Bidding systems such as Google Adwords have become a major tool for companies’ online marketing strategies and a large proportion regard it as ‘a necessary evil’ in order to attract traffic in an increasingly competitive marketplace. 2013 saw the roll out of many major updates not only for Google’s search algorithm but for Adwords too, and what we aim to do here is analyse the impact of those updates on the companies competing for the most lucrative position on the search results page.
Many believe that the various updates in 2013 were a ploy by Google to discourage advertisers from working on their SEO efforts and therefore allocate more budgets into Adwords. With many sceptics crying ‘SEO is dead’, they were of the opinion that companies had no choice but to opt into Google’s paid advertisement system. Others argue that since the updates, cost per clicks (CPCs) have risen to an all-time high which will drive SMEs out of the market. Evidently, there are various schools of thought on this topic but the reality is that, with Google the overwhelming market leader, there are few direct alternatives.
Firstly, a brief history of Adwords and some of the significant changes that have taken place the past year. From that, we can review the impact of the recent Adwords updates on advertisers and searchers with some views on whether the updates are pushing advertisers away from using Adwords towards Bing and other paid search providers.
When Google Adwords was born in October 2000, the programme launched with 350 customers, allowing anyone to buy ads on a cost-per-impression basis. (It wasn’t until 2002 that Google rolled out the cost-per-click pricing option). Google doesn’t provide figures on how many customers they have on Adwords, but at its peak, it was reported that 3,000 accounts a day were being opened in the UK alone and is still growing 10-15% each year. To date, it represents Google’s biggest revenue stream with ‘reported consolidated revenues of $14.89 billion for the quarter ended September 30 2013 – an increase of 12%, compared to the third quarter of 2012.’ As Google’s algorithms became more sophisticated, 2003 saw the acquisition of AdSense, a content targeted network enabling publishers, large and small, access to Google’s vast network of advertisers. With AdSense, ads could now be contextually targeted to what someone was reading and meant that ads no longer had to be restricted by a user’s search phrase. 2006 onwards saw Google grow dramatically with the acquisition of YouTube and ad management agency DoubleClick in 2008. 2013 saw the implementation of thousands of new updates to Adwords, with only a few major updates actually being publically reported. Google continues to grow at an expeditious rate and no longer depends purely on advertising as a source of revenue. ‘Advertising used to regularly account for more than 96% of Google’s total sales, but that has been slipping over the last year and in the latest period it’s down to 91% or $12.5 billion of Google’s $13.8 billion revenue, which was up 19% year-over-year.’ This does not mean Google is diminishing in prominence from the search market; Google is now seeking revenue from other non-ad areas to ensure a plurality of streams in our ever-growing digital era. This isn’t surprising as Google is continuing to develop new innovative ways to shape our digital future. New ventures from Google that we have recently seen include hardware such as the Chromebook and application purchases through Google Play, not forgetting other non-ad ventures in the pipeline for Google including Google Glass and self-driving cars which should see further development in 2014.
Focusing our analysis specifically on 2013, Google HQ and search marketers had a very busy year updating campaigns to align them with some of the most notable and important Google updates in its history. Many changes were made, varying in level of importance, with the most notable being the development of enhanced campaigns, product listing ads and the change to the Ad Rank formula.
The enhanced campaign update allows companies to adapt their campaigns for ‘the multi-screen world’ and allows users to alter bids by device, for example, increasing your bids for mobiles if more of your traffic is received from mobile devices. We found that many companies utilising Adwords were unaware of the enhanced campaign update and only questioned that something wasn’t quite right when they felt a rise in CPC. Therefore, the question begs, did CPCs rise in 2013 and if they did was this a ploy by Google to increase revenue? Some counter that the increase in CPC is down to the constant increase in competition. Naturally, as competition increases, CPCs rise in response and knock out advertisers who can’t afford to compete as there are only a finite number of keywords and there are so many new advertisers signing up to Adwords daily. With the Penguin and Panda updates in 2013, many businesses found their organic rankings tumbling and, in a flight to safety, had no other option but to use Adwords to maintain necessary traffic. This would support the argument that CPCs increased due to increased competition.
