Pay-per-Click Advertising

Google and the multi-billion dollar pay-per-click money tree.

Phillip Nones Advertising, Business, Marketing Communications, Media, Media Consumption, Sales, Social Commentary , , , , , , , , , , , , , , , , ,

moneyIt’s no secret that Google has been trying to diversify its revenue stream away from clickthrough advertising, which historically has accounted for the overwhelming majority of its income.

How else to explain Google’s shopping spree over the past decade, scooping up a veritable smorgasbord of industry players like these:

  • AdMob (mobile)
  • Adometry (attribution)
  • Channel Intelligence (product feeds)
  • DoubleClick (display)
  • Invite Media (programmatic creative and media buying)
  • Teracent (programmatic creative and media buying)
  • YouTube (video)
  • Wildfire (social)

So the next question is, “How much have these acquisitions and investments done to diversify Google’s sources of revenue?”

The answer:  Hardly anything.

Consider this statistic:  In 2011, nearly all of Google’s revenue came from online pay-per-click advertising, as reported by SEO firm WordStream.

Now let’s look at 2014 figures:  WordStream reports that the percentage of Google revenues from pay-per-click advertising is actually higher than in 2011, at 97%.

So much for the “diversifying effects of diversity.”

Within PPC advertising, a number of keyword terms are continuing to haul in the big bucks for Google.  A few years back, the priciest keyword term of all was mesothelioma, at more than $100 a click.

Mesothelioma continues to attract a lot of ad dollars, but it’s no longer commanding $100 a pop as it once did.  In fact, it’s no longer on the Top 10 most expensive keywords list.

That list looks like this now (in descending order of bid pricing, starting at over $50 per click and dropping to “only” around $45 for the #10 keyword):

  • Insurance
  • Loans
  • Mortgage
  • Attorney
  • Credit
  • Lawyer
  • Donate
  • Degree
  • Hosting
  • Claim

In developing the ranking, WordStream determined which keywords reside in the stratosphere by compiling data from its own large keyword dataset and the Google Keyword Tool (over a 90-day period) to determine the 10,000 most expensive keywords.

These were then organized into categories like “credit” and “insurance” by weighting the number of keywords in each category, estimating the monthly search volume as well as the average cost-per-click for each keyword.

Notice the preponderance of financial and legal terms – both of them key to sectors that attract and manage a ton of money.

The word degree is right up there, too, underscoring how important the educational complex has become to the ad business.

It must be pretty unappealing to be active in these industries and have to pony up such big dollars to participate in the pay-per-click advertising space.  But how else do we think Google racks up annual advertising revenues that are north of $32 billion?

How does the market sort out which keywords are worthy of commanding $40 or $50 per click?  Essentially, it boils down to this:  Invariably, the most expensive niches paying for the most costly keywords are ones with very high lifetime customer value – where the customer pay-off is high.

Think about it:  The amount of money an insurance company gets from an individual signing up for coverage makes the high cost-per-click rates – even at $50 a pop — worth it.

Business observers point to long-range trends that may make search engine marketing increasingly irrelevant as the growth of multichannel, multi-device marketing picks up steam.

But don’t hold your breath; Google will likely be earning billions off of pay-per-click advertising for years to come.

Optify takes the pulse of B-to-B paid search programs.

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Optify logoI’ve been highlighting the key findings of Optify’s annual benchmark report charting the state of B-to-B online marketing. You can read my earlier posts on major findings from Optify’s most recent benchmarking here and here.

In this post, I focus on the paid search activities of business-to-business firms.

Interestingly, Optify finds that pay-per-click programs have been undertaken by fewer firms in 2012 compared to the previous year.

And the decline isn’t tiny, either:  Some 13% fewer companies ran paid search programs in 2012 compared to 2011, based on the aggregate data Optify studied from 600+ small and medium-sized B-to-B websites.

However, those companies who did elect to run pay-per-click advertising programs in 2012 achieved decent results for their efforts.

The median company included in the Optify evaluation attracted nearly 550 visits per month via paid search, with a conversion rate just shy of 2%, or ~45 leads per month.

[For purposes of the Optify analysis, a lead is defined as the visitor taking an action such as filling out a query form.]

Leads from paid search programs represented an important segment of all leads, too – between 10% and 15% each month.

The above figures represent the median statistics compiled by Optify. It also published results for the lower 25th percentile of B-to-B firms in its study. Among these, the results aren’t nearly so robust: only around ~60 visits per month from paid search that translated into 6 leads.

Since the Optify report covers only statistics generated from visitor and lead tracking activity, it doesn’t attempt to explain the reasons behind the decrease in the proportion of B-to-B firms that are engaged in paid search programs.

But I think one plausible explanation is the steadily rising cost of clicks. They broke the $2 barrier a long time ago and see no signs of letting up. For some companies, those kinds of costs are a bridge too far.

I’ll address one final topic from the Optify report in a subsequent blog post: B-to-B social media activities. Stay tuned to see if your preconceptions about engagement levels with social media are confirmed – or not!

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

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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.

The Ripple Effects of High Gasoline Prices

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Shopping at home is rising along with gasoline prices.We’ve all heard the news reports about the effects that high gasoline prices are having on families who rely on automotive transportation for their livelihoods. It’s all well and good to promote the use of public transportation, but when your job is 25 miles away along suburban or rural roads, it’s often impractical to adjust commuting behaviors.

We’re also reading how high gas prices are affecting other aspects of the economy, such as the rising price of food items in the grocery stores due to higher transportation costs.

