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The Search Landscape Reflected In Paid Results
By Dave Davies (c) 2008

It's important to note that the writing of this article occurred
on July 17, 2008. I mention this only to insure that you can
put it into context and also so that those who read this article
in a day or week or month from now aren't confused by my noting
of Q2 reports and references to "today".

Any of you who have read some of my past articles or who have
visited Beanstalk's services pages will know - I'm not a PPC
guy. Quite honestly, it's not in my primary skill set and it's
something I would definitely prefer to leave to the experts. Now
that said, following Google and it's health (which is tied
directly to AdWords and AdSense) is something I'm keenly
interested in. To this end, recent changes in Google's paid
search display and ranking systems will have huge impacts on
advertisers and, more important for the purpose of this article,
on Google itself.

A couple weeks ago a friend of mine, Richard Stokes from
AdGooroo sent me a PDF entitled, "Search Engine Advertiser
Update - Q208" (http://www.adgooroo.com/
adgooroo_q208_share_of_advertisers.php). With this document
they outline the changing trends in the paid search marketplace
and many of the stats are surprising. If you're a PPC manager
they're obviously directly important. For those of us in the
organic optimization world they are still both interesting and
important. They're interesting for reasons which will become
clear below and they're important because anything that affects
the economic health of the search engines affects the search
landscape both inside and outside of the paid search realm.

Paid Search Market Share

What could be more important to the engines than their
percentage of the paid search arena. Does Google really care
about being the dominant search engine as far as organic search
goes? Let me put this a different way, if Google was standing
in front of their shareholders - would they prefer to announce
that they held 80% of all worldwide searches and reported
revenues of $7.8 billion dollars for the quarter OR would they
rather stand up and say they hold 20% of all worldwide searches
and reported revenues of $8.7 billion dollars? Organic results
drive traffic which in turn results in clicks on paid ads. From
a business standpoint that's the only reason that organic search
even matters.

So which engine has the healthiest paid search environment?
According to AdGooroo, Q2 results show a different world than
one might guess (which is why I noted that it is interesting).

Over the past twelve months advertiser growth (or lack thereof)
breaks down as follows:

Google: -8.5%
Yahoo!: +9.8%
MSN:    -6.7%

Advertiser counts have also changed (i.e. the number of
advertisers on the engine). Yahoo! leads in this area as well
with a growth of 0.03%. Google dropped by 6.4% and MSN dropped
by almost 20% (good thing they have their OS revenue to fall
back on).

And A Drop In Ads

To go even further, Google has increased the importance of
quality which has resulted in a reduction of nearly 40% in the
number of ads that appear on a results page. 6 months ago ~6.5
ads appeared per page whereas now that number is closer to 4.
This has the potential to significantly help or significantly
hinder Google's revenue.

As Richard Stokes points out and I completely concur, this
places Google in an environment where one of two things will
happen:

1.Advertisers will realize that their clicks are converting
much higher, search marketers will spend more time and resources
creating more and more relevant ads and landing pages and
advertisers will be willing to bid more as the conversions
increase, or

2. The competition for the top spots will be reduced and so too
will the average bid prices.

Google's Q2 Report

And what inspired the writing of this article was actually the
release of Google's Q2 report earlier today. After reading it I
immediately had to contact Richard and let him know that the
results confirmed some of the predictions noted in his work. He
writes:

"... the auction-based bidding system makes this a double-edged
sword. As the number of advertisers declines, so does the
competitive pressure for higher bid prices. If advertisers don't
step up to the plate and bid more aggressively for placement,
then it's possible that search revenues could stagnate."

Google revenues were up only 3% over Q1 of this year and revenue
from paid clicks was down by 1%. This is the first time in
Google's history post-IPO that I can remember them showing
reductions in revenue in one quarter over the previous. It
appears that this new paid search model in not quite as
effective at pulling in money as the old.

Now, to be fair, the new system of requiring higher quality
scores and better ads and landing pages is new - only a few
months old at this point and so there are likely still bugs to
be worked out, but Wall Street did not react favorably to the
announcements today and I suspect that the situation isn't going
to look better for Google at the close of day tomorrow (though
what do I know about stocks).

What Does This Mean?

So what does this mean? This means that Google has a lot of
work to do and those in the paid search space need to pay close
attention (even closer than normal) as shareholders don't like
to see losses and Google is going to need to make moves to
recover and show significant gains by the time their Q3 reports
come out.

One might guess that this also means that Yahoo! is gaining
ground (which is true) but it's definitely a case of too little
too late.  Also earlier today (it was a busy day in search)
Yahoo! released a letter to its shareholders that on one hand
referred to the alliance between Microsoft and Carl Icahn as a
destroyer of shareholder value for Yahoo! and then went on to
say that they would be willing to sell the company to Microsoft
at $33/share (which is what Microsoft has offered previously and
which is more than $10 above their current market value).

It seems that one can't look at the stronger relative results
in the paid search area that Yahoo! has achieved as a win when
they seem to be backsliding on their initial position regarding
the sale to Microsoft.

So Where Do We Go From Here?

For one thing, watch closely. Monitor resources such as
AdGooroo's research library (http://www.adgooroo.com/
adgooroo_research_library.php), and the Clix Marketing blog
(http://www.clixmarketing.com/blog/). Pay close attention as
we're going to see a lot of changes to what's going on and these
changes are likely going to have effects on both the paid and
the organic results as Google strives to provide the better
results they're targeting through paid search now but at the
same time increase their revenue.

This may involve adjustments to the quality scoring (I can
pretty much guarantee that one) and may involve adjusting how
paid ads appear on the page with the organic results. All we
can really do is watch, wait and adapt.
================================================================
Dave Davies is the CEO of Beanstalk Search Engine Optimization,
Inc. (http://www.beanstalk-inc.com/).  Dave has been active in
the SEO industry since 2001 and provides SEO services to
companies around the world. A special thanks goes out to
Richard Stokes and his awesome keyword research tool
(http://www.adgooroo.com/) and competition analysis system for
the excellent data and forthcoming attitude.
================================================================

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