The Next Shift at Google Could Have Big Impact On Advertisers
As children we are taught that in order to win you must understand the rules of the game and play by them. As a parent, you quickly realize that kids excel more at changing the rules than following the original ones. In fact, an oft-spoken phrase from adults to complaining children is "If you don't like the rules, don't play the game." By contrast, in the adult world the phrase gets flipped and you start to frequently hear the cavalier line "If you don't like the rules, change the game."
No company better exemplifies this mantra than Google. The entire basis of the company was built on changing the way information was organized using its own PageRank algorithm. The approach has never stopped. No shift is too great (opaque auction models) or too small (IPO via Dutch auction) for Google to not want to test the bounds of change. You could argue that no company does disruption and game-changing as routinely and well as Google.
You could also argue that no company has more levers to pull to enable those changes than any other business today. And that is why the fourth-quarter earning miss from Google was so jarring. Even more surprisingly it missed at its core, inside search with an 8% cost-per-click decline. Now, on the eve of its first-quarter numbers, Google is preparing to move a beta initiative to the mainstream which creates market asymmetry to their benefit.
The beta, Near Match, is designed to "enable you to safely extend the reach of your Exact and Phrase Match keywords to cover plural, misspelling, close rewrite, abbreviation and acronym variants only." In previewing the beta for advertisers, Google has suggested a 6.5% increase in click volume and a 9.8% increase in impression volume. Appealing for marketers, but at what cost? We know that digital auctions and publisher revenue thrive, in part, due to a lack of data to inform smarter bidding.
One needs only to look back at the fouth-quarter cost-per-clicks, where Google saw that decline, and Bing, with less historical data at the disposal of advertisers, saw a 6%-plus increase in cost per clicks. Even more pronounced was the retail category where, according to year-over-year data from Marin Software, industrywide search costs per click dropped 10.4% between the fourth quarter of 2010 and the fourth quarter of 2011, inclusive of Bing where overall costs per click. grew. It is possible that retailers valued clicks less in 2011 than 2010 or had less budget, but all economic indicators suggest the opposite to be true. With that the case, one cannot help but wonder if advertisers are finally getting smarter about their bid strategies.
If knowledge is power then the introduction of a new unknown once again changes the rules of the game. In early testing of the new Near Match type for select Group M clients, an increase in impressions was found -- but costs per click also increased 13%. This is likely because advertisers were suddenly having bids, established by knowledge-based decisions against a specific keyword, assigned to variations of those terms that had an unknown value.
From a user standpoint the game doesn't change. Google continues to deliver relevant results and ads that match what they likely meant. For advertisers, the data set has changed and the intelligence has to be rebuilt, In the meantime, there's a price to be paid with Google's new change and unlike kids who can decide not to play the game, brands won't have that option.