Google's average revenue per click from AdWords' advertisers dropped for the first time in two years for the quarter ended Dec. 31, 2011, according to Reuters. Analysts projected a 3 percent increase in cost-per-click revenue, but Google reported an 8 percent decrease.
As a result, many advertisers are wondering (a) if this is merely a blip or the beginning of a new trend, and (b) if they can lower their pay-per-click advertising costs.
Lower CPC Rates: A Blip or a Trend?
According to Reuters, “Google executives blamed the decline in search ad rates on forex [foreign exchange] fluctuations and ad format changes, but analysts wondered whether mobile advertising — which has lower rates — played a more important role than the company admitted.”
Another interesting theory comes from MarketWatch contributor Nigam Arora, who wrote that “ecosystems built by Amazon, Apple, and Facebook are the reasons behind the big decline in cost-per-click.”
I suspect the answer involves both of those causes. Innovations in mobile marketing, social advertising, and ecommerce marketplace strategies are resulting in more choices for shoppers and online retailers alike.
I envision a dynamic where more shoppers click on mobile ads — which garner lower cost-per-click prices — and online advertisers pay less for AdWords' clicks as they experiment with alternate sources of revenue, such as new online marketplaces.
I believe last quarter’s drop in cost-per-click rates was indeed a blip. But as shoppers use mobile phones, rely on social media to decide what to buy, and buy through online marketplaces, we’ll see more unpredictable blips like this. Online shopping behavior is changing, and so too will online advertising, as retailers adapt.
How to Reduce CPC Rates
So, how can advertisers take advantage of blips that result from shoppers evaluating new ways to shop online?
The answer is to stay engaged in the management of your pay-per-click campaigns, or to ensure that your pay-per-click managers continue to experiment with new strategies. Google has released many new experiments and enhancements to AdWords — such as “Product listing ads” and “Click-to-Call” — and by experimenting with these new features, advertisers may find sources for cheaper, more profitable clicks.
Fortunately for diligent merchants, most online retailers treat their pay-per-click campaigns as afterthoughts. This produces time-limited opportunities for well-managed campaigns to lower their per-click costs. Here are three examples.
Mobile segmentation. My firm audits hundreds of PPC campaigns each year. Many retailers still bid for mobile and desktop clicks from within the same campaign. This is usually not ideal.
First, if your site isn’t mobile friendly, you may be wasting money on the clicks you receive from mobile devices. If that’s the case, turn mobile ads off. Second, if your site is mobile friendly, take advantage of that by establishing a budget and bidding strategy that is optimized specifically for mobile. You can also craft your ad copy to indicate to shoppers that your site will be compatible with their mobile device. Often, you’ll be able to secure a lower cost per click for your mobile ads than your traditional ads.
In the first case, you’ll be making your campaigns more profitable. In the second, you’ll be targeting mobile buyers more aggressively than many of your competitors as you take advantage of a new source of cheaper clicks.
Product listing ads. Product listing ads enable you to promote specific products from your site on top of the Google search results page. You pay either a cost per click or a cost per acquisition. A shopper searching for “computer mouses,” for example, might see specific products from your site on the top of the page, as shown in the example below.
Shoppers like these ad formats, and they click on them at a high rate. That, combined with the likelihood that shoppers will find the landing page on your site highly relevant, can lead to a high quality score. Since ads with high quality scores are eligible for lower per-click costs, you have an opportunity to get more quality clicks at a lower cost per click.
As more online retailers take advantage of product listing ads, the ability to buy these clicks at a lower cost than standard ads may decrease. For now, however, it's worth taking advantage of.
- Click-to-call. If you’re equipped to accept calls from shoppers and convert them into sales, click-to-call could work very well. At first, you pay a capped rate of $1 per click each time a shopper searches Google and clicks to call you from your ad rather than visit your web page. But experimenting with click-to-call makes sense, especially for online retailers that sell high-ticket items. And if the call lasts fewer than 60 seconds, you pay nothing.
Mobile, social, and new online marketplaces will impact how people shop online. Google's AdWords team continually evolves its products to keep up with these changes. For advertisers, staying abreast of these new products can be daunting. The benefit to experimenting with them, however, is to find time-limited opportunities to get valuable clicks and sales at a much lower per-click cost than your standard campaigns.