Right now, Google is in a bit of a tight spot now that their earnings have been leaked and their stocks are down almost 10%. The major cause of the slowdown was a decrease in their core business, pay per click, which has decreased in profitability compared to the same quarter from the previous year. Specifically, while the number of people clicking on ads has increased, the cost per click has decreased. The article goes on to state that PPC revenue has been down the last four quarters and that some are already questioning just how strong PPC is as a business model.
While I do think it’s a bit premature to question a whole way of doing business based on a single report, it does raise a few questions. After all, it’s a well-known fact that Facebook’s PPC is not the money-maker online marketing firms would like it to be, but this is Google, one of the mainstays of the Internet that looked as though it could make money any way it wanted to (Google+ notwithstanding).
So, why is PPC doing poorly for Google? I think PPC is doing poorly for Google because having ads goes against everything that Google is supposed to be, and people are wising up to the fact.
Google managed to claw its way to the top of the search engine pyramid because it wasn’t loaded with all the spam that other search engines at the time had. With each successive Google algorithm update, Google is supposed to weed out more and more companies that are getting there by SEO (that is, paying somebody else to make them appear first unnaturally). The irony, of course, is that PPC ads do exactly that.
In other words, when people are doing Google searches, they’re seeing a lot of pages that really shouldn’t be there if it wasn’t for people paying for it. And, what do they do when they click on these pages? The average Google user has become so sophisticated that they immediately leave, making that a wasted click from an advertiser’s point of view. And the advertisers, being smart, are pulling away from PPC, since it isn’t making them the money they want it to.
The numbers demonstrate this clearly; a decrease in CPC means that there are fewer people bidding on ads. Therefore, companies are starting to question whether PPC is an effective way to advertise.
Is this a trend that will continue? Only time will tell. But, for the time being, it looks like Google is going to have to think of something new.