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What Google's New AdWords Means for Mobile (You'll Pay More For It)

Expect a Spike In Mobile Cost-Per-Click As Competition Gets Fierce For Keywords, Dayparts

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Some companies talk about being mobile. Google, on the other hand, is finished talking and is acting in the biggest way possible. By transforming its AdWords system, Google is enhancing the opportunities for brands, starting with the handset world that is now their central business.

What makes this evolution of AdWords so impressive is how it equally delivers on a forward view into how the world is going to operate – and just how much money it is going to make Google. Consider for a second that while most companies are still thinking of tablets as mobile, Google is taking direction from its own user behavior data to create a single ad serving group that encompasses desktop, laptop and tablet.

The changes are being positioned as an enhancement to simplify the campaign structure process. A barrier for some small to mid-sized marketers is removed and a time suck for all marketers who were running multiple versions of campaigns for multiple devices is eliminated.

All valid and beneficial, but underpinning all of that is an emphasis on buying. Google is handing controls en masse to advertiser like never before. By giving them levers to control around mobile devices, time and geography, Google is upping the way any advertiser can engage, but at a price.

Over the past two year's Google has seen its core search CPC base erode. Google's quarterly earnings reports state that from Q4 of 2010 to Q4 of 2011 CPCs on the engine dropped 8%, followed by a 6% drop from Q4 2011 to Q4 2012. During that time volumes have grown, but at a slower pace; and while new offerings like PLAs have been nice, they will pale in comparison to what is about to come from the new enhanced campaigns.

A hard truth for Google is that its largest advertisers have become more sophisticated in the past two years. Brands better understand the right price per-click, and through advanced targeting and sophisticated new messaging technology, performance gains are possible at a lower price.

With the new AdWords system many of the controls that certain advertisers could leverage have been neutered. Accounts set up with ad groups and keyword level control for all device types will now be limited to campaign level control for mobile as well as geo and time.

In its effort to streamline the process where any advertiser can set it once and then make minimal macro changes, the advertisers more incentivized previously to get it right at a micro level are compromised.

And therein lies the massive financial opportunity for Google. In 2010 when Yahoo and Bing merged, a noticeable spike in CPCs occurred. By our calculations CPCs jumped from $.76 to $.93 within 30 days before setting a new normal at the higher price point. And that was just new advertisers learning a similar system. This is akin to giving your sixteen year old who just got his license the keys to your classic car with a stick shift after he learned on an automatic.

Most small to mid-size marketers lack the exposure and sophistication to know how best to optimize these buys. Google has attempted to make that process easier with a strong shove towards more mobile buying, and as such, is welcoming market anarchy whereby increased competition and lack of deep understanding lead to necessitated buying above optimum price points.

There's a lot to like about the new AdWords. For advertisers that can harness data and manage pulling the levers in the right sequence it could be very, very good. For Google, it's perhaps the most impressive feat in search tech since the original evolution from highest bid wins to the current auction model in use – and it may be the most financially beneficial shift made since then as well.

ABOUT THE AUTHOR
Chris Copeland is Chief Executive Officer, GroupM Next.
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