Continued erosion of the CPC number (down 2% Q2Q, 6% y/y) so for those who haven't been following this like I have here are the last fourteen quarters:
Cost per click is the money that Google gets per click, it keeps going down suggesting to me that the "value" of this advertising is going down. Paid Clicks are clicks on Google ads which are up impressively but my observation is that there are a lot more of them in places than before. And lastly Google is paying nearly $900M/quarter (that is a 3.6B% annual run rate) to "buy" traffic to their properties. From that I conclude that Google's "specialness" is losing its luster, and that results from other services are "good enough". Doing this same math on Bing results and you will see that Microsoft is capturing the lion share of the value that Google is losing here. (and while Blekko is a search engine, we figured out earlier that you couldn't buy traffic against a competitor willing to spend billions a quarter) The other observation is that this realistically, this can't go on. Eventually Bing will be getting equal CPC with Google, and at that point trying to buy traffic or force the use of a particular browser that will only go to one search engine reliably, will make you less competitive than the more efficient guy down the street. I can't wait :-)
I think you're seeing a Simpson's Paradox effect with those. CPC for both mobile and desktop is going up (my supposition, I don't have numbers on this). However, mobile CPCs are less than desktop CPCs, and the query mix is continuing to shift to mobile. As a result, aggregate CPC goes down.
This also explains the Bing results. Google owns mobile search, so the shift toward mobile (with its lower CPCs) disproportionately affects them. Microsoft continues to flounder in mobile, so their average CPC will be higher right until it becomes nonexistent.
Strategically, this is a good trend for Google. They're being disrupted, but they own the primary disruptor.
This is entirely possible. I will see if I can come up with ways to test that hypothesis. One puzzling bit of not well known information is that Google recently yanked their mobile ad feed from many (if not all) of their partners. One way to interpret that would be that they were trying to shore up their mobile CPC values. Really too bad they don't break out mobile and non-mobile.
I didn't listen to the call, just read the statements and collected what information I could from them.
But I did download the slide deck, look at Slide #5 of 15. See how all the CPC numbers for all the properties are down.
Now look at how Paid Clicks (page 4) are up for the same periods. More clicks, less money per click. It includes their AdMob business (aka Mobile) but blends a bit because is a search ad on Android a O&O (Google Sites) click or a mobile click?
But there is a more interesting point here. If we stipulate that Simpson's paradox is at work here, and we stipulate that Pichette is interested in communicating clearly to the shareholders, would he not have the fiduciary duty to disclose the confounding variable?
After all if the appearance that the value of Google's search advertising business is eroding away, and that is, rounded to the nearest billion dollars the only business that makes Google any money[1], as an officer of the company you would want to say "Sure it looks that way but when we break it out you can see that really we're doing fine." otherwise you would leave people with the wrong impression, and they might sell or buy your stock acting on that misimpression which might form the basis for future litigation against the company. (This happened a lot in the 90's btw).
For me, I tend to be skeptical (its my nature), so if Pichette wanted to convince me that the ship is doing fine, he needs to let me know why there is water in my stateroom. :-)
[1] Youtube is catching up to be sure. But pretty much not a whole lot more is.
> See how all the CPC numbers for all the properties are down.
> But there is a more interesting point here. If we stipulate that Simpson's paradox is at work here, and we stipulate that Pichette is interested in communicating clearly to the shareholders, would he not have the fiduciary duty to disclose the confounding variable?
I checked out the transcript, and it turns out I was mis-remembering the context of the mention of Simpson's paradox: it was with respect to a question along the lines of "Why is the aggregate CPC growth higher than both the network and the Google Sites"? It would of course be comically absurd for a CFO to mention Simpson's Paradox and not say what the confounding variable is, and even more ridiculous for nobody else on the call to ask him to clarify. In context, the variable was the network/Google sites split.
