Google Gone Wild: Has its AdWords pay-per-click program become too costly for businesses?

Google advertisingNo one should be surprised by the huge success of Google’s AdWords pay-per-click advertising program. Almost single-handedly, that service has vaulted the company into the top ranks of U.S. corporations.

And why not? As an advertising concept, pay-per-click has no peer. Capturing the attention of customers when they’re in the midst of searching for specific goods and services is the ultimate in effective targeting.

What’s more, Google’s pioneering advertising model, where advertisers set their own bid pricing and pay only when someone clicks on a link to their web landing pages, made the program affordable for everyone – from the biggest national brands down to the neighborhood store.

Google also offered all sorts of geographic and time-of-day filters to make it easier for businesses to target people at the right time and the right place … yet another boon to smaller businesses that otherwise couldn’t hope to compete against the big national players.

Many advertisers were able to participate in pay-per-click programs at a fraction of the cost of traditional display advertising, where advertisers pay significant fees up-front for “wait and wish for” customer engagement.

A few years back, it wasn’t unusual to be able to conduct a lucrative AdWords program bidding, with clickthrough pricing running well below $1 per click.

Because Google continues to possess the lion’s share of search activity (two-thirds or more of all search volume despite the best efforts of Bing/Yahoo and others to chip away at it), it was only natural for more and more advertisers to gravitate to Google’s AdWords program as the best venue for pay-per-click advertising.

But the temptation to get in the game has had the predictable result: pay-per-click bid rates have been climbing steadily.

Whereas before, an advertiser could expect to get good exposure on search results pages with a modest bid, it’s not possible to accomplish that anymore without bidding $5, $10, $15 or even more per click.

That’s beginning to drive some businesses away – particularly smaller ones without the deep pockets of the big firms.  For for many of them, it’s simply not sustainable to pay that much money just to get someone to visit their website.

AdGooroo, a search intelligence database firm that studies the pay-per-click market, reports that ~96% of pay-per-click advertisers spend less than $10,000 per month on such programs. That compares to millions of dollars spent by the largest companies.

Richard Stokes, AdGooroo’s founder, states this: “The only way for smaller advertisers to get an edge is to spend a lot of time improving the quality and relevance of their ads. The problem is that everyone else is doing that as well.”

So where does this leave us now? We’re beginning to get some hints that Google may have tapped out on advertiser demand. Some companies are dropping pay-per-click programs altogether, while others are scaling back while redirecting resources to other forms of promotion – traditional and social.

We have additional proof of this in the earnings report filed by Google just last week. The company reported that advertising sales continue to grow, but at a slowing rate.

And even more interestingly, average cost-per-click rates have declined by ~15%. That’s the first-ever decline since the AdWords program was launched.

Here’s another development:  heightened interest and focus on obtaining better natural search rankings by optimizing websites for content relevance.

Imagine that:  companies looking for ways to make their websites more relevant to viewers as well as search engine bots!

The heightened SEO emphasis has worked for many companies – at least up until now. Google may want to increase advertising revenues, but it also wants to ensure that its search functionality continues to deliver the most relevant and quality results so that users don’t begin to migrate to other search platforms.

But some advertisers may be wondering if the “Chinese wall” between advertising and natural search is as high or as airtight as it once was. They contend that their natural search rankings seem to perform better when they’re also actively engaged in pay-per-click advertising campaigns … and perform less well when they’re not.

Whether there’s any actual proof of this happening is mere conjecture. After all, the same company that runs AdWords is also running the search algorithms. So there’s really no way to prove this from the outside looking in.

2 thoughts on “Google Gone Wild: Has its AdWords pay-per-click program become too costly for businesses?

  1. Very interesting article – thanks for posting! PPC is an interesting method and can be tricky to utilize. I’d love to see a breakdown of the pros and cons of PPC vs SEO and natural rankings. So many software programs and companies offer these services for a fee will currently hurt the companies profits!

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