Can Google (GOOG) Fix "Quality Control" Keyword Mistake And Boost Revenue?

Michael Learmonth | July 18, 2008 7:00 AM

googleplex.jpgDuring Google's Q2 earnings call yesterday, Sergey Brin admitted to a rare mistake: The company pulled back too much on the number of keyword ads it displayed, and the strategy backfired.

Why would Google (GOOG) cut back on keywords ads to begin with? The idea was to enhance performance: eliminating lower-performing ads means higher click-through and conversion rates for those that remain, and theoretically higher bid prices. (As well as a better user experience.) Google has reduced the number of keyword ads on results pages by more than 40% in the past 6 months from an average of 6.5 ads to 4 ads, according to AdGooroo's Richard Stokes.

Smart up to a point, but Google went too far. Whether because of the cuts, the economic climate or some combination, AdWords revenue and paid clicks were down sequentially from the previous quarter, for the first time ever.

So, can Google just put back the ads and fix everything in Q3? Maybe not, says Stokes, who has been warning about decreased keyword advertising for a couple of months now.

First off, when Google started its "ads quality" program last year, it culled the herd of AdWords advertisers, meaning there will be fewer advertisers to bring back into the fold. Realistically, Stokes says, Google can raise keyword ads 20% in Q3, but probably not more. Second, consumers got accustomed to less advertising clutter, and so did the advertisers. Presented with more ads, it's hard to know what the conversion rate will be. Advertisers will have to accept a lower rate, and it could take time for bid rates to adjust.

Still, if there's a time to try it, it's now, because ads ususally pick up in Q3. So get ready for more keyword ads on your search results. Meanwhile, Stokes has been charting the missing keywords ads on Google for the past year:

adgooroo.jpg

See Also: Google Blows Q2: Multiple Compression Continues...
MSN's Q2 Ad Revenue Horrendous, Woe Is Yahoo
Google Will Increase Yahoo Search Rates 22%, Says SearchIgnite

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6 Comments

Neil said:
I still think, perhaps more than any other company out there, Google has the ability to increase and decrease profits and revenue rather quickly and easily and I suspect that Google was well aware it was dampening earnings and revs this quarter so as to present to regulators and competitors a showing that they are in a competitive market and not a monopoly (given the yahoo deal). after all, it doesn't take much for google to instantaneously increase ad coverage, which they could have done at any time. in face, from those numbers, it seems as though Google really ramped down coverage in May and June. seems as though Google could pretty easily flip the switch and ramp revenues back up.
noblow said:
Google can not easily "fix" the problem. We should think about the reasons for the problem. WHY did they think they needed a quality improvement? Because there was a lack of confidence, and thus a lack of quality advertisers. Those ugly MFA schemes needed to be banned from the service.

By doing so, the reality of the advertising market suddenly showed up - there are not enough quality advertisers that are willing to pay the (higher) prices Google demands. When they now re-introduce the MFAs and other shady operations, they will damage their long-term revenues.

They have decide now - more spammers to beef up Q3, or another weak quarter and hoping for genuine advertisers to gain confidence and fill the gap. Tough one.
Hehateme said:
The fact is google has to find another rev stream. Sooner are later the law of large numbers will hit google ad platforms. No matter what they do to increase ad clicks won't help.
Martin said:
Would you stop buying into Google's Alice in Wonderland "quality" crap ? There are only two words that accurately describe what Google tried to do: MONOPOLISTIC PRICING. I had campaigns with outstanding quality scores and unbelievably high CTRs, and yet Google still raised the minimum bids on me. I spent four hours on the phone with their reps, and all they could say was that I should "optimize" my campaign, even though my CTRs were 10%. So I did what apparently many other advertisers did: I walked away. And like the others, I won't be back. I have since found that co-reg works a lot better for me, because Google forced me to find an alternative.
brant (URL) said:
640-802 Can Google (GOOG) Fix "Quality Control" Keyword Mistake And Boost Revenue? Serves you right! You get what you deserve. If you insist.
kortney (URL) said:
Over my dead body. So that's how it is. 640-802 / 642-445 / 642-105 / 350-018 / 642-825 / 350-001

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