News Flash: Google AdWords CPC Down by 6% Year-Over-Year in Q2 2013 - Here's Why!


Why are AdWords CPC's Down?

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!

MORE: How Much Do Google Ads Cost?

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:

  1. 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.
  2. 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.
  3. 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?
  4. 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.
  5. 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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Lisa Sanner
Jul 18, 2013

I guess what I'm scratching my head about is the YoY changes in clicks by device type (assuming growth from mobile, which are much cheaper), clicks from PLAs, and clicks from search vs. content (especially influence of retargeting products).  For example.  if mobile/PLA/GDN clicks are growing at a faster rate than traditional desktop search clicks, and they are *currently* a lot cheaper, this brings the overall averages down, and would be a major reason why overall cpc's are down YoY.Let's face it, not all clicks are created equal.  Perhaps the more important question is how average conversion rates have changed YoY as well and whether these cheaper clicks are reduced quality.  I'm a big believer in "You get what you pay for" but optimize towards ROI and love finding "bargains. :) 

Larry Kim
Jul 18, 2013

Interesting theory, lisa. I'm seeing huge improvements in the majority of my accounts (those that previously didn't have mobile strategies - which was like 96% of all clients) - do you think it's possible that maybe CPCs are down because they work better? (I know - what a shocking/crazy idea!)

Rick Noel
Jul 18, 2013

Nice piece Larry. I think it is mostly due to #2. The fact that the aggregate clicks where up 23% over Q2 2012, it stands to reason that more not less advertisers are discovering the value of advertising on Google, so I agree with you that #4 is not likely. SEO purists dismiss Google paid search options and display, but nearly all savvy brands use Google search and to a lessor extent, display. Now with Mobile options, Google Enhanced Campaigns seem like a no-brainner. PLAs could be driving clicks. It would be interesting to see how the 23% breaks out amongst search (mobile vs non mobile) display and PLAs. Thanks for posting to Internet marketing community and sharing your insights. I would not have thought of currecy fluctuations, but as so much of Google revenue is from outside of the US, #5 is likely a contributor as well. Thanks for sharing.

Olaf Pijl
Jul 19, 2013

I see similar results as suggested under theory 3. I think the following relates to many accounts:

  1. Campaigns get more relevant due to increased opportunities
  2. CTR goes up
  3. Budgets are depleted quicker, but stay fixed. 
  4. PPC pro's adjust target CPA or CPC to make the most of the available budget
  5. Average CPC goes down
  6. Competition for other campaigns go down
  7. CPC for other campaigns decreases as well
Also, I see that businesses get more AdWords savvy. More of them hire professionals, with better budget management as a result. I see less and less fire-and-forget campaigns pop up, with way to high max CPC's.

Luke Alley
Jul 19, 2013

Very insightful article Larry. I appreciate the counter argument to what the majority of advertisers are saying/preaching.Maybe I'm interpreting the data incorrectly but it seems that CPC could be down YoY, as Google's data is showing for Q2 2012 vs Q2 2013, yet still Enhanced Campaigns is inflating CPCs when you look at the data Quarter over Quarter (QoQ). This scenario may be correct with a significant drop in CPC in Q3 and Q4 2012, then an increase in CPC over Q1 and Q2 2013, because of Enhanced Campaigns. CPC would still be down YoY, but up QoQ still lending to the fact that ECs are increasing CPC. Thoughts?

Larry Kim
Jul 19, 2013

CPCs were down from Q1 2013. By 2% i believe.

Luke Alley
Jul 19, 2013

You're right. I looked at the data wrong. Thanks for clarifying.In my opinion this lends to theory #2 that increasing mobile and tablet volume is driving down CPC, given that we are all being forced into opting in those devices.

