It’s just my opinion, of course. But one shared by a growing number of Internet marketers. Yes. Google is getting too powerful.
I don’t bash Google in this way because they have built a successful search engine. That wouldn’t be fair. Any business that can offer a superior service must be applauded. Google has built its nearly 80% share of the search market because they have a very good search engine. Others might eventually be able to build a better one, but no one has yet.
But, it seems to me that Google is being “hoggish” with Internet advertising revenues. Their overtures to Yahoo are just the most recent example. As many of you know, Yahoo already has its own platform for delivering pay-per-click advertising. Google and Yahoo are now trying to get permission from the US Justice Dept. to combine their ad delivery services so that Yahoo’s customers would choose whether they want to use Google’s or Yahoo’s platform for delivering ads on Yahoo’s search network. If approved, this will almost certainly further consolidate Google’s dominance of the pay-per-click market.
But, that is not my only complaint about Google advertising. In my view, Google has set up an environment for pay-per-click advertising that takes advantage of the naiveté of many small business owners.
Google has always encouraged small businesses to create and manage their own pay-per-click campaigns. I believe that this has also encouraged inflation of the bids for ad placement.
Let me give you an example of why I say this. I recently did some research for an AdWords campaign for a client. He was selling an item that retailed for $50. The profit margin was about 50% or $25.00. In the case of this product, I would guess that no distributor would be able to net more than $25.00 on a sale. (There are some products that have widely varying prices, so the profit would also vary greatly.)
When I set up a campaign for a client, the first thing I try to determine is the top bid we could make that would be profitable. Normally I assume that if the ad text is appropriately targeted (so we don’t get a lot of unqualified leads) and the landing page is sales-worthy, we should be able to make a sale to between 8% and 10% of the people clicking thru to the site. In the example above, then, we will need between 10 and 13 visitors to make a sale. We need to make a profit and allow some room for variation on this assumption, too. So, I would say that we should be bidding no more than $1.50 per click. At that rate, we may be able to net between $2.50 and $10 on the sale. (Remember, with these assumptions, we lose money if it takes 17 visitors to make a sale.)
So, where did the actual existing bids for this keyword phrase sit at Google? My research indicated that good positions were paying between $1.33 and $1.97 per click. How could the seller make money with a $1.97 bid? I don’t think they could.
A seller with a low-priced product might be able to get a higher sales ratio. But, they’d also have a smaller profit margin to work with.
So, what’s the explanation? Naivete. Many small businesses will not realize that a click-thru does not represent a sale. Eventually, they will figure out that they aren’t making money on these ads. But, until they do, their bids will inflate the bids for everyone else.
And that’s not the only way that bids get inflated. People bid on crazy words. I once saw a Google AdWords account that was bidding on the word “new.” Not “new camera” or “new computer” or “new car.” Just “new.” That means that anytime someone searched for a “new” anything, their ad would be displayed. Assuming that the profit margins for some new items would be much higher than for others, you can see how a bid like that could inflate the bids for many search phrases.
If you have an AdWords campaign that is not working for you--or you'd like to try AdWords, give me a call at either 720-341-6336 in Denver or 210-392-5649 in San Antonio. Or email me. I can help you steer clear of the beginner mistakes and make AdWords a profitable medium for your business.