To this, we can now add another consequence of the high cost of petrol. Paralleling the gas price spike has been an increase in Internet activity.

Marin Software, a leading paid search manager platform for advertisers and agencies, has performed an analysis across more than $2 billion worth of paid search marketing activity. The firm established a benchmark based on the share of activity across the Google and Bing search engines, and then studied cost-per-click activity, clickthrough rates and conversion rates.

Marin evaluated the rise and fall in the volume of clicks along with the rise of gas prices over the time period January – March 2011. Voila! It found a positive correlation between rising gas prices and increased click activity.

In a similar vein, digital market intelligence firm comScore is reporting that U.S. e-commerce sales were ~$38 billion during the first quarter of the year. That’s up ~12% compared to the first quarter of 2010. And while e-commerce volume has been up over the past six quarters, this is only the second time the growth as been in double digits.

So the premise that the higher gas prices climb, the more the propensity is to shop from home and avoid the cost of driving appears to be on target. And it’s probably being helped along by the plethora of “free shipping” offers that are also out there — along with avoiding paying sales taxes.

Looking forward to the day when gasoline prices may plateau or fall back, it’ll be interesting to see if Internet activity drops back as well. Or will more people have become used to the comfort of shopping from home in their boxer shorts – so that online activity remains at an elevated level?

I have a suspicion it’ll be the latter.

Click fraud: How much is really out there?

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One of the knocks against pay-per-click advertising is concern about fraudulent clicks being made on online ads that cost advertisers money and drain their account budgets needlessly. And while Google, Yahoo and various online publishers have long held that their SEM operations can detect patterns of fraud and then credit-adjust advertisers’ accounts accordingly, that hasn’t mollified the skeptics at all.

And now SEM critics have new ammunition in the form of two click fraud reports issued in July by Anchor Intelligence and Click Forensics, two of the industry’s leading traffic auditing and traffic quality management firms. Researchers at both companies have discovered that “scripted” programs that click on ads increased in volume during the second quarter of 2009.

Click Forensics estimates that the overall average click fraud rate was nearly 13% over the quarterly period. According to the firm, this also included an ominous rise in “collusion fraud” on advertising networks. That’s when publishers rotate IP addresses (botnets) to click on ads on their own sites to generate inflated commissions from unprotected ad networks. Many ad networks have difficulty differentiating these attacks from valid clicks.

Based on these results, Click Forensics estimates that the amount of money lost yearly due to click fraud exceeds $4 billion. And while a large chunk of those dollars are presumably reimbursed to advertisers in the form of discounts or rebates, it is impossible to know what portion that amount actually represents because SEM program providers don’t share that information with the outside world.

Anchor Intelligence reported even higher rates of attempted click fraud during the second quarter 2009: nearly 23%.

Where are the nefarious attacks coming from? Richard Sim, Anchor Intelligence’s vice president of product marketing, says, “Vietnam stands out in terms of the fraud as a percentage of all traffic. Nearly one out of every two clicks from Vietnam was registered as click fraud.” That’s nearly double the rate of attempted click fraud found by Anchor Intelligence for the next highest ranked countries – Canada at ~28% and the U.S. at ~26%.

What this says is that click fraud is very much with us, despite all of the best efforts that go into trying to root it out. This should be taken into consideration by advertisers when planning and executing an online advertising program. And it wouldn’t be a bad idea to factor in a 15% or 20% “degradation” factor on all advertising goals and results when evaluating clickthrough rates and calculating ROI.

The good news is that, even with this reduction factor applied, when you compare search engine advertising against alternative forms of promotion, it’s still one of the better buys in the business.

Searching for effective lead generation and conversion.

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In the current business climate, companies are relying more than ever on new sales opportunities to replace business that has been lost with current customers. And it’s pretty clear by now that “search” has emerged as the form of online promotion that generates the best lead generation and conversion results — outstripping other e-promotional tactics such as online display advertising and newsletter sponsorships.

This isn’t surprising, of course. Search advertising captures the interest of online viewers precisely when they’re in “search mode” for specific products and services, rather than when they’re just surfing the ‘net for news and updates.

(In fact, some advertisers have come to believe that even print advertising outperforms online display advertising. That’s because readers are more likely to browse all the way through print publications. Compare that to visiting informational web sites where viewers are far more prone to selectively pick and choose the pages that they open. A well-placed display ad on a “new technology news” page, for example, might be invisible to the vast majority of viewers who come to the home page and then decide to click through to only one or two additional pages on the site.)

But back to search. Many advertisers wonder which is most effective: gaining high “natural search” rankings that occur based on the content of the web site, or opting for pay-per-click search listings such as Google’s AdWords program with their entries on the right side of the screen.

As it turns out, both tactics have their pluses.

In fact, a new year-long study that ended June 30, 2009 of more than 25 e-tail web sites by Engine Ready, Inc., a search engine software development firm, found that visitors who clicked through to the sites from paid search ads were ~50% more likely to make a purchase, compared to visitors who came to the same sites via clicking on a natural search link.

Specifically, Engine Ready discovered that the conversion rate from pay-per-click links measured 2.03%, while the conversion rate was only 1.26% from organic search clickthroughs.

On the other hand, various research studies conducted over the past few years demonstrate the clear popularity of natural search listings over paid search listings. It’s been shown pretty consistently that around two thirds of total clicks are made on natural search listings, compared to just one-third on pay-per-click listings.

So the key takeaway is that any marketing program worth its salt incorporates search marketing as a key component. And in most cases, that effort should encompass search engine optimization for natural search rankings along with a pay-per-click advertising program.