Google paid click growth slowing

By April 16, 2008Advertising, Google

From Silicon Alley Insider:

Google’s (GOOG) US paid-click growth in March was as bad as in
February–up only 2.7%–rounding out a violent deceleration in Q1, says
Comscore (per Mark Mahaney at Citi). In all of Q1, Google’s US paid
clicks rose only 2% year-over-year versus 25% in Q4 and 48% in Q3.

On the face of it this looks like bad news in stark contrast to the good news on 38% UK internet ad spend growth in 2007, but for a couple of reasons it isn’t as bad as it first seems.

The ‘this isn’t so bad after all’ argument notes that the number of searches continues to increase (33% year-on-year to March) and says the decline in clicks is due to Google’s ongoing efforts to improve lead quality for advertisers and the experience for searchers, which has resulted in a much lower search to paid click conversion rate.  If this is right the quality of the clicks and hence the revenue per click will have increased – and Googles revenues will still be growing much faster than 2%.  Analysts’ consensus is for 25% revenue growth.  Results are out on Thursday, which will be interesting.

If this is true we should all be seeing our cost per click increase on adwords, but that will be offset by improved conversion rates.  I will start asking my portfolio if that is the case.

I buy the argument that the growth in paid clicks is slowing because Google is trying to increase quality, but I don’t think that development will be totally offset by an increase in the cost per click.  Rather, I think that up to now there has been a lot of rather pointless adwords activity which delivered little value to either advertiser or consumer, and that what we are seeing now is that activity tailing off.  Partly down to Google, but also partly down to people getting smarter about how they use Adwords, particularly in the face of a recession.

Either way I hope Google’s results match up to analysts expectations.  Otherwise I fear confidence in the internet sector will be badly hit, which is the last thing any of us needs.