Google’s Paid Clicks Rise, Average CPC Drops

The number of paid clicks is way up, but the cost-per-click is down, according to the third-quarter financial report released last week by Google.

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The search engine giant said that aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 33% over the third quarter of 2011 and increased approximately 6% over the second quarter of 2012.

But Google added that the average CPC, which includes clicks related to ads served on Google sites and the sites of its network members, decreased approximately 15% over the third quarter of 2011 and decreased approximately 3% over the second quarter of 2012.

Why has the cost-per-click dropped, and what does this mean for merchants as the fourth-quarter kicks into high gear?

Andy Dunn, vice president of marketing for CommerceV3 and Timberline Interactive, said he thinks the reason clicks are up and the cost per click is down reflects the uptick in mobile usage.

“Compared to last year we have seen mobile usage on our websites has increased by over 100%,” Dunn said in an email. “However the conversion rate on a mobile device is typically less than half of what it is on a tablet or computer. If we try and maintain the same ROI across all devices we are forced to bid considerably lower on our CPC ads.”

And Dunn said that’s good news for retailers – he expects Christmas to trend in a similar fashion.

Aaron Goldman, CMO at digital software marketer Kenshoo, said in an email that mobile devices now account for 21% of all clicks, but less than 10% of all conversions. As a result, CPC rates for mobile ads are about half that of computers.

“We anticipate mobile CPC closing the gap over time though as advertisers give more credit to various devices for their roles in driving traffic in-store and converting sales at shelf, not to mention app downloads which have become a core part of brand engagement and CRM,” Goldman said.

As more long tail advertisers get active on Google, they’re not sure how to put value on clicks. And as a result, advertisers bid lower, Goldman said.

“More sophisticated advertisers are able to track and assign value from multiple conversion types and, thus, can afford to bid higher,” Goldman said.

Goldman said Kenshoo’s client base has not seen as drastic changes in CPC. For the third quarter, Kenshoo saw Google CPC drop just 8% year over year and actually rise 4% sequentially quarter over quarter.

Goldman said Kenshoo is expecting CPC for bigger advertisers to rise in the fourth quarter as competition in the bid auctions heat up and margin requirements are relaxed in the name of volume. For retailers, Product Listing Ads will also be a source of increased costs with the transition for Google Shopping taking hold.

“From the results we’ve seen for our clients, PLA strongly outperform standard text search ads and we’re calibrating custom bid policies for PLA,” Goldman said.

Michael Briggs, president of digital marketing agency Website Publicity, said in an email that there is a lot at play in this stat, because of the huge mix of types of clicks that can be counted in it.

But Briggs suspects that Google’s recent push to get more advertisers into their display offerings, especially remarketing, led to both the rise in clicks and the drop in CPC.

“The display network has so much more inventory it represents a lot more click opportunity, but the lower return means most advertisers are less willing to pay premium CPC’s and bid accordingly,” Briggs said.

What about the fourth quarter? Briggs said he expects it to be based on the source. For example, CPC on the actual search pages typically inflate a bit over the end of the fourth quarter as shoppers get serious and advertisers quickly adjust bids based on improved returns.

Briggs added that remarketing may also see a temporary boost as audiences built by advertisers grow and the value of getting these visitors to return to our sites is also more valuable.

“But the display network is less affected by seasonal swings, and Google Shopping PPC is the unknown force now,” Briggs said. “But odds are it will put pressure on marketers to increase their holiday budgets as previously free clicks go to fee clicks, and we may see an increase to campaign average CPC as well.”