Could there be a Correlation between Google’s Revenue Miss and its Cost-per-Click Decline
By Mark J. Donovan
There were a couple of interesting facts that came out of Google’s first quarter earnings report today. Facts that on the surface may seem positive or innocuous at best, but in reality could signal that there is something amiss at the leading search engine company. Google reported that they saw a 20% increase in paid clicks from the year before. They also reported the cost-per-click decreased 4% year-over-year and sequentially.
On the surface the 20% increase in paid clicks sounds great. However, the question that first came to my mind after reading this fact was why? Why would people be more frequently clicking on advertisements nowadays? Most people when browsing a webpage filled with advertisements have conditioned themselves to unconsciously ignore them. Moreover, internet browsers frequently block ads from even showing up on webpage results.
After thinking about this for awhile, I began to wonder if Google’s Penguin and Panda SEO algorithm changes over the past year or two have something to do with it. Trying to be objective here, I can’t help but notice that Google search engine results have declined dramatically over this same time frame. Consequently, I am wondering if people are finding themselves increasingly directed to useless websites, via Google search engine results, and then clicking on ads simply out of frustration and desperation to attempt to find what they are looking for.
Is this such a crazy notion? Maybe not when you also think about why the cost per click went down by 4%. Cost per click is what the advertiser is paying for the click every time a person clicks on their Google Adwords advertisement. If the cost per click is declining, then it means advertisers are not bidding as high on keywords as they use to. So again, the question is why?
It could simply be due to a declining economy and tighter advertising budgets. However, it could also be due to the fact that advertisers are feeling that they are not getting as decent a return on investment in their advertising budget as they once were from Google Adwords, and consequently are not bidding as high on keywords. If this latter reason is the case, then it could be the result of advertisers experiencing higher click rates while at the same time experiencing lower conversion rates. Conversion rates relate clicks to actual sales generated.
Based upon this back-of-the-envelope analysis and theory, I can’t help but wonder if Google’s Penguin and Panda search algorithm engine enhancements are now beginning to impact Google’s top line revenue figures. If so, for Google’s stockholders’ sake, let’s hope they change their search engine algorithms yet again, before they destroy their own business model, like they did to so many thousands of small companies over the past 2 years.