The drop in AdWord clicks over the past two months has created a bump Google's ongoing success. But not to worry, CEO Eric Schmidt told Business Week, people will eventually pay more for the better quality clicks.
There has been a lot of press about this lately. I think "Google's Gamble" as Business Week called it may be expecting too much. If the cost of their clicks continues to increase through their minimum bid and Quality Score push people may start using Yahoo and Microsoft first.
While their popularity will continue to give them the high volume of traffic, if Yahoo and Microsoft offer lower CPA (cost per acquisition) then the strategy of starting with Google because of that could be changed to get the lower costing conversions first and then test the successful ones over at Google.
If this happens then the edge Google has could drop. It is one thing to be the popular search engine for users, but if they lose their position as the popular engine for advertisers then they are almost back to the days when they had no idea how to monetize their engine.
Obviously in some cases where there is a big enough margin in what is being marketed advertisers will buy the more expensive clicks. But in the case of companies selling small margin items such a move will make it difficult.
Apart from the Quality Score influence, this move suggests Google is using information they are getting from Google Analytics to determine if people will pay more. This is a dangerous step for a number of reasons - one, the privacy issues could be a problems and stop this and two, many people using GA may not be doing so effectively, measuring the wrong thing and thus giving Google information that they use but is not real.
We will all have to wait and see if their hopes are founded.