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The Changing Economics of Google AdWords

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Oct 26, 2012

Those clickthru rates and conversion rates are a lot higher than what they used to be.

It was only a few years ago that CTR's were an embarrasingly low 0.01%.

Why the dramatic increase, or is this just a highly skewed subset of some of the smarter Adwords operators?

 

 

Oct 30, 2012

Hi Mark, I'll field this question as well.

A few years ago, ads were distinctively separate from organic search results. Advertisers were also less savvy about how to utilize these ads since all they had was text.

Now suddently we're able to write extremely targetted ads via maps, phone numbers, sitelinks, by region, time... the list goes on - with just how targetted these ads have become, CTR and conversion rates have increased greatly.

In terms of the validity of our data, you're definitely looking at a subset of AdWords operators that care about paid search. I'd assume that most people who've used the Grader are already ahead of the game, improving their AdWords account at the bare minimum once a month - but remember - wouldn't you want to benchmark against active accounts vs inactive ones?

R.Aishwaryaa (not verified)
Oct 27, 2012

Hi Larry Kim, i have a question for you? Do you really think paid searches are necessary. I mean if one creates their website in an effective way, it does show on the top of the search results, right? What do you think is the effectiveness of having a really bad or a not so effective website being ranked first in the search result just cause it's paid?

Victor Pan (not verified)
Oct 30, 2012

Though I'm not Larry, here's two reasons why paid search is necessary which also answers your questions:
 

  1. "Top" of search results has been made relative in SEO

    Google personalizes whatever you search - more so if you're logged onto any one of their products. With your browsing history, IP address, and social sharing habits revealed, your results would vary from mine. In PPC, you can guarentee that #1 spot - but not with SEO.
     
  2. You'll want keyword data

    Understanding who comes into your website is really key. If you have a really bad or not-so-conversion-effective website, the mentality in which your visitors come in (seen through their keywords) will give you a lot of insight on how to rewrite your content/landing page. The data will be there, it may be costly, but at least you'll have 100% confidence on the data.

Chris (not verified)
Oct 29, 2012

Adwords is not really a win win when Google take up to 90% of the profit in some sectors.

Google knows which search phrase generate money and price them accordingly.

Elisa Gabbert
Oct 30, 2012

Well, Google doesn't take ANY of your profit from sales. If expensive keywords don't get you ROI, don't bid on those keywords!

Nov 02, 2012

I work in the most competitive industry when it comes to PPC. The finance industry, it's crazy; it can be as high as £5 a click. And most companies only just break even with Adwords. So “90% of profits going to Google” is actually a good estimate of the finance industry.

Gerad (not verified)
Nov 07, 2012

I think you're mistake because $5 a click isn't really that much. There are spaces in legal like mesothelioma where the cpc is above $50!

Justin (not verified)
Nov 02, 2012

Great post guys. It would be interesting to see average impression weighted quality score by industry as well. Maybe next quarter?

Nov 02, 2012

Larry,  after digging deeper into your data I was surprised by the founding that for all segments the number of clicks generated by ad network is proportional to number of clicks generated by search ads. For all segments the share of clicks generated by ad network is between 18,74% and 18,81%

Was it a mistale in calculations/formulas? Or you simply didn't have data to estimate clicks' split between search and network, and had to use overall average for all segments?

Another strange thing is that average CPC for 10 segments shown is ~2 times higher that market total. Other segments should have negative CPC to make all numbers fitting each other

 

 

Larry Kim
Nov 02, 2012

Hi! great questions.

1) I found that across all the accounts (all industries) that clicks from google display network accounted for around 18% of  the total number of clicks in the typical advertiser account. Since i didn't have enough data to accurately model the split of clicks between clicks from google search vs. google display network for each specific industry (I tried calculating that, but the variances/standard eviations were too high), so i just assumed the fixed average allocation of click share of 18% to GDN. This was not a calculation error - it was the best way i could estimate it, and it's disclosed in survey methodology that i figured out the top level ratios first, then applied them to the industries.

2) The CPC’s in the top 10 categories are much higher than the average CPC across all of google. Why? Because  in the top 10 categories, by definition there are more advertisers and more advertiser compeition, which drives CPC’s, In the hundreds of other industries not in the top 10 industries, the competition and CPC's are MUCH lower. My average CPC is across all google, not just the top 10 industries, which accounted for around 2/3rds of the total ad spend.

Great questions and hope that clarifies!

 

 

 

Is Incredible how much money are spent every day for google adverising :) There are billions of New Company every year!

Hi Larry,

 

wonderful data set, thanx a lot.

one small question : how do you "attribute" a conversion to Google ? on a last click ? last view ? post clic x days ? other more complex model?

thanx in advance for your clarification

Julien

 

Very illuminating data, Larry. While the focus is on the top 5 within each industry and represents large businesses, the information can be extrapolated to a small business level. Smaller businesses should definitely take note of how the 'big kids' play on Google to maximize thier paid search. Typo note: #6 computers & electronics lists the top 5 advertisers as "jobs & education" instead of 'computers & electronics'.

Jo (not verified)
Nov 07, 2012

Hi,

Great infographic and stats.  Well done for compiling it.  I am really surprised to see that University of Phoenix is the largest advertiser on Google though.

A mistake, perhaps?

Jo

Elisa Gabbert
Nov 07, 2012

Nope, not a mistake -- that data in particular is actually available publicly from SpyFu.

Nov 07, 2012

Hey,

thanks a lot for the insights, the great infographics and stats.

Chris

kim jade (not verified)
Nov 09, 2012

 Your right Gerad- $5 a click is really very little. I work for a charity and we have keywords where the CPC is over $60.  it's amazing how much money gets spent!

Brian (not verified)
Nov 14, 2012

Using your numbers, it appears that on average these 10 industries spent 10 times as much on search advertising compared to display advertising and yet received only 5 times as many "sales." From a pure P&L standpoint that doesn't make sense. Coupled with the fact that search advertising virtually eliminates the ability to build branding, while display advertising allows you the freedom to deliver your brand, I'm a bit confused as to why marketers wouldn't be funneling more of their digital ad dollars into dispaly advertising. Would be interested in your thoughts.

Jim Warner (not verified)
Nov 14, 2012

I would like to encourage you in future research to break out mobile from online. The setting

and the use of search for navigation is so different, that I expect very different metrics. For example, I expect

mobile search in Finance to be used more for checking rates, prices, and data as opposed to providing new

account leads. The differing values of conversions would result in very different CPCs and CTRs.

Is this data available anywhere still?

Sally B. (not verified)
Mar 20, 2013

Search on the words smartinsights wordstream google paid search benchmark

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