Recently on Adwords, it's more difficult UX-wise to stop mobile targeting or bid less for tablets (or mobiles). I guess G is intentionally pushing people to bid as high for mobile & tablets as they did for desktops. As a careful observer (not as good as ChuckMcM), I see them popping up new and new tricks to give a better quarterly report.
Google does not own mobile search. Infact it is struggling[1] big time in mobile search. People do not use google to search on mobile. Infact, they use specialised apps like yelp, priceline etc to search for what they need.
That is definitely true. On desktop, google is the ultimate gateway for everything, while on mobile I would be more willing to open individual apps for specific things.
> Strategically, this is a good trend for Google. They're being disrupted, but they own the primary disruptor.
Only if they can maintain similar margins in the long term. If it fundamentally eats a chunk of their profit margin, I'm not seeing that as a net positive for its share price.
When I read the wikipedia page it had a pretty clear real-life example (inspection reveals: still there!) --
UC Berkeley was sued for accepting male grad students at a higher rate than female grad students. On examination, most departments at Berkeley admitted females at a higher rate than they admitted males, but males preferentially applied to easier departments.
As another side note: This still constitutes bias if you turn the attribution around. Rather than "men choose easier-to-get-into programs", you could say the university underfunds the areas of study that women are more excited about.
Even assuming there's some inherent difference in what women want to study (as opposed to cultural differences which could ultimately be removed) - funding isn't always the choice of the university.
You can't take a DARPA grant to research robots and then spend it on interpretive dance lessons.
Its only good if mobile CPC is rising to replace it and Google is hopping from the sinking ship to the rising one. Otherwise "Simpsons Paradox" is just a description of the particular nature of the death spiral
Android has a lot of defensive value, but if you're saying having Android makes up for a new normal with lower CPCs then Google shareholders are in for a rough ride.
So, here's my hypothesis for what's driving the lower CPCs in mobile. This is based on my observations of what I see myself and other people using Google for, not any inside information (I worked in Search, and they generally kept me away from the Ads numbers).
People use desktop search to research big-ticket items: cars, vacations, mortgages, life insurance, mesothelioma, consumer electronics, etc. There's a lot of value in a sale there. A personal-injury lawyer may collect hundreds of thousands of dollars from a client with a solid case. As a result, these keywords get bid up really high, because the profit potential of a new customer is high.
People currently use mobile search for day-to-day local needs. What restaurant should I go to? Where can I find parking? What's there to do in this town? Most of these have sale prices in the $10-50 range, and so there's just not as much money coming out of the sale. As a result, the keywords don't get bid up as high, and CPC is lower.
These use cases are not substitutes. Just because people are searching for restaurants does not mean they aren't also searching for mesothelioma. We see this in the revenue numbers, which continue to rise. But as a percentage of the total addressable market, high-value keywords like insurance and lawsuits will shrink as the market becomes larger. If you're looking at aggregate CPC numbers this will look like Google is becoming less attractive to advertisers, but what's actually happening is that Google is becoming viable for less attractive advertisers. The total market size is expanding, and with that come more marginal customers.
This, BTW, is one reason why I think Wall Street analysts are idiots. They pay attention to the wrong metrics, because those are the only numbers they have to pay attention to. I have my own set of metrics that I use to judge when it's time to sell Google stock, but I'm not going to reveal them here.
I think CPCs are declining because mobile is inherently tougher to monetize with the smaller screen real estate and Google not being the default destination for everything (like they are on desktop). There's lots of competition for attention on mobile and apps are silos out of Google's reach (though they're trying to combat this with app indexing). Paid clicks are growing rapidly, but that seems to be more from them squeezing the pennies out of their desktop properties. There will be a natural limit to the amount of ad inventory they can fill it up with as well.
Facebook isn't having the same problems monetizing mobile. I haven't looked too deeply into their results, but last I checked their ad margins are rising rapidly. Facebook ads seem to be a lot more valuable to advertisers than a Google ad, and they have lots of runway with a lot of premier real estate on mobile devices (Instagram, WhatsApp).
