Alphabet Inc. today reports that Google’s advertising revenue rose 19.5% in the second quarter.
Google tests a cost-per-thousand approach
Not known for standing pat once it holds a winning hand, Google Inc., the dominant seller of pay-per-click ad space, announced in April that it is pushing into the impression-based ad arena, with a beta test of pricing based on a cost-per-thousand-impressions model. If successful, Google, which is constantly tweaking its business model to boost revenues, can potentially tap into billions of new ad dollars.
The primary target is deep-pocketed advertisers focused more on brand-building campaigns than on direct sales. These companies create ads that push consumers to buy their products, but they are not direct response ads that pull shoppers to web sites. Until now, Google has not had a CPM product, leaving CPM advertisers who wanted to advertise at a web portal primarily at Yahoo and MSN.
The twist that Google brings to the CPM model is that advertisers bid on the amount they are willing to pay for 1,000 impressions, rather than having the web sites set the per-thousand ad rate, as they traditionally have done.
The ads will appear on content pages of network partner web sites. Network partners include such sites as About.com or newspaper sites. Cost-per-click and cost-per-thousand-impressions ads will compete head-to-head in a dynamic auction environment. Should a CPC advertiser prevail at auction, the CPM advertisers fall out of the ad mix and only CPC ads appear on the network site. Should a CPM advertiser prevail at auction, only it will be displayed.
CPM advertisers will bid based on the number of visitors to the content partner’s site they select. To help CPM advertisers identify potential sites to display their ads, Google is providing a site selection tool. CPM advertisers can enter the URL or a descriptive term about the desired site into the site selection application and Google will generate a list of sites relevant to the advertiser’s specifications.
Before this, advertisers could purchase ad space on Google’s content network and had no control over which sites within the network displayed their ad. Google will continue to offer this option to advertisers. Google is testing the CPM concept with a handful of unidentified companies and says it intends to roll out the program within a few months.
Some potential advertisers are already warming to the idea of auction pricing for CPM ads and the opportunity to be more creative with their banner ads, as Google will allow graphics and animation in CPM ads. “This is another way for us to take advantage of cobranding opportunities,” says Paul O’Brien, interactive marketing manager for HPshopping.com.
One product which might be suited for such an ad strategy is HP’s Photosmart digital camera featuring a design by pop singer Gwen Stefani, which was released last month. “We can create ads that appeal to people with an affinity to the cobranding partner, showcase the product, and target the best site to place the ad,” O’Brien says. “It’s a way to bring more relevance to the ads that are run through Google.”
Greater relevance in ad placement is expected to be a key selling point for Google. The company says its CPM program will enable advertisers to more effectively reach customers across the buying cycle and meet their marketing objectives by providing meaningful, more appropriate advertising for the ad space selected.
Placing ads with greater pertinence to site identification can give brand marketers not only better exposure, but also help their messages resonate more loudly with consumers, Google says. “For some companies, it is tough to come up with an ad that gets people to click,” says Kevin Lee, executive chairman for Did-it Search Marketing. “This gives brand marketers without response ads a new outlet for placement on Google.”
Some search engine marketing executives caution that until they and their clients figure out the nuances of how to gain maximum exposure through Google’s new program at the most cost effective price, they will be feeling their way in the dark. “This is not really search nor is it a traditional search ad medium,” explains Mike Yavonditte, CEO of Quigo Technologies Inc. a search engine marketing firm.
The key to success then will be for advertisers to perform exacting analysis of the brand, web site or product they wish to promote prior to buying their ad space, marketers say. The more targeted and creative the strategies used to formulate the cost of impression-based advertising, the better the chance to generate legitimate traffic.
Advertisers bold enough to quickly seize upon Google’s new initiative are more apt to get the most mileage out of their ad dollars, since prices will only go up as more advertisers buy in, participants say.
“Any time Google or Yahoo announces a new marketing feature, the most cost effective time to participate is usually right away,” says Neil Kugelman, CEO of online jeweler Goldspeed.com. “Once the initial dust settles, the copycats jump in and drive up the price. After another six to 12 months, companies start to perform hard cost analysis on what they are buying and that usually brings prices down, but not to the level they originally were.”
Long-term, online marketing experts predict that if Google’s CPM ad program is successful, it will force competitors to bring their CPM price models more in line with Google’s. Currently, competitors set their CPM rates monthly or quarterly. “With Google’s model, the market price can change daily,” says O’Brien.
O’Brien adds that the potential also exists for Google’s network sites selling ad space to take a closer look at where to place ads and how to drive traffic to their sites. “Once advertisers figure out what they can afford, that will prompt other advertising platforms to adjust how they price CPM ads,” he says.
Google says its CPM program can also benefit network sites by enabling them to receive ads from a pool of advertisers they might not otherwise reach. Publishers and network sites will also be able to block ads, including those from competitors and advertisers that they are pursuing directly through their sales force.