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The Google Tax: The High Price of Free Search Marketing Tools

cohen-alex
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If you could hand over your search marketing campaigns to Google to manage, would you? If they asked you which keywords convert most profitably, would you tell them?

Every time you use one of Google's free tools, like Google Conversion Optimizer (GCO), you're doing both.

As explained in "Why Google Wants to Eliminate Bidding In Exchange for Your Profits," Google has rolled out a series of new conversion-based advertising features, with the goal of removing the need (and in some cases the option) for advertisers to set bids and select keywords.

These new features offer a compelling benefit to advertisers and agencies: free tools to help you eliminate some of the time and expertise used to run profitable PPC campaigns.

But there are many hidden costs associated with giving them information about, and control over, your business and its advertising.

These hidden costs are the Google Tax. The Google Tax is profit you give up due to:

  • Targeting CPA vs. ROI.

  • How Google attributes revenue.

  • The inherent limitations of bid management.

  • The system-wide impact of giving Google conversion data.

Let's walk through the limits of Google's conversion based products and why you just may not want to give Google the keys to your business.

Targeting CPA vs. ROI

Each conversion isn't worth the same. One conversion worth $100 is better than three conversions worth $1 each.

Yet, when you bid toward CPA at the campaign level, you're essentially saying, "I'll pay the same amount, regardless of the difference in the value of these conversions."

What you really want is to increase conversion volume and profit (i.e., to pay just the right amount for each conversion based on the true value of that conversion). You want to increase your overall ROI.

If you choose to bid at the campaign level and set a target CPA, you're forced to average the value of the conversions in the campaign. Unfortunately, averages lie.

Let's pretend you have a cat food campaign in which you sell three different brands, each of which has a canned, dry, and organic version. In addition to the variation in the CPCs for the keywords you use to target these products, each one has a different potential revenue and cost of goods (COGs) sold.

It would look something like this:

CPA vs. ROI Bidding

Your target CPA is based on your target ROI -- what you pocket after you cut out the cost of advertising (gross profit) and the cost of the product (net profit).

You want to pay less for sales of product that are less valuable to you (e.g., EVO canned cat food) and more for sales that drive high profits (e.g., Innova organic cat food).

But if you try to set a campaign level target CPA you'll overpay for some conversions (those in red), which means you're driving unprofitable sales. Conversely, you'll get profitable sales for other products, but there's still room in the CPA (those in green), which means you're potentially leaving conversions on the table.

Unless your business is strictly lead generation (and lead quality doesn't matter to you), going after CPA is just a proxy for pursuing ROI. Optimizing for ROI requires more than just estimating CPC and conversion rate, which is what Google does.

How Google Attributes Revenue

Imagine someone searches for "pet food," "organic pet food," then "best organic cat food" and converts. Which of those keywords should be credited with the sale? That's revenue attribution.

There are four major attribution types:

  • Last click: All of the revenue credit goes to the last keyword in the search chain. "Best organic cat food" wins.

  • First click: All of the revenue credit goes to the first keyword in the search chain. "Pet food" wins.

  • Linear: Revenue is divided equally among keywords in the chain. Everyone wins.

  • Weighted: Each keyword gets some credit, but some keywords get more (e.g., those that lead to conversion more often).

AdWords Conversion Tracking and Google Analytics use last click conversion. Any tools they offer optimize based on the idea that the last click deserves all of the credit.

If you believe purchase patterns are more complex, then you can see how optimizing based on last click attribution wouldn't make sense.

The Inherent Limitations of Bid Management

There is an entire ecosystem of variables that determine whether a particular searcher will convert: search queries, keywords, text ads, landing pages, and so on. Bids are simply a way to value the likelihood that someone who comes from one of those combinations of variables will convert.

Bidding obviously plays an important role in paid search, but it's only one part of what determines your success.

Bid management doesn't tell you if your text ads are terrible, it doesn't mine your search queries for negatives, it doesn't know to adjust your match types, etc.

It's been said that the quickest way to kill a bad product is with great advertising. Well, the quickest way to kill a bad campaign is with great bidding. You're simply automating your sub-optimal targeting.

Achieving your target CPA or ROI with bidding requires good inputs. You have to target properly before you can value properly.

The System-wide Impact of Giving Google Conversion Data

Some search queries/keywords are more valuable than others. But Google can't possibly know which ones are which unless they get access to our conversion data. They can't get access to your data unless you give to them. And that is exactly why they offer Google AdWords or Analytics conversion tracking.

Google says they don't use your specific conversion data to directly increase your costs or CPC. Instead, this conversion data can be used to indirectly impact your cost, as they point out in the same help article.

In fact, predicted conversion rate can also play a role in determining your Ad Rank, which determines where your ads appear on the page, when you use Google tools, like Conversion Optimizer.

Google frames data sharing as a benefit. Of course, sharing your data feeds the ecosystem with Google managed services on one side and self-managed services on the other.

Why Does Google Give Away Free Tools?

As search marketers, we often focus the conversation on what we get out of the free tools. Before you hand over your data, you should also ask: what does Google get from giving away free tools?

Urchin (not Google Analytics) is rumored to have cost Google $30 million when they acquired it in 2005. Since then, they've rolled out free access for everyone and layered on more advanced features at no additional cost.

They've even been making a play for the enterprise market, which seems to be paying off in market share. For example, the percentage of top 500 Internet retail sites using Google Analytics grew from 43 percent to 62 percent in one year.

Google Analytics Growth
Source: WASP/iPerceptions Research

Google offers some useful tools at the best possible price (free), but they're not buying, developing and marketing these tools for charity. Each one serves their short- and long-term profit interests.

First, these tools eliminate some of the friction the keeps companies from spending more on search marketing. Google wants to grow their market share by simplifying and automating any steps involved in buying paid search advertising. In some cases, that benefits advertisers and in some cases the simplicity comes at a cost, usually profit.

More importantly, these tools give Google data. Every search is potential real estate that Google can sell clicks against. Determining the most effective way to sell those ads at the highest possible price is a purely data problem.

Except, if Google is just a search engine, they miss out the most important part of the data: how valuable each keyword is. That is why Google has invested so heavily in analytics and tools -- to give you a compelling reason to give them your data.

Demand Equal Data Access

I don't have a problem with Google offering Google Conversion Optimizer. For a small business with limited time and expertise to manage PPC, it may be a worthwhile option. Also, it's optional. So, if people don't like it, they don't have to use it.

That said, GCO isn't a suitable option for larger advertisers with higher budgets. Optimizing based on last click attribution; bidding at the campaign level and targeting CPA vs. ROI (especially for retailers) leave profit on the table.

With the introduction of GCO, Google is creating a separate and unequal world of data. They're using information like the actual search query, browser, etc as seen before the click to modify bids with GCO, but not sharing access to that information to allow advertisers to make their own bid decisions. (Just to make a fine point on this: we can see those data after the click, but there are limits to how we can use it to adjust bidding before the click).

GCO also requires you to tag your site with Google conversion tags. Some businesses aren't comfortable sharing that level of information with the same company that sells them advertising.

As an advertiser community, we must demand equal access to the data they use in their tools through the interface and the API. That way, we have choice. We can let them do it, or we can do it ourselves.

There's an opportunity cost of giving Google so much visibility into, and control over, your paid search accounts. The way they decide to measure and optimize your campaigns, and what they do with your data, may or may not align with your business goals.

Next time: how you can avoid the Google Tax and alternative ways to make your campaign more efficient and effective.


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