Dec 1, 2010

It's in Google's best interest to charge bad site's more for PPC

A brief history of adwords pricing

In the old days, Google use to price your ads based on how much money your ads made for them. This meant that ads which were clicked on the most, were the cheapest. It was basically CTR X CPC = ad ranking (click through rate multiplied by cost per click in case you are new to ppc jargon). That’s not the exact formula; but it started off very similar to that. Then as Google evolved, the algorithm they used to determine ad rankings evolved as well.

But the biggest change happened a year ago, when Google introduced their landing page quality score algorithm. Google showed no mercy to websites that didn’t provide relevant landing pages to the users querry. Many people logged onto their adword accounts one morning to discover that their average CPC increased 500%. In extreme cases with sites practicing arbitrage; there were instances of the average CPC going from $0.25 to $5.44. It was a bad time for many – lots of people went out of businesses never having fully understood why.

This marked an important moment in the history of internet advertising. Before, the trick to increasing sales was by driving more traffic to your site. Now, internet marketers are more interested in increasing sales to their existing traffic.

Google is smarter than you or me First, you must understand that there is no fooling Google. You can’t fool Google with SEO like you could in the old days, it is just to smart for that.

No one understands the components of a profitable website like the programmers at Google. For one, they are really really smart people. But also, they cheat. They have inexhaustible data to look at from Google analytics and other programs. Marketing is science, not art. And the landing page algorithm is programmed to recognize the best marketed ‘landing pages’

How Google currently determines CPC (no math, just theory)

Google is all about the user. Therefore, if someone clicks on a PPC ad because they are interested in buying something; Google is going to damn well make sure that the website they land on sells what they want. More than that, Google wants to deliver the internet browser to the most relevant e-commerce site that has the best chance of selling you something.

People click on PPC ads because they are interested in making a purchase ( I’m keeping this discussion to products for simplicity sake). So the most relevant matches, the ones Google strives to deliver first to browsers, are the websites that are marketed the best and generally have the highest conversion rates.

How does Google make sure that the best marketed, highest conversion rate, websites always appear first? They give them a crazy discount! This is capitalism at its finest folks. The wealthiest internet companies pay the lowest price for ppc ads (lowest CPC) and the poorest internet companies pay the most for advertising (highest CPC).

You either make no money or become rich with adwords

If you don’t know how to sell your products well, if you suck at online marketing: Google will squeeze you like a tube of toothpaste and brush its teeth with your love. You will be paying 10 times more for an advertisement that works a tenth as well as your competitor. You are exponentially screwed! Your return on investment will 1/100 as sharp as the industry leader.

What does that mean for the industry leader? If you make $100 a month net from adwords – the industry leader is making over $10,000 a month. Sorry man.

Can you get cheap PPC ads anymore? Certainly. The internet is a backwards place; and most online niches really don’t have an ‘industry leader’. Just get a high quality score :-"