If the "post-pc" trend continues and people increasingly do their computing on tablets or phones, the future doesn't bode well for Google.
The smaller screen space would show up in mobile revenue (which is not broken out by Google, so we don't actually know whether that's happening), but not in mobile CPC. CPC is "cost-per-click", so if fewer ads are shown per page, there will be fewer clicks, which might even drive CPC up if only the highest-quality ads are shown. CPC as a metric is usually used as a proxy of the value of a Google ad to an advertiser; because of the auction system, an advertiser bids only what the ad is worth to them.
Facebook has a very different ad strategy on both desktop and mobile. They target brand awareness much more than purchasing intent. As a user, I'm starting to see Facebook ads in my newsfeed of sites I never searched for or Liked on Facebook; AFAICT, they're using cookie data from the advertiser's website itself to inject the ad into your stream, so that you're reminded of the product on a regular basis. I can see why this would be worth a lot to the advertiser (targeted brand advertising!), but as a user, it is creepy and annoying as hell.
For me the difference between pricing for mobile/desktop is mainly on the display side. I pay less for mobile due to lower awareness effect. Across different companies I have noticed that every click on a desktop display ad is accompanied by around 3-4 additional awareness driven clicks. Whiles on mobile there are very few additional clicks driven.
But CPC erosion is more likely due to higher % of searches from mobile devices. As Google's ads team works furiously to improve mobile ads, this will likely only go up. (Except that right now growth in the sheer number of mobile ads is outpacing the growth in monetization of those ads.)
As I mentioned above, they have CPC erosion in both their AdMob numbers and their Sites numbers. This statement though I've heard a couple of times:
> (Except that right now growth in the sheer number of
> mobile ads is outpacing the growth in monetization
> of those ads.)
I don't think I understand it. I get that more and more ads are being shown (growth in sheer number) but this part I don't get (outpacing ... monetization). So Google is throwing more and more ads out there, and at some point they are going to discover how to make them more valuable to advertisers so that the advertisers will pay more for them? I get that this isn't like a commodity good which is racing toward zero margin, but I don't see mobile ads getting more valuable. I characterize what we do at Blekko as 'utility search', which is what a lot of mobile users seem to need. When they search on their mobile for a restaurant name you can give them "perfect" search results by returning, the home pages of the restaurant, a onebox with hours/phone/address, a link to a review site, and an advertisement for a coupon at that restaurant or a competitor in the same food pallete. Google gets that, its pretty much the formula they use, but it isn't special because pretty much a solid businesses database, set of navigation links, and an ad feed for restaurants is all you need to serve that up. And other people are willing to give the phone provider a bigger cut of the ad revenue.
That is why I'm having a hard time imagining a way that Google is going to pull higher CPCs here. It feels very commodity to me and that is a margin game.
As a margin game that 32% net margin which is funding free food, self driving cars, and moonshots comes under pressure.
I don't understand your equalization of CPCs with value. They are not the same thing. In the early days, CPCs were low and advertisers were getting good margins. It doesn't mean those clicks were less valuable, just that there was free lunch to be had and it didn't last. Ultimately the cost approaches an equilibrium where it is a balance between what a vertical or the sector is willing to pay and still make money off the traffic. This upper bound usually doesn't change that much per sector/market segment.
So I would say, the value from a click doesn't change for the advertiser as long as they are running the same business - nobody can make those clicks MORE valuable for the advertiser just by charging more.
Now, if advertisers are getting cheaper clicks with good margins, its a matter of time when the competitive forces drive the margins down to what's acceptable to survive for that segment. This is true for most advertising channels, not just online. This assumes that there is a fixed tolerance for margins for a sector/device combination. Unless all advertisers collude to keep CPCs down for themselves, the cost should reach equilibrium - think about it, why would other competitors not drive up the cost and get MORE traffic, until they reach their margin tolerance? It is a volume vs. margin question. More volume means less margin, and there is an equilibrium to be had.
