Robert Scoble posted today about his observation about Google putting fewer ads on their search results, and how a Google employee confirmed this and said internal research showed that in the short term this costs them revenue, but in the long term it helps revenue because users trust the ads more and it leads to more clicks and buying behavior.
First, I think we have to ask if we believe this is true. I’d guess that Google would not make such a move without being very confident that it was going to eventually lead to more revenue. As a public company, it’s even risky to hurt short term results in this manner, so I’m betting it doesn’t even hurt their short term revenue results that much.
Scoble then theorizes that the purpose of this is also related to their Pay-Per-Action program:
Anyway, Google is doing that to make way for its new “pay per action†advertising type (announced yesterday). This is brilliant. Advertisers are going to LOVE this. Imagine I ran a print shop, like PrintingForLess. Now I could tie my advertising onto actually getting a sale, or getting a good lead. You see why Google needed more relevant advertising before turning this on. They want only potential buyers to see an ad. Anything else is noise. Noise reduces buying behavior.
Well, something doesn’t jive here because according to Google the Pay-Per-Action ads are only going to appear on their Adsense content network:
Pay-per-action ads are eligible to appear on publisher sites in the Google content network, and publishers can choose specific pay-per-action ads that are relevant to their site to run in new ad units that they create.
So, for at least right now, Google is not putting PPA ads in their search results, which is the area that Scoble is talking about. So either Scoble is incorrect in his theory, or his Google contact gave him information that points to it being likely that PPA ads will be showing up on Google search results soon.
It sounds to me like this is just the Google quality score kicking in.
Advertisers who want even more traffic than their targeted keyphrases can deliver (or they can’t bid on because its out of their budget) go after huge groups of keywords which may be related to their business, but not precisely to what they are advertising. Its kind of a cross-your-fingers and wish method.
Also, arbitragers buy cheap clicks and send them elsewhere, like higher paying PPC ads. If you buy the click cheap enough its hard *not* to make money.
Now Google’s quality score just pushes up minimum bids pushing out guys who don’t want to only pay 5 cents a click instead of 50 cents or a dollar. Google’s revenue isn’t hurt because this quality score also pushes up the minimum bids of advertisers in non-competative keywords.
So now you see less ads, but the ads you are seeing there are being forced to pay more per click.