Google’s ‘Dirty Little Secret’: AdWords Inflation
From OMMA to Advertising Week and from Future of Business Media to Ad-Tech, one message was a recurring theme during the Fall conference season that is winding down in the New Media Capital of the World: Beware Google!
While tradtional Google “bashing” was alive and well–the YouTube copyright infingement plague and the spectre of agency turf wars–the mighty Googleplex also came under fire for a scourge that I have been underscoring since August 2006 when I warned Eric Schmidt directly about the nefarious impact of AdWords inflation on the seemingly unstoppable GOOG cash machine.
During a press Q & A at the 2006 SES San Jose, I suggested to the Google CEO that his belief in advertisers’ willingness to continuously bid up the prices they pay for participation in AdWords might soon be tested. I pointed out to Schmidt that the Google auction model is contrary to the manner by which advertisers traditionally purchase advertising.
I noted that while typical advertiser behavior is to negotiate a rate card down, Google’s opaque advertising purchase system, however, results in advertisers willingly raising their own cost of advertising.
I asked Schmidt if he was concerned that there might not come a day when advertisers object that Google’s out-sized gross margins are achieved at the advertisers’ expense and, subsequently, decide to revert to advertising purchase behavior more aligned with their own interests, that is to bid down prices to achieve higher ROI.
Schmidt responded, categorically, NO.
Despite Schmidt (and Google team) repeated public assertions that there is no theoretical ceiling to GOOG monetization of AdWords, the market knows otherwise.
Just two months after my exchange with the Google CEO, I heard one of the biggest buyers of AdWords, the Chief Marketintg Officer of Travelocity, make an impassioned public plea at Shop.org for fellow search advertisers to reject a Google pitch for continually spending more on paid search, regardless of supposed “self-funding” portfolio theories.
Jeff Glueck lamented that Google has become a “toll keeper” on companies’ brand names and likened search engines to gambling houses enticing customers to ”leave profits at the casinos.”
Glueck explained how Travelocity was increasingly experiencing “falling ROI in search on generic terms and its margins” and was subsequently shifting money back into traditonal channels such as television and print.
Now, one year later, the falling ROI on Google spends is deemed to be a “dirty little secret” that “no one wants to talk about.” So expressed Ted Smith, the CEO of Reed Business Information, during a “Future of Business Media” panel on “Advertising: Where Should the Money Go?”
“As keyword prices go up, ROI is plummeting,” Smith decried.
Rob Norman, CEO for GroupM, lambasted the very notion of supposedly democratic auction-based ad sales:
Just becasue you pay more for something than anyone else, doesn’t mean you are smarter than them. No one is clamoring for auctions…P & G likes an unlevel playing field.
The ROI-busting impact of rising CPC prices for Google AdWords was also confrimed during the Ad-Tech conference.
Progressive Insurance Company marketer Pawan Divakarla explained how he uses AdWords to drive online searchers for insurance to the Progressive network of offline independent agents, at a cost of about $15 per cliick for generic and/or localized terms such as “cheap insurance Miami.”
As Progressive agressively buys popular, high-priced keywords, I asked Divakarla his strategy for mananging under decreasing ROI scenarios, given increasing CPC rates. Divakarla concurred that “it is hard” dealing with the ever-increasing cost of targeted Google keywords. Similar to Travelocity, Progressive also seeks to optimize its marketing spend with more ROI favorable products.
Google beware! Mounting unrest over mounting AdWords CPCs puts GOOG at risk.
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