Pay Per Click Party Over?

    October 16, 2007

First the good news. Pay per click, as it has been perfected by Google, is unarguably the Web’s highest business achievement to date. Google has become an international corporate icon worth more than some of the most famous name brands of our generation like Disney, McDonalds and Hertz.

Pay Per Click Party Over?
Pay Per Click Party Over?

Even more impressive is that pay per click has empowered literally hundreds of thousands of entrepreneurs in their web businesses. Quite a few sites, which prior to pay per click would have trouble making money, are earning more than $10,000 per month. Large sites such as NY Times, CNN, BusinessWeek and ESPN are also using pay per click to supplement their ad revenue.

Pay per click seems to be booming … but is the party soon to be over?

Blogger Steve Rubel came up with five reasons (in bold) on why pay per click is in trouble.  I’ll  take a look at each one of his points below.

1) Clutter
Google didn’t invent text ads, it just pop
ularized them. Their Adsense program has made it simple for sites to add which has caused a glut of text ads everywhere you click. I see the "clutter" problem as an Adsense clutter problem that leads to a phenomenon all web publishers have dealt with … ad blindness.

When people get used to seeing a certain style of ad across the web, click rates go down…. and down and down! That’s why banners originally got up to 8 percent click rates when they were first introduced by Good click rates now are .25 – .75% for top banners. Clutter contributes to ad blindness which causes lower click rates which could mean the glory days are over for pay per click.

As for clutter in search results, I see this as a problem of an educated user base. When text ads first appeared in search results the average user didn’t identify them as ads, thus they had a great click rate. Now only the most casual users still doesn’t realize what is and isn’t an ad in search results, resulting in much lower click rates. This problem will only get worse over time.

What can search engines do to combat this "clutter effect"? The answer is to make the ads look less like ads. If 3 line text ads are obvious ads, how about 1 line ads integrated within the search results that might look like this:

>>> Read a review of all BMW’s and click for best prices here.

Google and the other engines need to find a way to make the ads blend better with search results and content. How far they can go with this strategy without alienating the searcher or site visitor is the question.

2) Declining Relevance of Traffic/Transition to Cost Per Action
People are still clicking in big numbers but evidence suggests they are not converting as much. My guess is that conversions of ads in search results are not as much of an issue as conversions from Adsense partner clicks. This has become a bigger problem as  the Adsense program has grown.

3) Rising Costs
Click costs have gone up substantially since the good old days of where you could buy clicks for as little as one cent. Marketers must justify their expenditures on advertising based on its impact on sales. Will the increasing cost of text ads for most key words cause cuts in search marketing budgets?

I actually don’t see prices falling any time soon. The world is competing for keywords and bidding them up as necessary. Some may look for other Internet marketing options but the world is a big marketplace and so far there is no shortage of bidders.

The rising cost has its biggest impact on small business where price matters more. When small businesses are cut out of buying popular key words they may eventually just give up on search marketing – not good in the long run for the search engines.

4) Marketers Spread the Ball Around
The Internet has changed since search engines began selling text ads. You now have social media like MySpace, Facebook and Twitter. We have seen the rise of widgets where call to action ads will likely be integrated. Video is now mainstream with sites (like WebProNews) making video part of everyday content. The Internet is becoming accessible via many devices making it an accessory of life!

Marketers now have the ability to market products and services that are integrated into the user experience. Content can be ads and ads can be content. Marketers are becoming smarter in how they use the Internet. It is just a matter of time before a critical mass of advertisers see pay per click text ads as a tool past its prime.

5) Search Ads Are Viewed as Untrustworthy
As with anything that gets a lot of bad press (think click fraud) people start to wonder about its trustworthiness. I don’t think this is critical yet, but Google and the others must  find a better way to detect, deter and prevent click fraud.

Additionally, the engines must be more selective about their pay per click partner sites. There are many sites that exist solely to get "pay per click" clicks. This is bad for Google, Yahoo and Microsoft because it leads to a general uneasiness among ad buyers.

We would love to hear what you think. Is the pay per click party over or is it just getting started? Comment here