As you have also stated elsewhere, CPCs going down is hard to understand without a distribution of CPCs bucketed by traffic. As volume grows and new markets are penetrated - it could either mean that it is touching more lower margin businesses OR equilibrium has not been yet established for those new markets. But it is hard to conclude that existing high margin businesses are suddenly paying less for those clicks unless their fundamental business properties are changing i.e. lawyers can't make the same money as they used to anymore and hence margins are squeezed. That may or may not be true - but it is not possible to deduce that from what's given.
> I don't understand your equalization of CPCs with value.
CPCs are a proxy for value, especially in the Google case. This is because the way advertising works on Google advertisers bid for position, Google runs an auction, and the highest bid wins (at the next to highest price, it was at least when I was there a dutch auction[1]) So when CPCs fall, they do so because the highest bid has fallen, and the advertiser is setting their bids, so if they set them lower then it means they "value" being at the best position lower and thus "value" that ad placement slightly less.
Now flip your point of view around to that of the advertiser, you've got $1M to spend on internet advertising. Every quarter you advertise with different strategies and campaigns and you measure your business. If you are like many you are constantly tweaking that, some print, some radio, some Internet, vary the mix vary the message, these folks A/B test the crap out of this stuff. When you find bidding $5.00 a click gets you the same business activity as bidding $4.90 a click you say "Great, that gives us more money to spend on some other channel!" You have just reduced the CPC that Google sees from you by 2% and you are still getting the results you want.
When CPC is eroding both quarter to quarter and year to year it means that people as spending less money on buying ads from Google on a per ad basis. They may get more total impressions (and this is what I suspect Pichette thinks is the confounding variable in the paradox) but each impression is worth less. And the interesting thing that Marissa Meyer proved at Google early on was that people valued less intrusive advertising over what Altavista and Yahoo where doing at the time. I believe her insights still hold, and if Google continues to add more 'slots' into their properties they are going to erode value (ad blindness). It is a tough spot for them.
[1] New hires back in 2010 got to do a class called 'life of a dollar' which was perhaps the absolute best introduction to how Google monetizes search you could get.
Ok, I understand the view point. But here are couple of questions to consider:
1. How do you know that CPCs are falling because of existing advertisers paying less vs. new advertisers in new markets/mobile are paying less ? I.e. what evidence suggests that existing high value auctions are depreciating in CPCs/Value ?
2. CPCs are a proxy for value only if they have reached equilibrium. Since it is an auction as you have explained, it takes time for different participants to converge to the right bid configuration. That can take months or years to mature. So if the mobile market is new, how do you know that it has already reached equilibrium ? Desktop CPCs rose for a long time until they established that for many verticals.
There's obviously a lot of specifics around contribution of mobile to these numbers, and what impact has come from enhanced campaigns causing advertisers to bid on mobile even if they were not intending to.
That said, as an experienced paid search professional, lower CPCs are good for me if overall quality remains the same or improves because it lowers my acquisition costs and improves my ROI. This in turn causes me to spend more with Google.
Beyond that though is the notion that while CPCs may come down, Google has been pushing hard on the retargeting front. There has been a lot done to try to educate advertisers about the notion of multiple touch points and cross-channel attribution. With this comes paying for net more clicks since additional touch points may increase the conversion rate significantly, and thus might warrant paying for multiple clicks.
They still have a ways to go IMHO...for starters, why the heck isn't display data baked into some sort of search funnel-esque report? And why can't I see revenue associated with view-through conversions? AdWords has the data if conversion tracking is setup...
Closing the display loop and enabling advertisers to see the actual INCREMENTAL contribution of display impressions and view through conversions is critical to this IMHO.
I heard that Bing recently rolled out a way to just import your Adwords campaign into Bing. That should help a ton, as many of us just don't have the energy to spend on Bing.
