No More Side Adwords - How This Changes the Game and Affect Advertisers

Since Friday, Google does not show Adwords on the right side of the screen. That space will now be only for product listing ads. Remains to be seen if there will be more of those. Also, instead of up to three ads above the SERPs, there will now be up to four. With the number of advertisers there is, estimated at over 1.2 million, there should be no problem filling all four ad spaces for most search terms.

Let's first try and determine how this affects Google as far as revenues are concerned.


I tried to determine from client data how much of a revenue drop Google could expect. This is difficult for many reasons. Most of my ads are high quality and show in the first few positions with less data in the 5th position onwards. Because of that, a comparison of CTR may not be fair. I do however have data from a client for which I only did an analysis. They had lots of data in all positions, a wide variety of quality and competition of all kinds. Perfect. Well, almost since I'm looking only at one client but should give a good idea.



Calculating a revenue per thousand impression for the first page (ad positions 1 to 11), this came to $26,555 for this particular client. The revenue per thousand for just the first four positions was $20,200. The impressions for both groups was nearly the same: almost 4 million for the first group and nearly 2 million for the second. If this client is typical and more or less representative of all advertisers, Google generated only $6,500 more per thousand for the same number of ad servings. Of course, the numbers in other niches will be totally different. But let's assume that revenues will drop by 31%.



Today, part of this downfall of nearly one third may be taken up by the fourth ad. Being promoted from the side to above the SERPs should have a higher relative CTR. Using this client's data, the CTR increase from fifth to fourth position is a little over 15%.


So that leaves 15% revenue reduction, probably less. And this assumes the same CPC they will get in fourth place than what it was in fifth. The CPC could be a bit more or a bit less so I call that even over all advertisers.


Obviously Google believes it can make up for it. No way they will want to generate less revenues from ads. The shareholders won't stand for that. They could make up for it with the PLAs but it seems unlikely they would generate more revenue there. Of course, Google could have something in mind concerning the PLAs that could change that.


But overall, I say this move will not affect the bottom line at all. It will likely improve the overall quality of ads, a major Google goal.


The big concern from advertisers however is that this will increase the CPCs. Search Engine Watch had a short article on Friday with their opinion that it will. But I'm not so sure.


The general idea is that to get one of the fewer ad spots available, advertisers will increase bids leading to increases in CPCs. One needs to look at different advertisers and figure out what they might do.


An advertiser near the bottom of the page (ad positions 7 to 11) may just call it quits. A few may increase their bid in an effort to get to the top. There are different types of advertisers of course. Those in those positions are there either because of poor QS, despite bidding the "going rate" or those with good QS, will not bid near the going rate for that niche. It is that second group who should stick it out because of good QS.



I always imagine that QS follows a bell curve. A perfect curve would see 20% of advertisers with QS of 1 to 4, 60% in the 5 to 7 range and 20% above 8. But it is likely not a perfect curve. There may be in fact more falling in the 1 to 4 range - the very poor advertisers - with the upper end also shrunken a bit. What this means is that there may be one or two advertisers with great QS but low bids and the reason they are in low positions. I would suggest to them to increase their bid more in line with the average but how many will do so?


Even if they do increase bids to reflect the going rate, that will not change the CPCs of those already above the SERPs. Do the calculation and you'll see that it affects just one advertiser, some times positively depending on QS.



But in general, I don't see CPCs increasing. Why would those already at the top increase their bids? Bringing in new players won't change that dramatically.


It will however affect your impression share. Those in the lower positions will see their share drop dramatically, for many down to almost nothing. Even those at the top may see a drop in share. With less spots available for all, it just takes one to make the necessary adjustments and push you one position lower.



I surmise that is Google's intention in an effort to increase ad quality and as explained, will not have reduce revenues. Having just four higher quality ads - and a push by some advertisers to further improve quality - will see an increase in revenues, even if CPCs are the same or lower. It has also been their view that you should increase ad quality instead of simply increasing bids. This move may help do that and have better quality advertisers.


In my case, I have many clients that are at or near the top so I don't expect to see a major drop in impression share for them. One client for example saw a less than 1% drop this past weekend compared to the previous one. Checking some more, there is generally not a big change and as often positive as it is negative but it's only the first few days. While I don't have many such clients, advertisers in the lower positions will see a reduction in traffic simply due to a reduction in impressions. They are the ones who will suffer most and probably scrambling right now.



As for organic listings, a fourth ad above them pushes these a bit further down the page. This of course makes those more dependent on SEO not happy at all.