Google Sacrifices Clicks To Increase Advertiser ROI

    March 3, 2008
    WebProNews Staff

Google investors are still at the table eating their losses after comScore’s report that paid click revenues were flat in the month of January. Impending recession was the chief suspect among speculators, but nobody finds any real support for that. More astute observers noticed that revenue flattened very soon after webmasters began reporting on decreases in AdSense earnings.

Remember that? I’m sure you do. Our readers had lots and lots to say about it, and posed lots and lots of theories, again with the economy as the prime culprit. But what if I told you that revenues were flat and Google appears to think that’s a good thing? It’s all about the quality of search ad real estate, baby.

A leading theory is that Google decreased the clickable area of AdSense ads in order to cut down on accidental clicks. They did that about mid-November, just before some publishers noticed a drop in earnings, which was just weeks before comScore released a report saying AdSense revenues had flattened.

If decreasing the clickable area of an Adsense ad is the direct cause, why would a smart company like Google do such a thing? The answer posed for that question is that Google plans to make it up by creating a higher value on the clicks that do not happen accidentally. This could be a win win win for Google, Adwords buyers and Adsense partners, as referrals cost more, but are more likely to convert.

ComScore also believes that the flattening in January revenues is due to a new Google strategy to raise the value of clicks, i.e., fewer clicks for more money.

In lieu of economic causes, comScore’s Magid Abraham and James Lamberti write, "The evidence suggests that the softness in Google’s paid click metrics is primarily a result of Google’s own quality initiatives that result in a reduction in the number of paid listings and, therefore, the opportunity for paid clicks to occur.

"In addition, the reduction in the incidence of paid listings existed progressively throughout 2007 and was successfully offset by improved revenue per click. It is entirely possible, if not likely, that the improved revenue yield will continue to deliver strong revenue growth in the first quarter. Separately, there is no evidence of a slowdown in consumers clicking on paid search ads for rest of the US search market, which comprises 40% of all searches."

So even though there were fewer clicks in 2007, Google made more money. It looks like they’re trying to repeat that in 2008.

Bill Tancer at Hitwise similarly found that if declines in revenues were economic-based, or an indicator of recession, then Google traffic to retail sites might be among the first hit. However, Google traffic to shopping and classified sites was actually up year over year.

No slowdown among RimmKaufman clients, either, says Alan RimmKaufman. "Across our clients, comparing February 2008 to February 2007, we did not observe evidence of an advertising or sales slow-down: median same-client Google ad-spend was up 22% year-over-year, and corresponding same-client resulting PPC sales were up 26%."

In fact, measured by their share of RimmKaufman’s clients, Google is 5½ times bigger than Yahoo, and 750 times larger than

EfficientFrontier also presents unfathomable numbers from among its clients. Among them, Google pulled in 76.6% of total search spend, and, get this, 97% of the extra money advertisers allocated for search last year.

That’s interesting considering other numbers show that MSN shows the highest return on investment, while Google’s is the lowest. If so, why is Google grabbing so much of that share? Well, you’ve probably already answered: Sheer numbers. Google runs 2/3 of the search market.

And that gives them the leverage to inflate one area while deflating another. Investors are already nervous about Google getting away from its core competency—search advertising. Ensuring as much revenue in that area as possible is a good business move. While Google’s chief economist Hal Varian contends that "there are very small costs of switching to an alternative search engine for users, advertisers, and publishers," the reality is that switching could cost a lot in lost traffic. But it was a nice try at convincing us.

And so it becomes relatively clear why Google leads the other search engines in CPC inflation (22% versus less than 3% from Yahoo and MSN): because they can.

Google has also decreased the number of ads that appear on search results, making that real estate that much more valuable. Google is killing two birds with one stone: increase the quality of search advertising while increasing revenue. All that said, we’re betting Google’s Q1 report will have some surprisingly positive numbers—and if their stock price still goes down it might be safe to say BUY, BUY, BUY!

More Stats:

ClickForensics (which makes its money from fighting click fraud, mind you, reports that the overall industry click fraud rate rose to 16.6%, up from 14.2% the year before.

Click fraud on AdSense and Yahoo Publishers was 28.3% in Q4 2007, up from 19.2 percent the year before.

ComScore reports the percentage of Google pages with at least one ad on them dropped from 52% to 48%. Paid click rate declined by 8% from .24 to .22.

Google’s worldwide revenue increased 68% in 2007. Revenue per paid click increased 21%.

EfficientFrontier says its clients enjoyed a 12.5% increase in click-through rates in Q4 2007.

MSN brought in 27% higher ROI than the other two big search engines last year.

One advertiser reports Google AdWords ads crush Facebook content ads. Google: 15,386 impressions; 688 clicks; 4.47% CTR. Facebook: 225,875 impressions; 178 clicks; CTR 0.08%.

EfficientFrontier’s LeeAnn Prescott submits: In December 2007, CTR on Google search was 31 times greater than on Google’s content network (AdSense), at 2.14% for search and 0.07% for content… CTR on AdSense has dropped by 75% over the past year, even while content spend grew 39% among the same group of clients.

PlentyOfFish’s Marcus Frind submits: The CTR on text [AdSense] ads declined about 60% in the last 2 months with Google’s changes. Image ads on the other hand stayed the same.  If you take a screen shot of a text ad and then run it as an image ad it will get 2 times the click thru rate.