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Paid Search Growth Continues to Slip, CPCs Down But ROI Improves in Q3 2012

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Slowing growth and lower CPCs in paid search don’t bode well for companies like Google, though advertisers are seeing a higher return on their paid search investment, according to recent reports.

U.S. search spend grew by 11 percent Year over Year (YoY) while ROI improved by 26 percent, according to Adobe. They found that Google’s CPCs fell 10 percent over the last year and attribute the loss to an increased volume of less expensive mobile clicks. It’s a problem Google knows all too well; one that was a hot topic during their recent quarterly earnings call.

google-paid-search-q3

Rimm-Kaufman Group (RKG) puts paid search spend growth slightly higher, at 18 percent YoY, down from 32 percent in Q2. IgnitionOne was almost in line with RKG on search spend, reporting growth of 17.8 percent YoY. For their part, Covario reported that growth in paid search advertising was up 33 percent in the third quarter compared to a year earlier, and up 6 percent over Q2 2012.

In their Q3 report, Marin Software noted they are well on their way to hitting their prediction that mobile devices will account for 25 percent of all paid search clicks on Google by December this year. Average CPC in the US fell from $0.95 in Q3 2011 to $0.82 today, they reported.

Adobe expects Google’s CPC losses to turn around next quarter, explaining, “The cost per click (CPC) downward trend caused by mobile traffic appears to have bottomed out and is projected to rise in Q4 due to seasonal trends and changes to the Google Shopping model.”

Mobile vs Desktop

mobile-cpc-ctr-q3

Nearly 21 percent of organic search visits occurred on mobile devices in Q3, up from 18 percent in Q2, according to RKG (see chart). For paid search, 16 percent of clicks and 11 percent of ad spend were mobile.

Across their client base, Marin Software found that smartphone and tablet devices accounted for 19 percent share of clicks and 14 percent share of spend.

Covario reports, “On a global platform basis, mobile advertising grew 17 percent in the third quarter when compared to Q2 2012 and 90 percent growth year-over-year when compared to Q3 ’11. The breakdown of mobile ad spend was 52 percent mobile device/smartphone spend, while 48 percent was in the growing tablet space. This is a much closer split than a year ago when smartphones made up 73 percent of the mobile spend.”

Across their base, IgnitionOne reported an increase in mobile’s share of search advertising budget, with 16.3 percent of total search spend in Q3, an increase of 14 percent over the past quarter. Tablet devices accounted for 52.2 percent of the total mobile search advertising budget for the quarter, which is a decrease compared to last quarter (60 percent).

Google CPC Influenced by PLAs and Mobile

Click volume on Google grew 28 percent, while CPCs fell 7 percent, said RKG. They note that these figures were heavily influenced by Product Listing Ads and the Google Shopping transition, which have provided incremental traffic, but at a lower average CPC.

IgnitionOne finds that the YoY increases in clicks continued to decelerate, up only 6 percent (YoY), compared to 13.2 percent in Q2. Click-through-rates dropped by 13.7 percent YoY while impressions continued accelerating over the last two quarters with a YoY increase of 22.9 percent. Marin, meanwhile, found that marketers maintained the CTR YoY versus Q3 2011.

Adobe reports that Google CPCs decreased by 10 percent YoY and attribute this to an increasing share of mobile clicks, where CPCs are less expensive.

Google Maintains Share of Search Spend

Marin Software reports that Google is better at monetizing its searches than Yahoo and Bing. Google accounted for 69 percent of impressions this quarter, but 79 percent of clicks and 81 percent of spend. This has remained consistent for several quarters. Google’s impression volume rose 19 percent YoY, with clicks up 11 percent.

Google’s click growth was 28 percent, according to RKG. Covario reports that on a global basis, Google accounted for 87 percent of market share of spending and 91 percent of impressions, though just 66 percent of clicks.

According to IgnitionOne, “Google continues to hold 79 percent of market share compared to Yahoo!/Bing with 21 percent. While this is flat when compared to Q2, it is nearly a 2.5 percentage point increase from Q3 2011. Again this quarter, the search ad spend increase YoY for Yahoo!/Bing tops Google with 38.8 percent, compared to 13 percent.”

Other Q3 2012 Insights

Other findings from Q3 2012 include:

  • Google’s Product Listing Ads traffic grew 262 percent YoY and provided 20 percent of Google paid search clicks for the quarter. However, CPCs for PLAs ran 15 percent lower than those for comparable text ads. (RKG)
  • Conversion rates by mobile operating system are becoming more important due to continued growth in mobile search traffic. Comparison of iOS versus Android™ device traffic reveals nearly twice the monetization advantage for iOS. This indicates that optimizing mobile search spend by device offers marketers the opportunity to drive greater ROI. (Adobe)
  • Year-to-date spending is on target for 19% growth and Covario expects no change to their forecast of 18–22 percent annualized growth for PPC budgets in 2012.
  • Tablet share of paid clicks nearly tripled to 9 percent and the gap between tablet and desktop CPCs fell to 5 percent. Smartphone CPCs remained 54 percent lower than desktop. (RKG)
  • Mobile search spend increased 17 percent over the previous quarter and for the first time tablet CPCs surpassed desktop CPCs. (Covario)
  • On Yahoo and Bing, the story was largely about continued investment but higher CPC. On a YoY basis, advertisers saw 9 percent higher click volumes, coupled with a 24 percent jump in CPC and a 9 percent increase in CTR. (Marin Software)
  • Smart phone users, while representing a larger over-all audience, had on average 4 percent lower Engagement Scores than PC users and 11 percent fewer page views. This is likely due to the slower speed and less optimal browsing experience on a smartphone when compared to larger devices. (IgnitionOne)

The methodology for each report is available in the full version from the publisher’s website. Figures typically vary, as each company pulls trends and insights from analysis of their client portfolios.


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