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The Decline of Google's (and Everybody's) Ad Business
Hugh Pickens writes "Rebecca Greenfield writes that during their recent earnings call, Google reported a 16 percent decline in Cost-per-Click (CPC), meaning the value of each advertisement clicked has gone down. This follows a 12 percent drop last quarter and 8 percent the quarter before that showing an unfortunate reality of online advertising — unlike the print world, internet ads lose value over time. The daily and stubborn reality for everybody building businesses on the strength of Web advertising is that the value of digital ads decreases every quarter, a consequence of their simultaneous ineffectiveness and efficiency, writes Michael Wolff. 'The nature of people's behavior on the Web and of how they interact with advertising, as well as the character of those ads themselves and their inability to command attention, has meant a marked decline in advertising's impact.' This isn't just Google's problem. Overall, Internet advertising has decreased in value over the years as online advertising continues its race to the bottom. 'I don't know anyone in the ad-supported Web business who isn't engaged in a relentless, demoralizing, no-exit operation to realign costs with falling per-user revenues,' adds Wolff, 'or who isn't manically inflating traffic to compensate for ever-lower per-user value.' For Google's overall business, this loss doesn't mean as much, since it has since expanded its business beyond AdWords — including its recent acquisition of Motorola. For companies that didn't just buy big hardware companies however, it's a scarier proposition. Like Facebook, for example."
I work in Google ads and the cost-per-click fretting miss the mark for lots of reasons.
- First we are talking year-over-year drop so the numbers are nowhere close to what the summary implies. In fact, they went up last quarter if I recall correctly.
- Second we believe lowering cost-per-click is a *good* thing as long as other metrics (such as revenue and clickthrough rate) stay neutral. It means advertisers are getting their clicks for less cost, which makes them happier, and more likely to dump more money in. This is exactly what has happened recently. It is not because advertisers are lowering bids - it is because of (intentional) changes on our end mostly.
- There is only one legitimate actual concern here: advertisers pay less for mobile ads, and mobile is becoming more and more important. But that has nothing to do with less interest in ads in general.
As someone who was part of an online business that got 80% of first time sales from google ads, I disagree. You're also sorely mistaken if you think that successful web businesses don't track ROI and which customers are coming from where. It's incredibly easy to do even for a layman, and it's very hard to make money with an ebusiness without doing it. There are so many companies in every product category that staying alive comes down to SEO and ad management.