Google’s Revenue Report Indicates Paid Search Ad Prevalence

Google revenues rose 24 percent to $10.65 billion, up from last year’s $8.58 billion in Q1 of this year, which beat analyst projections. Revenue growth was aided by a 39% increase in paid clicks, even though the average Cost Per Click charged by Google was actually down by 12%. This can be confusing to many readers, but it is the nature of Quality Score and why brands must continue to bank on paid search, not just organic.

In reviewing comScore reports from February and March 2012 and 2011, we can estimate actual query growth to be approximately 11% for Google Year over Year; however, what drove the additional 28% in paid clicks? On top of that, why did clicks get cheaper over time? Let’s start with Quality Score, the almighty formula that is pivotal in determining each and every advertiser’s ad rank and Cost Per Click. There are many factors that determine Quality Score, but the most critical factors are relevancy, history and Click Rate. These three key areas are closely related, as strong relevancy will drive a good Click Rate and strong relevancy coupled with good Click Rate will create great history.

Over the past year, Google rolled out numerous changes to paid search ads that has allowed the top placements to dominate the real estate of the search results page. Longer headlines, Sitelinks, Location Extensions, Product Extensions, Call Extensions and other lesser known formats, while even more continue to be tested. All of these formats allow advertisers to expand the placement of their paid search ad to the extent that 3 advertisers using ad extensions can force organic listings below the fold, meaning users must scroll down to see them. In this example for ‘red converse’, we see 2 advertisers and Product Listing Ads push all but one organic result below the fold.

Placing more emphasis on the paid search results, while requiring high quality from advertisers to obtain this rank, has allowed Google to better merchandise their core product of paid clicks. As paid advertisers have reaped the benefits in Click Rate, Quality Scores gradually improved; thus, the Cost Per Click has actually decreased for many advertisers.
Imagine that Zappos was paying $0.50 per click on ‘red converse’ in Q1 2011 and had a 5% Click Rate on 1,000 impressions. According to Google, the average increase to Click Rate from Sitelinks alone is 30%, so we increase Click Rate by 30% – from 5% to 6.5% and reduce Cost Per Click by the reported 12% – from $0.50 to $0.44, we can see how things play out.

This small example shows a 14.4% lift in Total Cost to the advertiser simply from the 30% increase in click rate and clicks from one ad extension, so it is easy to imagine how this scales across the sophisticated advertiser spectrum. The moral of the story here is that no one who relies on people searching to find their website can afford to neglect paid search or disregard it altogether.