Google’s click strategy

I read an interesting point on Pierre Chappaz’s blog this morning. He refers to a Comscore study that showing that the number of clicks on the Google Ads network had decreased. At first -as Pierre does-, we might think that Google’s revenues are about to decrease. That might be true on the short term, but wrong on the long term. Here is why.

First, back to basics : Google revenues are following this simple rule : Total Revenues = Number of clics X Average Price per click (PPC) paid by the adverstiser. If Google wants to increase its revenues, they must either grow the number of clicks or increase the average PPC. My belief is that Google is currently trying to pull the PPC up.

Back in November, Google reduces thet number of “clickable” zones on their ads. The objective is simple : reduce the number of “accidental clicks”. The immediate consequence of this is an increase of the conversion rate. Earlier, if for 200 clicks you had 100 “accidental” clicks and 2 conversions, you had a conversion rate of 1%, now if you remove the 100 accidental clicks, you get 2%.

If the conversion rate increases, for the same investment, the ROI of advertisers will increase. If their ROI increases, advertisers will tend to bid higher for clicks (Google Adwords is an auction system)… hence, the average PPC will grow!

So basically, my bet is that despite the 12% decrease in number of clicks compared to September 07, revenues for January will not be 12% below September… So where is the catch : why Google would want to take the risk to reduce its revenues ? Basically because Adwords is an auction system, and even if, over timer, the conversion rate might decrease again, the advertiser will probably be quite slow to decrease their bids!