Five Reasons Why a Pay Per Click Recession Looms

For the last several years, search engine marketing has been on a tear. While the big advertisers sat on the sidelines in the beginning, they have lately been ramping up their spend on pay-per-click advertising, primarily on search engines but also affiliate sites like those that run Google Adsense.

However, I am calling a top to this market now. Here are five reasons why a pay-per-click advertising recession looms. (If you depend on Adsense for the bulk of your revenue, this applies to you as well.)

1) Clutter
Have you shopped for a car lately? I have. And I did a lot of Google searches in the process but largely ignored the ads. The reason - clutter. Take a look at this search. Ads are stacked on top of each other. There are 10 ads in my browser. Advertising clutter is a known deterrent to advertising effectiveness. TV advertising suffers from clutter and there's no reason why search engines are immune. The New York Times touched on this today.

2) Declining Relevance of Traffic/Transition to Cost Per Action
OK, you have heard this from me twice in a week now so I won't spend a lot of time here. Traffic is becoming irrelevant unless it results in action. There will be some pain as search engine marketing moves to a cost per action model, rather than one based on sometimes irrelevant clicks. This will contribute to a search engine marketing slowdown.

3) Rising Costs
According to a five-year Forrester interactive marketing forecast published last week, costs per keyword rose an average 33% each month in Q1 2007 compared with the same period in 2006. As a result, some marketers are buying lots more Long Tail terms. Further, Forrester says that "many still spend with abandon." The reason is that search outperforms other advertising - but for how long? And again, how do you define perform (see point #2)? The madness will end as soon as the economy tightens.

4) Marketers Spread the Ball Around
Move over search, you're not the only game in town. Marketers are increasingly investing in behavioral targeting, webisodes as well as more social channels like blogs and soc nets studies say. These formats are becoming more targeted and effective too.

5) Search Ads Are Viewed as Untrustworthy
If there's anything that Enron, Bill Bellichick, Marion Jones, Worldcom and Barry Bonds taught us, it's this - trust is king. Google CEO Eric Schmidt knows this - note his comments this week to AdAge. However, according to a study published by Nielsen last week, search engine advertising suffers from low trust.

Now, before all the search consultants flame this post with comments, I believe strongly in the marketing firepower of search engines. It's a terrific venue and one that I regularly advise our clients to invest in.

However, it's impossible to deny that pain is coming. As SEM matures it will move to a new model just as spending on digital marketing overall rises and diversifies. This means the market will recede before it expands. In the long run, that's good for everyone. Just be prepared for what's coming.

Comments

[Jim Turner]

I think you missed a very important one as well with the idea that companies are starting to figure out that the long tail is not served by PPC campaigns. Sure they get the search result, but with the ability to capture organic search it is money better spent.

[allen stern]

One interesting note -today on the new "fox business and sports" network - they talked with Intel who has moved their entire tv budget to online - the "expert" said that most of that will move to search.

[Ed Kohler]

This is a common argument in nay-sayers of Goto.com, then Overture, and now Google's business model. The only thing that people have been wrong about so far is the timeline.

[Daniel Riveong]

Steve,

I fully agree that in any “new hot marketing” technique have its boom and bust cycle and that I think PPC and SEO may go through one sooner rather than later, but I'd to expand some of your points while challenge others.

> On “Clutter”
AdWords is not the only medium suffering from “Ad Fatigue”, as you said. But social media, a medium which is by default more intimate than TV Commercials and AdWords, will probably experience “Ad Fatique” far soon than website banner ads and paid search ads.

> On “Declining Relevance of Traffic/Transition to Cost Per Action”
I definitely agree and infact at my Agency, e-Storm, we've been pushing that model for the past 10 years. But the challenge of Social Media Marketing, Blog Outreach and Widget Marketing is that it is far more difficult to track ROI than a PPC campaign.

Multi-Channel analytics and tools like BuzzLogic are helping, but we have a ways to go as we everyone attempts to establish relevant engagement metrics.

> On “Raising Cost”
Agreed, I think PPC and SEO will no longer be seen as the “magic bullet” nor an “easy thing to do”. Long Tail, Ad Copy, CTR, Conversions – all these things will need to be justified.

> On “Marketers Spread the Ball Around”
“Marketers are increasingly investing in behavioral targeting, webisodes as well as more social channels like blogs and soc nets studies say.”

I definitely agree with this, we've been exploring other channels and opportunties and that's a highly part of exploring new marketing and PR mixes for clients.

> On “Search Ads Are Viewed as Untrustworthy”
I've seen that specific post you mention and what's missing is: 1) Is there an increase or decrease in trust over years and by how much; and 2) How quickly will be annoyed by blogs, webisodes and widgets pushing brands?

[Daniel Riveong]

@Jim Turner:

You mentioned that "long tail is not served by PPC campaigns.

I will have to disagree and that it really depends on the appropriate PPC & SEO mix that's required. Indeed, I've written about it at "UGC and SEO: Going for the Long Tail Keywords?"

Long Tail PPC & Head SEO
If the website does not have the content, and the "head keywords" are too expensive, it would be more practical for SEO to focus on the "Head Keywords" with PPC focuses on the "Long tail keywords".

Head PPC & Long Tail SEO
If the website has plenty of diverse content - especially for UGC - than SEO is probably the way to go. And PPC could focus on "head keywords" (as cost allow).

Of course, these are very general situations and the appropriate SEO&PPC mix is a case-by-case thing.