I thought Google's buying traffic are payments to Mozilla / Apple / Samsung / etc. for being the default search engine. Mozilla's payment is like $300M/year, so I can't figure out how to get to the $3.6B number. Apple may have a much better deal on iOS.
It has tripled in the past three years, so that seems unlikely given there is no Ask / AOL growth.
Maybe it is YouTube payments. There is talk about YouTube Revenue being $3.5B and I assume that started from nothing about three years ago. I assume about 1/2 of YouTube revenue goes to the content creators.
\tangent Google is commited to increasing revenue, but I loved their early idea, of showing you relevant ads that you would want to see. Similar enough to goto.com/overture's idea, of search purely for ads. You're far more likely to pay attention, to click, to buy. And it's sustainable indefinitely because net-better for the world.
Although, judging from advertising in general, it may be better for advertisers to get your attention whether you want it or not. And they are the ones who decide whether the advertising occurs.
But if another company did ad-relevance better than Google, more efficiently (cheaper) and effectively (clicks, sales), it seems that Google couldn't beat them, because the revenue at first would be lower and Google is Wall St-committed to increasing revenues. They would have to acquire the new company (if they could).
Unfortunately, ad-relevance requires data about the person, and Google is best placed for this (alongside Facebook). Despite the privacy-backlash, people increasingly live online and accept the loss of privacy. So, instead, we have startups with new ways to gather new personal data, and are acquired by Google/Facebook.
Probably due to a lot of factors, but the biggest one is likely ad blindness - People just don't notice Ads anymore. It's especially prevalent in kids but it's probably also taking ground with adults now too.
This would have nothing to do with the effect shown. Paid clicks (i.e. the number of actual clicks on ads) have been growing rapidly over the same time period. Dropping CPCs are pretty obviously a result of the mix shifting to mobile (particularly since both mobile and desktop CPCs are rising).
This is so true. I went to advertise on reddit the other day and was surprised when I realized that the ads I was buying were for the "Sponsored Links" at the TOP OF EVERY PAGE, but I trained myself to not see them 5-6 years ago and hadn't really seen them since. /scratches head.
My guess is that the clicks are worth less these days for two reasons:
1) The ads are now displayed so prominently that everybody has to notice them. Earlier, they where less prominent and more clearly marked as ads. So there is probably a shift in demographics. Less dedicated buyers and more people who just stumble upon the ad.
2) On tablets and phones people might a) misclick more and b) surf more without the intend to buy.
I'm unsure if misclicks/clicks without intent would drive down the cost of CPC. In the short term, they'd definitely drive up the price.
It's possible that lower conversion rates after the click would lead people to put in smaller bids, but I'd say thats unlikely. There's no shortage of people willing to buy ad space with high click throughs.
internet ads become king when advertisers were promised fine grained targeting.
then cpc become kink when everyone realized advertising based in demographic was not generating returns for the brands, because in the internet nobody knows you are a dog.
so everyone spend all their money on cpc, because they were told that was the metric to follow. until they realized it also does not result in conversion.
then they start spending all their money on conversion, and realized they had to give away all their profit per conversion.
then they briefly guessed that going back to before cpc was good, and everyone dumped their money on ad networks and paid cents for million of impressions god knows where. turns out those impressions were all in russian warez sites and porn.
now everyone is spending all their money on viewable impression. until they realize no browser allows for a real world implementation of this, and even if they did, in the end it is exactly the same as buying the more expensive placements on impression based publishes. but this is still beginning, so we are here. everyone is dumping their money on this this week
oh and every step, after the premium bands got tired of the new thing, the publishers being stuck with it, start a race to the bottom on price.
It happens to me too now and then and I'm pretty sure that we're not the only ones. The Ad icon I see is far from gigantic and more blueish than gold, it's very easy not to notice you're clicking on an advertisement. Maybe15 years of using Google and relying on the first search results on top has caused some sneaky "Ad" blindness.
