One of the metrics that I’ve been watching for a number of years comes from Alphabet’s earnings press release. [I’m sure you all know that Alphabet is Google, so I won’t have to say that ever again.] This information is available in the quarterly press release that they issue through their investor relations site available here. They will periodically change their formatting but they’ve been pretty consistent with sharing these data points.
The data point that I’m interested in is the Cost-per-Click paid on Google Network Member sites. This data point represents what Google collects and pays to AdSense members as well as Programmatic advertising partners. For those of you that don’t know what AdSense is, these are the ads displayed on non-Google websites that are delivered by Google. These ads can be either text based (just like on Google Search) or they can be image-based ads. In this press release, Google doesn’t disclose the average CPC amounts, they illustrate the data as a change from the previous quarter as well as a change from the previous year. The chart below illustrates the performance over the last 10 quarters.
The blue bars illustrate the Year-over-year changes and the orange bars illustrate quarter-over-quarter performance. As you can see, the performance over the last 10 quarters (2 1/2 years) has been extremely poor with 3 QoQ rates increasing and one being flat (Q4 2016 vs Q3 2016). While this can be fairly typical when looking at summer quarters in the advertising world, the YoY metrics have not had a positive change since Q1 of 2015.
There are a number of reasons for this, that those of us in the online media world are very familiar with, but it’s likely that this is due to a huge influx of ad inventory from social media. The reality is that whatever the reasons are, the marketer/advertiser has back-end metrics that they are always working with. With other ad or click sources being far less expensive, AdWords clients (the advertiser side of AdSense) can lower their bids and still hit all of their metrics.
This is not great news for content publishers for obvious reasons. If the only source of revenue for a publisher is AdSense (the publisher side of AdWords) links or the Google programmatic network, this essentially means that if your traffic is flat, your revenue is either significantly down — or you’ve created a terrible user experience by increasing the number of ads on your pages. If you are a large online content publisher, with multiple revenue sources and are fortunate enough to still have premium display advertising, it can still hurt you. In order to grow your revenue, you’re in a position where you need to grow your traffic by a rate equal to the amount that you want to grow plus the rate of decline in this CPC rate.
To illustrate using some nice round simple numbers. Let’s assume that your site generates 1 million page views every month with a 1% click thru rate on all of your Google Ads. This means that you are generating 10,000 clicks every month for marketers. If you are paid an average CPC rate of $1, then you are generating $10,000 a month in revenue. Fast forward 1 year, with the same metrics except that the CPC rate has declined to $0.855 per click. This represents the average in CPC rate over the last 4 quarters paid out by Google to network partners. With no other changes, you would be generating $8,550 in revenue for the same period. If this happens again, your revenue will drop down to $7,310 per month [all things being equal].
The other metric that you could potentially change is the page views generated (i.e. GROW). In the first year, you would need to increase your page view/visit level to 1.17 million page views to maintain the $10,000 you were initially earning. This represents a 14.5% traffic increase. For the second year, your traffic will need to increase to 1.37 million page views to generate the $10,000 in revenue. You as a publisher can imagine what the challenge looks like when you have additional revenue growth targets that you have to hit.
[please note, factoring in ad blocking is beyond the scope of this piece as this adds in a whole new level of challenges.]
As someone that’s been in the online media/content publishing world for a long time, this is just another challenge that we as an ‘industry’ has to deal with.