[hugh]

You are so off its not even worth discussing

[julian]

I totally agree with the article. We did some research over the past 12 months proving that Adwords is no longer effective. Here's two posts that are relevant and a good read for people...


http://julian101.com/2007/10/free-marketing-vs-google-adwords/

and

http://julian101.com/2007/09/google-marketing-pitfalls/


Great post - Julian Stone


www.proworkflow.com

www.julian101.com

[PPCBlogger]

Googles fight against all paid links (that are not PPC of course) might just keep the market booming for a while longer.

[Ben Wilkins]

Pay-Per-Click isn't going anywhere. Granted, it may change dramatically in the near future- in some ways it already has with in-text advertising- but the concept of paying per each click is very smart and effective.

Google is now allowing you to target your PPC campaigns to certain areas. Why should a dentist in Atlanta want to show up on a search nationwide? Why should a home remodeling company based out of Chicago want to show up to someone searching in San Francisco? They shouldn't. Google is aware of this and allows local campaigns. I see those to be far more effective than nationwide, generic PPC campaigns.

Just my two cents.

[LonelyBloggers]

Steve

I gotta disagree on your post here, but it's food for thought with some interesting angles. Definitely some valid points to challenges in the PPC industry right now, but lets give those companies (Google) some credit moving forward.

In saying that however right away ... For me CPC is way too expensive as a small company. I've been using video webisodes for some time now with over 1.5 million views on YouTube along with blogging. Content and brand interaction via video is second to none, much more effective than text advertising links to reach out to people. I'm not sure the average advertiser is going to bolt out to social networks, blogging and video because it's still so early in the game, not sure you will see a pronounced decline as you predict.

One thing that I will say is video advertising is on the verge. CPC revenues will be augmented by rich-media and video ads as the connection to your house gets faster. Video advertising will be essential to Google (with the integration of YouTube) and will be served on a CPM, CPC and CPV basis - With video we will see more of a traditional TV measurement standard as IPTV and video streaming websites compete with your regular TV watching habits. So CPC is much more than text ads in your search results, think about how video content will improve the experience and CPMS involved.

To your points.

1) Clutter
- A mute point. As the PPC companies evolve moving forward, so will their ad relevance as technology improves. AdSense has added a ton of features over the last two years, there's no reason to assume that will change - The smarter the system they build the better results for both publishers and advertisers, never mind increased revenue share back to Google. You are right, there's clutter - but that in itself does not signify a recession.

2) Declining Relevance of Traffic/Transition to Cost Per Action
- CPA has been around for ages, advertisers love it because it obviously it beats CPM or CPC traffic with a direct response. Tough to convert, premium CPA prices will mean the majority of the market will stay with CPC - The number of companies using the internet to market their services continue to grow, broadband is booming and CPC is the easist to do/understand. No way this trend declines significantly in the short-term.

3) Rising Costs
- Definitely an issue, but again still the easiest to do for the average internet marketer. Let's hope better competition from Yahoo and Microsoft start to compete for those Google Adsense dollars and keep prices in check.

4) Marketers Spread the Ball Around
- That is true, but the overall market for online advertising continues to grow as well. Most companies have no idea how to market this way, no clear market leaders at this time beyond going to the large social networks. CPC is easy and will be at least part of the marketing mix almost always, even if on a smaller scale.

5) Search Ads Are Viewed as Untrustworthy
- People start getting immune to seeing especially Google ads everywhere and simply start to ignore them, but I'm not sure I would go as far to say that people don't trust the ads. You usually trust the source of the ad (Google), rather than the destination site itself. You are esentially saying that people don't trust Google! (which is not true - but may be over time the way things are going at Google).. Let's hope that relevance and display options (like video ads etc) will clean this up.

So better technology, increased competition from Microsoft and Yahoo, rich-media ads such as video advertising and a continued growing shift for companies using the internet as a channel to do business (especially SOHO, small businesses) will continue to see the CPC industry grow in the future.

Great post though and I hope to see you keep posting more actively.

[Erica Forrette]

I also don't think PPC is going to go into a recession; as was noted, local search and other forms of targeting will continue to make it a viable medium for smaller businesses to get customers. Also, more is being learned about clicks on (or even impressions of) search ads being "assists" to a conversion action taken on a web site further down the line. As more sophisticated analytics tools which allow marketers to view the contribution of search to conversion actions (perhaps at the expense of consumer privacy, but that's a whole 'nother can of worms), I'm betting marketers will still find a way to justify spending on PPC marketing campaigns. Finally, with the help of campaign analysis & management tools (ahem, like ours), companies are getting savvier on determining just how much to spend on given terms based on their success at producing conversions. So they might not necessarily spend less, rather hopefully a little more wisely - putting more investment into the terms that are producing for them and less where they aren't.

[atlanta SEO]

It makes you wonder why more online businesses are not concentrating on organic SEO techniques that could deliver free searches to them.

[Chris Wexler]

PPC is benefiting from incomplete reporting methodology on what actually drives someone to SEM in the first place. They get the "last click" bump in a marketer's ROI analysis.

We know that a TV ad will drive some people to do research, the same with a print ad, or an article inspired by your PR firm. And as search engines become the first stop in most research by consumers, SEM gets credit for ALL that incremental traffic & eventual sales to the site.

DoubleClick and Atlas are starting to look at a fuller path analysis, but only incorporating the online space. So a user sees three banners, then searches. This is a step. But as more advertising will have digital distribution (the merger of the internet and broadcast is closer than you think) marketers will start seeing a fuller picture of actual results.

This new data will only hurt the value equation for SEM in the eyes of marketers. That said, SEM is not going away, but it will change, and we may be closing in on the peak revenues for SEM (1 to 3 years, unless Google figures out how to better tap into the huge base of Yellow Page-type advertisers in local markets that don't currently have a web presence...). Why else would Google be moving into "Old" media like TV and radio? They see this weakness in their current business model and are trying to stay ahead of the curve.