Google Conf Call: Format changes resulted in lower CPCs but more clicks

Google’s primary explanation for their earnings miss:

When we make ad quality or format changes, CPC and paid clicks may be impacted differently. For example, when we introduced site links, we saw an increase in clicks. But the additional clicks were on lower CPC ads, which reduced the average CPC. Many of the ad quality changes in Q3 increased paid clicks at lower CPCs, and they were revenue-positive with good user and good advertiser metrics. These ad quality changes from Q3 had a cumulative effect on Q4 metrics.

via Google Conf Call: Ad Format Changes Hit Cost-Per-Click – Tech Trader Daily – Barrons.com.

Yes, format changes can have sizable effects on revenue.  (I haven’t through through how exactly these changes could result in more lower CPC clicks though.)

TYPICALLY, CPCs go down when you’re trying to juice revenues in the short term by getting more clicks.  Google’s monetization system is advanced enough to adjust quite quickly to these effects but they do have an enormous amount of power to influence revenues. If this is correct, the storyline would have been:

- Management realizes they are behind their revenue goals

- Decision is made to juice revenues by increasing clicks on paid links

- CPCs decline because the overall quality of clicks decline

- Revenue goes up in the near term

If this story is right, then a CPC decline is directly a result of management’s  actions to counter a revenue shortfall.

The counterargument is that maybe management made an editorial decision on a format change that had an impact on CPCs.  My response to that is that pro-editorial format changes typically have an upward pressure on CPCs.

Anyways, I’m not close enough to whatever changes Google made during the quarter to have a strong opinion on what really happened so all I can do is connect the dots from afar.

 

 

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One thought on “Google Conf Call: Format changes resulted in lower CPCs but more clicks

  1. I think a big part of this is brands buying their own branded keywords using extended AdWords ads with adlinks on them. Branded keywords tend to get a much higher CTR, but when it is the brand buying their own brand the CPC tends to be a good bit lower.

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