The click price bubble

Can it burst?

[johnnie]

With all the media focusing on the bubble called 'housing, mortgages and loans' I would like to discuss the possibility of another bubble bursting; the bubble of CPC advertising. I think there may actually be a point in time where click prises will rise to the point where CPC-marketing is simply no longer sustainable. For many small advertisers, this point has actually already come, since so many niches are saturated to the point of 3 or 4 pages of adwords ads. Will there be a point when the larger advertisers are fed up with the upward spiral and the diminishing returns? If so, will they retract their ads en masse and will the classic giants collapse due to loss of advertiser revenue?

[jim2003]

no

[johnnie]

Well, maybe collpasing is not the right word... Major market readustments might be better.

Anyways Jim, why not?

[jim2003]

Advertising costs as a percentage of revenue stay within a relatively narrow band for most industries. If revenues plummet due to price inflation or a general economic downturn, then CPC prices will drop, but that is not because a "CPC Bubble" burst. If other forms of advertising such as print, tv radio or other internet advertising prove more efficient than search and contextual advertising, that would potentially reduce CPC costs, but that appears unlikely for the foreseeable future.

The fact that small businesses may be getting priced out of the market (its happening to me) is not a big problem for Googles biz model, its a problem for small businesses.

On the other hand, its not clear to that there is tremendous growth in the CPC model either. For ROI driven keywords adding a second or third advertiser has huge impact on CPC rates (I used to love those 90% margin keywords, but I still bid when that same word is only a 20% margin for me) but adding the 14th or 15th bidder wouldn't have such a big impact.

Branding driven advertising is someone different but Google's reluctance to clutter non-commercial search words with ads seems to limit upside for that area as well.

[HuskyPup]

From a small business point of view contextual advertising is now a quantifiable and controllable expenditure.

I've been through several recessions and it was very easy to throw money around with absolutely no certainty of what was working and what was a total waste.

However I think there may well be a big difference in attitude between US advertisers and the rest of the World though. I don't know if it's just my widget sector however I notice that, for example in Europe, it is very easy to see the professionally written ad copy compared to the mom and pop copy I see a lot in the US...note, my widget sector, not all.

It is inevitable that businesses will disappear and it is precisely at that time when good advertising takes up the opportunities to fill the void of that missing supplier/whatever it is they do.

Now just how much they are prepared to pay for that advertising is what you are asking...enough to be noticed but not too much to make it not worthwhile!

Now that's a good politician's answer:-)

[netmeg]

I'm not looking for any bubble bursts. Compared to other forms of advertising that my clients have used (yellow pages, newspapers, television, radio, print magazine ads, print catalogs and flyers) it's still pretty much a bargain, and way more targeted and measurable.

[Meat Curtian]

I'm not sure, but Google is doing their best to make it happen....

GILG!

(God i love Google)

[Quadrille]

In many ways, the ad sales industry is a pretty neat example of market forces; while no-one likes spending money on ads, they have to do it, and they know it.

The industry, like any other, is affected by the ups and downs, but these days, it's so sophisticated that the large advertisers can tune, and fine tune, their spend to what they need at a given time.

Most advertisers of any size started reducing spend while bankers were still singing in the trees, and they'll start increasing their spend while bankers are still nursing their wounds.

With big budgets, fast moves mark out the serious players; when a UK confectioner had a major product recall last year, they pulled all their ads, including cancelling sponsorship of the biggest TV soap, within 24 hours. Advertising would have been wasted at best, harmful at worst, linking their name to a potential disaster.

The Internet has so far seen little sophistication, with most major advertisers going through so many intermediaries that they don't know they've been on a p0rn site until it hits the newspapers, and they don't know their clients web site is spamming until it gets a token Google ban.

That is beginning to change; Google and DoubleClick may be the first 'professional' organization of any size in web advertising, but once their marriage proves to be a success (which of course it will), then change may come rapidly.

How will this help the 'little man'? Simple; Google and others currently accept MFA and similar 'legal abuses' on an industrial scale (oh yes they do!); professionals won't. They'll be looking for targeted audiences and quality sites. They don't want damaged goods near their products.

I don't see any bubbles bursting - but I think the current R******* will incentivize advertizers to be looking at low unit costs (the Internet), real time response (the Internet), accurate response measurement (the Internet) and the ability to revise a campaign quickly and cheaply (the Internet).

I've been wrong before, back in 1973, as I recall. ;)