There’s been a ton of grumbling and conspiracy theories in the search engine marketing community about how new enhanced campaigns - the biggest and most disruptive upgrade to the AdWords advertising platform in the last 10 years - are just a ploy to raise CPCs. Various vendors including Adobe, Kenshoo, Covario and others have recently released studies claiming that CPCs are already rising by 6% this quarter.
So I was surprised to hear that the exact opposite happened in Thursday evening’s Google Earnings conference call. AdWords CPC was down. Here’s an excerpt from the call:
- Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 23% over the second quarter of 2012 and increased approximately 4% over the first quarter of 2013.
- Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 6% over the second quarter of 2012 and decreased approximately 2% over the first quarter of 2013 .
During the call, Google CEO Larry Page mentioned that 75% of active campaigns have already moved to Enhanced Campaigns ahead of the forced upgrade deadline on Monday.
So much for the idea that enhanced campaigns automatically means higher CPCs!
Why are CPC’s Declining for Google Ads?
So, why are Google AdWords' CPCs down? Only the googs knows for sure, but here are a few theories:
- Ad inventory is increasing faster than demand: Ad auction prices are dependent on advertiser competition. Since Google has been greatly expanding available ad inventory with new bigger ad formats in the past quarter, perhaps demand hasn’t kept pace with supply.
- The Mix of Mobile and Desktop Search is Changing: Average CPCs are a blended average of desktop and mobile clicks. For various reasons mobile clicks have historically been cheaper, and if the growth of mobile search is outpacing the growth in more expensive desktop clicks, it has the effect of dragging down the weighted average of the two.
- Enhanced Campaigns Really Do Work Better Than The Old System: The search marketing pundits all predicted huge increases in CPCs due to the loss of advanced targeting features that were retired in the transition to new Enhanced Campaigns. They dismissed the idea that enhanced campaigns might actually improve client results. We’re seeing ridiculously huge performance improvements and reductions in CPC for our small and medium sized business clients – these are businesses that didn’t previously have a mobile strategy in place because in the old system, dealing with mobile was such a hassle. It's worth pointing out that all the doomsday scenarios published by Adobe, Marin, Kenshoo, Covario (etc.) all work with large advertisers which is roughly half of Google's ad revenues. I've always been more bullish on Enhanced Campaigns because I believe that they greatly simplfy mobile search for the vast majority of smaller, less sophisticated Google Advertisers. Could more SMBs be killing it with ECs resulting in lower CPC?
- Google is losing advertisers due to EC’s: Perhaps advertisers are so fed up with EC’s that they’re abandoning Google and shifting spend to Bing and other ad venues, resulting in reduced competition in the ad auction. I kind of doubt this.
- Fluctuations in currency: Around half of Google ad dollars come from outside of the USA. The US dollar has been strengthening against other major world currencies in the last quarter.
What are your theories? Let me know in the comments below!
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