John H
Jul 20, 2013

It’s my secluded perception that it's normal that the Average CPC to decrease while the number of clicks areupsurging faster than the conversion values.Comment on #2As the cost of paid software upgrades are increasing exponentially in the recent times, it is for sure that PC will soonbe antiquated. Giant in the field like IBM & YAHOO are competing to win the cash game evolved because of PCdiminishing revolution. It is inexplicable that tablet legitimating is not proving as efficacious for Google even withthe rise in CPC described in the Adobe report brining them closer to desktop CPC rates.Thanks for sharing.Kudos!!!

Randall Magwood
Jul 20, 2013

Hey Larry,I know you doubt Google is losing advertisers due to enhanced campaigns, but it was one of the final determining factors for me to dramatically cut back on Adwords, and move on to platforms to Bing Ads. They take care of their customers (and the "little guy") than Adwords does. (my opinion though).

Jul 21, 2013

ADS are becoming too intrusive...taking over my browser...I have swtiched to duckduckgo

Jul 22, 2013

Hi Larry,The main reason Google AdWords are dropping is due to more and more people being aware of Facebook Marketing. Facebook has so much data about their users it allows them to deliver Ads that are 100% relevant to their interest, age, location, employment.... this list is endless. Google does not have this user data.The tried, and failed miserably, to gain this user data with Google+. The only people i know that use Google+ is businesses and only because Google rewards websites that use their product!AdWords will continue to drop in sales unless they seriously revise their pricing to be somewhere near Facebook Marketing.Thanks Larry. Kev Massey from SixtyMarketing.

Richard A. Lewis
Jul 22, 2013

I agree it is most likely #2 that clicks are being shifted towards mobile devices which has a lower CPC. I'd also go as far as to say that campaigns set up for desktop only systems in the past are not as well targeted as the newer savvier professionals who setup campaigns for multiple devices. This trend could continue where Google CPC's decline but there revenue actually increases due to more devices displaying their ads. Really good article.

Jul 24, 2013

I think Olaf in the fourth post hit the nail on the head. Advertisers are getting better. Or they hire experts to do the job. As an account manager, I see more and more requests for PPC services and I am busier than ever. It may not account for the whole 6% but could go a long way.>> Aggregate paid clicks ... increased approximately 23%This is either the system getting better at serving ads or the system having better ads to serve (that is, advertisers doing a better job). I don't see this as searchers and surfers increasing their click rate.Point #5 about currency fluctuations: It would be best to compare country by country, which is probably what they did.

Peder Enhorning
Aug 23, 2013

We have also seen a drop in performance of AdWords. Costs keep creeping up without offsetting return. We found that studying costs and identifying what works and what doesnt was increasingly difficult so we created these dashboard using Tableau. They really helps us to visualize what's happening and drives better results.

Aug 27, 2013

I believe that the costs are coming down because marketing is moving to new platforms, such as facebook, linkedin, xing etc. Typically, companies have a fixed budget for online marketing. If companies are focussing on improving the content of their companies social websites, there is less money left to spend on Google adwords.

Tara Dee West
Jan 02, 2014

Great insights! Do you know if there was any data released for the rest of last year? I would be curious to see if the automatic roll-out deadline for Enhanced campaigns had an impact on CPCs as those who didn't optimise for lower mobile CPCs will have high mobile CPC bids and possibly drive up mobile CPCs overall, which could see overall CPCs increase too.

Larry Kim
Jan 02, 2014

Q4 2013 numbers are due out late this month. Q3 2013 continued to trend downwards - nearly down 9% year to date. I wrote it up here:

Todd Kron
Sep 10, 2014

WHile each could have some effect, #2 seems like such an obvious factor that I am surprised they even blended the two of them in their research. Mobile has a much lower CPC as many people avoid it. It is not something My main client wants since a conversion for them requires documents and other items a mobil user wont have handy. The sharp rise in cheaper mobile impressions and clicks is clearly going to skew this study. Making it hard to know if any of the others are actually factors. Cant have 2 moving variables when trying to pin point a cause.

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