Advertisers are doing the smart thing by lowering their bids on Internet search keywords, Google CEO Eric Schmidt said in a conference call with analysts yesterday, after reporting that Google’s first quarter revenue declined 3% from the fourth quarter.
“Advertisers are still spending, but they’re lowering their bids to manage their ROI, behaving correctly in our view,” Schmidt said, according to a transcript of the conference call provided by Seeking Alpha. “Our advertising model is working to deliver great value.”
Google said revenue increased 6% to $5.51 billion for the first quarter ended March 31, up from $5.19 billion in the year-ago quarter. But this amounted to a 3% drop from Q4 2008, marking the first time since the company went public five years ago that it reported a decline in consecutive quarters.
Several developments appear to be impacting search marketing strategies and keyword bid prices, experts say. In general, many online shoppers appear to be searching longer online before making purchase decisions, causing conversion rates on paid search ads to drop, says Kevin Lee, chairman and CEO of search marketing firm Didit. “If conversion rates drop, advertisers often drop bid prices to maintain their advertising ROI,” he says.
At the same time, however, Google has been adjusting its search policies in multiple ways that can affect how advertisers bid on keywords, Lee and others say.
Rich Stokes, founder and chief executive of AdGooroo, a provider of market data on Internet search, says Google has expanded the number of paid ads per first landing page in search queries to an average of about 5.5, up from about 3.06 six months ago. While that can increase the overall number of clicks on paid search ads to increase Google’s revenue, it can also lead to a decrease in revenue if searchers click more on the lower-priced ads toward the bottom of each page of ads, Stokes says.
Stokes figures that Google probably has a sweet spot of about 4.5 paid search ads on the first page of search results.
Google had reduced the number of paid ads per page to 3.06 last year after purging its system of less-relevant paid ads, and since last September has been building that number up again from, theoretically, a universe of more relevant ads, Stokes adds. “But they may have gone too far,” he says. Showing more than five paid search ads per page, he notes, results in fewer clicks per ad and less overall revenue as more clicks go to ads with the lowest bids.
Google has also been seeking ways to increase opportunities for advertisers to place search ads and earn better returns. For example, Lee says, it has been placing more paid search ads in new venues, including on pages within Google’s web sites that feature images and news content.
Google has also been developing more advertiser tools to improve conversions and cost-efficiency, the company says. “One example is the conversion optimizer that automates the bid part of the process,” Jonathan Rosenberg, senior vice president, product management, said on the conference call with analysts. “For advertisers who have adopted this tool, their cost per action is down 14% while conversions are up 21%.”
Paid search revenue on Google-owned sites generated Q1 revenue of $3.70 billion. This represents a 9% increase over first quarter 2008 revenue of $3.40 billion and a 3% decrease from fourth quarter 2008 revenue of $3.81 billion, the company says.
Google’s aggregate number of paid clicks, which include clicks related to ads served on Google sites and the sites of partners in its AdSense program, increased approximately 17% over the first quarter of 2008 and about 3% over the fourth quarter of 2008, the company said.
Google led the U.S. core search engine market in March with 63.7% of searches, followed by Yahoo, 20.5%, Microsoft Sites, 8.3%, Ask Network, 3.8%, and AOL, 3.7%, according to comScore Networks Inc.
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