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Google Ads – Paying More for Less?

Recent news finds Google going big into the mobile arena, both in terms of an algorithm update that will favor mobile-friendly websites in search results, as well as Google’s foray into providing wireless service via its Project Fi initiative. While those efforts proceed forward, driven by an increasingly mobile customer base, the absolute bread and butter of Google’s revenue stream showed some weakness in the first quarter of 2015.

Research from Merkle RKG suggests click growth has hit the brakes. Year over year click growth for Q1 2015 rose a meager 0.2 percent. But to what’s likely the dismay of advertisers, cost per click (CPC) year-over-year for the period increased 13 percent.

What’s more, there are fewer ad impressions available for Google search. “While we cannot conclusively determine that Google is simply showing fewer ads for any given search, the data trends are consistent with such a scenario and point to a significant development occurring in mid-2014,” according to the report.

When asked about this decline and correlation between it and a declining text ad impression environment, Merkle’s head of research, Mark Ballard, told EcommerceBytes it’s not all about text ads.

“We saw impression growth for PLAs dip into negative territory in early Q1, which is one of the reasons why we don’t believe the text ad impression declines are being driven primarily by ad format shifts,” Ballard said.

“PLAs are taking share from text ads over time, but it has been a fairly steady process, whereas text ad impression growth sharply reversed course in mid-2014.”

The prevalence of top-of-fold advertising in Google’s search results may make one think they see plenty of advertising on the site. While one must consider Firefox changing its default search provider from Google to Yahoo as having a role in fewer ad impressions, Ballard suggested other factors may be in play.

“Other data points such as rising first page minimum bids suggest that Google may simply be showing fewer ads for any given search query,” Ballard said. “This notion runs counter to the narrative that the search results are increasingly dominated by ads, but if Google could drive more clicks to top position ads by cutting off a few ads towards the bottom of the results, they would produce higher average CPCs.”

“As long as the ad clicks lost are offset by higher average CPCs, it would be a revenue-positive move for them.”

The report goes into much more details about first-quarter performance across digital channels, including paid search, SEO, product ads, CSEs, display advertising, and social media, you can download the report on the RimmKaufman.com website.

Note: On Thursday, Google said during its earnings conference call that a larger-than-expected drop in ad prices Thursday was a sign of strong growth at its video site YouTube, according to the Wall Street Journal.

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David A Utter
David A Utter
David A. Utter is a freelance writer based in Lexington, KY. He has covered technology topics from search to security to online business and has been quoted in places like ZDNet and BusinessWeek. He considers his appearance on NPR's "All Things Considered" with long-time host Robert Siegel a delightful highlight. You can find him on Twitter @davidautter and on LinkedIn.