way that anyone could possibly say whether I’m a good enough singer or have any experience in the job. Google can’t be held to account for that. (In fact, by rolling review scores into their adverts, Google is arguably trying to go a lot further than any form of broadcast or print media).

But the same would equally be true if I advertised in any other medium – including Facebook ads, banner advertising, email marketing… All that really differentiates Google is the speed and visibility of the route to market.

What Google do do is ban entire categories of advertising (certain forms of gambling, drugs, guns, etc), particular keywords related to the same and stringently police trademark infringements (try bidding on Coca Cola) Is it a perfect system? Of course not – as periodic episodes of violation and exploited loopholes attest.

The lesson here is the one that has been taught since time immemorial: caveat emptor – let the buyer beware. It has been trailed for well over 2 years that only very few outlets are licensed to sell Olympic Tickets and this has been covered widely in the press. At some point, there is a line between what Google can reasonably be expected to do, and the responsibility of the buyer themselves to research matters for themselves and to judge where and from whom to buy things.

Finally, this draws attention to the real dangers – which lie among the organic results. It is there where the true Wild West is to be found. Google may deign that they will not sell advertising for drugs and guns, but some judicious searching will easily take you to kinds of places where you can find that kind of information available – just as you can find any kind of pornography or extreme political or religious philosophy.

However, the argument that Google should use its power to act as a censor is one that should fill you with fear, however well-intentioned.

New AdWords Format?

Don’t ask why I was looking for polka dot handbags. Just accept it, then look at the image, then read my thoughts afterwards 🙂

Firstly, these ads appear in between Google Shopping results and the Gooooooogle pagination thing. Obviously that placement isn’t accidental: to get to the next page of results you are now forced to see the ads. That can only have a positive impact on CTRs.

Secondly, anyone who has used product links or sitelinks in their AdWords know what a dramatic effect they can have on CTRs too (I personally saw a fivefold increase in CTR for ads with sitelinks on a big enough sample size to know it was no fluke). What I haven’t seen – and I could be behind the times here – is the promotion of product links with no ‘plus’ button: the images are just planted straight into the ad.

It’s a very attractive format for an advertiser and one that would certainly appeal to me – especially if it were rolled out into the main SERPs.

Does that take Google another inch to being primarily a shopping and advertising channel to the further subtle detriment of the organic SERPs? Well, duh. Everything Google does at the moment is informed by that rationale.