Others saw a decrease in CPCs in 2013, and reported this mainly from the use of Product Listing Ads (PLAs). Although PLAs were first introduced in 2012, 2013 has seen more advertisers utilise these ads. With a PLA, a user is provided with an image of what the product looks like (along with price, brief product description and reviews) before even making the decision to click on the ad. Therefore, the user has the opportunity to make an informed decision of whether they are going to convert before they click on the ad, making them more conversion-rich than standard text ads. The reason for lower CPCs through PLAs is that competition (at present) is low, mainly because setting up a shopping feed is a time consuming process and many simply do not know how to create a suitable feed. Although companies utilising PLAs in 2013 have been lucky with lower CPCs, we can only predict that increased competition in 2014 will see a rise in CPC costs.
The most notable update this year was regarding the Ad Rank calculation. Previously, Ad Rank was calculated based upon your max CPC bid and your quality score. With the update in October 2013, the expected impact of your ad extensions and formats, along with your max CPC bid and quality score now combine to calculate Ad Rank. With ad extensions, it is simple – the better your ad looks, the more likely someone will click on the ad and convert. A paid advert offers the user more engagement options and ultimately provides the advertiser with a higher probability of conversion as the listing is more attractive on the results page than organic listings. Google have continued to update extensions in the US in 2013; 2014 should see the roll out of further image and video advert extensions coming to the UK.
Many have argued that with ads becoming more prominent, and with hardly any organic search results showing above the fold, this will deter people from searching organically. On the other hand, it has been argued that with ads becoming more obvious, this will deter people from clicking on ads and push people to click organically and scroll further down the results page. In November 2013, a yellow ad icon started appearing next to some search results, denoting a paid advert which suggests an attempt by Google to please the Federal Trade Commission (FTC). Google was recently warned by the FTC about merging ads with organic searches as ‘failing to clearly and prominently distinguish advertising from natural search results could be a deceptive practice.’ The yellow ad icon hasn’t been fully rolled out in the UK and only time will tell if the implementation of the yellow ad icon will deter users and drive an improvement in organic engagement. Searchers want to be able to find relevant information and find it fast; having different ways in which to engage with an advert, whether that is with an offer, location or call to action, a paid advert certainly looks more appealing to a potential customer.
What is clear from these various updates is that many have struggled to keep up with Google’s best practice and have therefore seen the quality score of their account decline, resulting with a higher CPC as a consequence. If your account conforms to best practice, Google will reward you with a lower CPC; if not, you will struggle to compete and pay more, making a campaign increasing unprofitable. Adwords is an extremely complex bidding system especially for users who are not familiar with how it works. Have these updates deterred advertisers from using Google’s Adwords system?
‘I’ll Google it’ – a phrase the majority of us exclaim when we want to find information and find it quickly. There is no doubt that Google is the giant in the search industry and it will take something radical for Bing and other paid advertising providers to overtake Google’s share of the market, which hovered around 67% globally in 2013. Recent reports have shown that Google’s share of the market is declining, with Bing stepping up their game, most notably with their ‘Bing It On’ campaign and also rolling out various updates to their ad platform to make it more competitive with Adwords. This is bearing fruit in their percentage share in the market, with a high of 18% in October 2013. What is evident is that there is a market for Bing and other paid search providers and advertisers should be testing their advertising programme as there is undoubtedly plenty of low-hanging fruit for the picking! However, with Google dominating the market with nearly three-quarters of advertisers spending the majority of their marketing budgets on Adwords, it is clear that no matter what update Google rolls out, most companies are continuing to conform in order to win Google’s lucrative searchers.
No matter what updates Google continues to roll out, as long as searchers continue to use it, advertisers will continue to use Adwords. With Google maintaining their position as the Search Giant, it is vital to maintain your position both organically and through paid search. In 2014 we will see further updates to Adwords, nothing as radical as 2013, but we predict ads taking over more of the front page with one or no organic listings showing above the fold. In 2014 we will also see brand adverts becoming more prominent and further options to engage with ads by videos and images. There is no doubt that the functionality of Adwords has dramatically changed over the past year, helping advertisers end goal of attracting more traffic and turning that traffic into profit. Although there is data to suggest that CPCs increased in 2013, this is commonplace in a competitive marketplace with many changes to adapt to. Ultimately, Google want to keep advertisers investing with Adwords and will therefore roll out various ways to make ads more lucrative, whilst maximising it profit without alienating its market. Whether your CPCs have increased or decreased with some of the major changes this past year, let’s face it; it will not stop you from advertising on Google.