Sometimes I feel sorry for the advertiser when I accidentally click such sneaky text Ad, especially when the first real, natural search result is the link to the advertising company's website, just below the Ad. It feels like a devious way to rip off advertisers who would have been first anyway.
Yeah, given the number of times that I have used google to pull up a website, and the company also had the top add makes it seems like they are paying for what they already get.
However, they are also blocking a competitor from placing an ad there and potentially siphoning off traffic.
As an advertiser, ads when you're the first result aren't a rip off. At that point you're not paying for the ad, you're paying so someone else doesn't get the ad over your results.
Starting off with an admission that I'm a Google fanboy and employee...
I hate this sentiment. It's silly. Google does not sell any information to anyone. Google just shows people targeted ads.
If you can show a way to infer personal details from the mere fact that someone is shown a particular ad (or particular huge set of ads), then publish your results so Google can figure out how to not leak that information.
There is only a subtle distinction between selling an information service like targeting and selling the underlying information.
Consider, a mobile phone network that sold drone strikes on its users using the privileged information they have on their ___location. The precise flow of money and information is not that important to the consequence for the end user.
Google targeting is "using information about me to benefit another company for financial gain of Google". It is not silly to call this selling...
Firstly, comparing ad views to drone strikes is absurd in any context, and the only purpose can be some terrible appeal to emotion. Even if we were to go with this analogy, the person purchasing the drone strike still doesn't have the privileged information. So, even in this absurd world, no information was sold. The fact that it's terrible for the user (almost as bad as seeing an ad on a site in exchange for that site costing no money!) is irrelevant.
Secondly,
> It is not silly to call this selling...
yes it is! When you sell X to someone, at the end of the transaction, they have X! Otherwise it's not selling!
Selling information, licences and services is different from physical goods but its still called selling. If you deliberately treat this too simplistically then yes, you won't be able empathise with people's discomfort with Google's business model. I'm sure you do actually appreciate how information services have this weird sort of transitivity.
The drone strike is not chosen for emotion but because it shares the targeting concept. If the mobile network didn't know your ___location, they cannot sell the service. If they do know your ___location they can. The difference between these two cases is the latter service includes, in some fashion, your ___location.
Is your ___location being sold to your enemy? You can argue the terminology but if you look at the consequences, your enemy has attacked you in your secret ___location because they bought something from the mobile network company.
When information, a license, or a service is sold, the buyer now has information, a license (or general right to do something), or has benefited from some service.
Google sells clicks on ads. Once a click is bought, the buyers now has eyeballs on their websites. Not the information about the person doing the clicking. So, the information about the person doing the clicking is not sold.
I'm going to have a last go because to work at google, I believe you have a moral imperative to understand why the analogy is apt.
Selling consequences of information in some very real sense includes the information. In your terms, the "benefit from some service", is a targeted ad which is a causal consequence of user information. A derived work if you like. Information isn't just one specific pattern of bits.
The drone analogy vividly demonstrates how selling a consequence, killing someone in a secret ___location, really does include their ___location as an intrinsic part of the service sold even if no-one actually hands out the lat/long.
If we want to make the analogy apt, it would be like the mobile service saying "To make a phone call, please first call the kill-yourself company and tell them where you are so they can kill you."
Google does not sell the information. It puts up ads that users may (or may not!) click on. The clicking is the point at which the information transfer occurs, and it is voluntary and transparent. Or as transparent as it can be, anyway - if you are unaware of how the internet works when you click on a link, that does not make Google culpable for presenting said link.
The information Google has about the user is never given to anyone, least of all the ad buyers.
OK, tell me, for a company as large as google, how can I create a revenue source, in 1 year; in such a way that, you never view it as non-revenue generating, but immediately create revenue...
Please, let me know, I will be the greatest CEO of all time... If I manage to convince any company that this will work...
