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Are Google the irresistible force and the immovable object?

Posted by Chris Dugdale November 26th, 2007

Google seem utterly unassailable as king of the search hill, but equally their tide of acquisitions seems equally unstoppable. What are they up to and where can it lead?

If you look at Google’s list of acquisitions over the last few years, there are some interesting trends as well as some paranoia inducing purchases in there. But leaving the tin-foil hat stuff aside for the moment, let’s take a quick look at their more conventional purchases.

Despite Google diversifying like crazy, the only real revenue stream it has is its paid search offering, or to put it in less obfuscated terms, advertising. Now, it is natural that Google’s competitors covet their neighbour’s house as it is a very big and successful house indeed, so there is little wonder that MSN and Yahoo! are desperate to acquire companies that might expand their own advertising network’s exposure. Microsoft’s purchase of a 1.6% stake in Facebook is a case in point; Microsoft is desperate to acquire more sources of ad views to try and compete with Google, but what does Google gain from doing this?

Google were piped at the post with this deal (maybe their acquisition drive isn’t utterly unstoppable), interested as they were in cutting a similar deal with Facebook, but why? What does Google gain?

With click volumes and click prices so high in Google, they can’t really expect people to pay more for their advertising; corporate PPC budgets are pretty maxed out already. The only way for Google to raise the click price in topped-out markets is to improve the ROI on that click, which in all fairness they have taken small steps towards with recent modifications to the clickable area of their ads.

So the obvious gain for Google is competitive lockout. By purchasing things that the competition might use to make egress on their market share, Google is protecting what they already have. This is a fairly safe conclusion to draw though and there may well be a slightly more complex answer.

As Google captures more eyeballs to view their ads, the cost per impression isn’t likely to rise as people are already paying top dollar for each click. What does change is the volume of clicks. Where a brand might currently be able to dominate the top spot in the paid listings for very generic search phrase, as the ad impressions (and by inference the clicks) increase, one of two scenarios will develop.

1) Advertisers take this in their stride. Ultimately, as long as you are making a profit on each sale, there is no reason PPC budgets don’t grow to match demand. The more clicks you attract, the more sales you make (as long as these clicks are converting at a reasonable rate). So ultimately nothing will really happen other than Google and the people using their services making more money.

2) Budgets run dry. Many big advertisers have fixed budgets and can’t necessarily be flexible enough to keep up with growing click volumes. As these budgets run out, other advertisers will step in to fill the gaps; others that are bidding at lower prices for the clicks. This sees sales pour into the under-bidders who will either bolster their bids on the back of their new-found profit, or simply be content to cream the greater profit from the budgetary misfortunes others.

These are two very different scenarios. The first will see a bedding-down of the status-quo, where the big players cement their position at the top. The second sees a much wider spread of business being dealt out and the under-bidders profiting more. Which way will it go? That depends very much on the adaptability of the top players. It is a case of business mimicking nature again; adapt or die.

Tags: acquisitions, Google, online advertising

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Google play fair on Pay-Per-Click

Posted by Manley November 15th, 2007

Google is changing the format of Pay-Per-Click AdWords appearing on AdSense sites to reduce the cost to advertisers from accidental clicks. This move looks like it will slash revenue for the search giant. Is Google playing fair at its own cost or is this a shrewd commercial move?

The format of AdSense is changing, so that the clickable areas of adverts are now confined to the title and URL. I have made a mock-up here, showing the old and new clickable areas in blue:

Making it less easy to click on adverts seems to fly in the face of conventional wisdom – AdSense publishers are likely to lose income, at least in the short term, and Google will lose both publishers and revenue. What is in this move for Google?

PPC might not provide the ROI that organic search does, but it is an area of search PR which is very popular with anyone who is accountable for their budget. Only paying for actual clicks allows cheap experimentation with the long tail of search, the ROI can be effectively and accurately measured and the work involved is much less.

As someone who works with organic search I would only use PPC to supplement a good organic search campaign, but it is easy to see why someone who is not a search professional would plump for a more measurable campaign. If you pay, you get a contextual link in the SERPs or publisher’s page and you only pay when you get a click. There might not be as many clicks and the conversion rate might not be as high as with organic natural results, but they can be measured and are generally predictable.

The only danger with PPC is click fraud. Search engines monitor for click fraud, so advertisers do not suffer from it too much, Google and Yahoo! have both voluntarily submitted to click fraud auditing and considerable sums have been paid back in compensation where appropriate, but there is always an element which cannot be algorithmically picked up.

How many times, whilst a page is loading and the browser is happily rejigging the layout of the page, have you accidentally clicked on an advert? I consider myself a more than competent web professional, yet I probably do this once or twice a day. It is mildly annoying for me, but my fat fingers have cost advertisers money.

By changing the layout of the adverts Google is, in a market increasingly filling with competitors, reassuring advertisers that it is doing everything it can to make sure that the clicks which advertisers pay for are genuine, interested clicks with a good chance of conversion. This increased confidence should increase click prices and, whilst reducing the number of clicks, should result in increased revenue for both publishers and the search engine, as well as improving the service for advertisers and cutting out some elements of spam.

Financially, there will probably be very little change. Cost per click is likely to rise, but cost per conversion should fall, leaving publishers (and Google) with about the same income, and providing advertisers with a better audit trail. This move can only appeal to the more conservative advertiser and it is not going to hurt the more astute use of AdWords as a tool to augment proper natural search. Let’s hope that it sets a precedent for more of the same.

Incidentally, this only applies to text adverts. Graphic and Flash ads are still going to be the same as they were.

Tags: adwords, click fraud, Google, online advertising, PPC

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