Click Valuation

by , Jul 20, 2009, 1:16 PM
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My fellow Search Insider Gord Hotchkiss just wrote an article on search engine market share,  "The Ebbs & Flows of Market Share, " which does a great job of deconstructing what forces are driving share. Reading that got me to thinking about additional measures we can use to evaluate the search engine battleground. I have been considering click valuation; the more I look at a variety of different factors in our industry, the more I start to wonder if this should be one of our key measures.

 

For starters, let's roll back a couple of years. I remember reading eMarketer's Counting Dollars & Clicks report, published in 2007, and being amazed that, contrary to mainstream thought, if you remove top verticals like travel, finance, entertainment, etc., CPCs were relatively flat over recent years.

When eMarketer published that report Google's CPC value was much higher in comparison to the other engines. I'd love to see an updated version of that report because for many verticals CPCs seem flat to slightly down and I've been hearing that Google especially is seeing lower click value.

What is causing this trend? Is it purely the economy; is it concentrated within a couple of verticals or widespread? In any case, there seems to be enough general information indicating click devaluation -- or more likely a market correction.

To try to judge whether click value is a good measure of an engine's success, we need to understand what key change agents are driving click value down. I see five key factors:

 

  • The first is simply the downturn in the global economic climate which has, in many countries, hit two of the big verticals driving CPCs: travel and finance.

     

     

  • Another key to this potential devaluation of the CPC is a shift in attribution. As we move away from last-click attribution, Google will suffer the most, because of its domination in the browser-based search box. The engine that owns that box will own the vast majority of single-click search journeys and last-click navigational searches. Check out our white paper on multiclick attribution, and you'll see that when you do this analysis and put the engines on an index, Google gets much more credit than it really warrants.

     

     

  • The third big reason I would think is how well Google monetizes its other search products, because less monetization means diluted average CPCs. Last time I checked YouTube represented ~25% of Google's search activity and we know this area is not as tight as their core search product. You have to wonder how Yahoo's big acquisitions impacted its search click value.

     

     

  • Fourth factor is SEO. There has been a new revitalized focus on natural search, which has become the forgotten art. This is overdue, "but don't call it a comeback," as LL Cool J said.

     

     

  • Lastly, Americans may have conducted 14 billion searches last month, but CTRs are steadily declining. Across Europe CTR varies wildly, but the trends are similar. As a result advertisers have to be smarter about how they approach their pay-per-click efforts, which often takes the form of spending more efficiently, copy testing, and landing page optimization. While search is forecasted to be the only media to grow, it doesn't mean advertisers will bid as wildly as they used to. An aggressive strategy to improve CTR and reduce bounce rate will yield a lower eCPC.

     

    If these forces in fact are driving down click value, then you can see where the pressure on Google to diversify comes from. This may explain its (rumored) efforts to reintroduce incentives in some markets.

    What makes click value an interesting measure of an engine is that we can look at it across markets, using it to make opinions of various strategic moves they make and what that means about the strength of their business.

    For countries like the U.S., Netherlands, and much of Europe, as an example, incentives may be smart if offered in conjunction with display or video-based buys. But in Brazil, where they seem to be weathering the global economic storm better than many countries, it's doubtful incentives make sense. In that market they are seeing an influx of ad spending coming into search from automotive and financial clients that either are new to online or have largely been display only, which I'd expect to yield increased CPCs. I also think Google is monetizing YouTube [and Orkut] better there.

    So, long story short, I find it interesting to watch click valuation develop as a measure of how well the engines are monetizing their business.

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