Google’s CPC Drop Bottoms Out? — Paid Search Trends For January 2013
This is the first installment of a regular column following cost-per-click (CPC) trends in search marketing. We will focus primarily on the US market, but we’ll also take a regular look at international markets, as well as providing additional insights into segments that appear to be significant short-term trend drivers. Google’s CPC drop has finally […]
This is the first installment of a regular column following cost-per-click (CPC) trends in search marketing. We will focus primarily on the US market, but we’ll also take a regular look at international markets, as well as providing additional insights into segments that appear to be significant short-term trend drivers.
Google’s CPC drop has finally bottomed out in January, our analysis finds, supported in part by increasing CPCs and click share on tablet devices.
January 2013 CPC Update,
As is typical for January, this month is seeing a month-on-month CPC drop in the retail sector from the highs of December’s holiday shopping season, and a slight increase in CPCs in the finance vertical as advertisers start ramping up spend on income tax related products and services.
Overall CPC Trends
On a search engine level, most notably we see a 7% year-on-year rise in Google CPCs from 2012, the first strong lift in for Google CPCs that we have seen in some time after several consecutive quarters of falling CPCs. Bing, on the other hand, showed relative softness in Q4 – ending flat year-on-year, lower than the 5% – 10% annual inflation that has become the market standard.
The reason for the Google CPC drop as seen in the past several quarters has been the subject of much speculation in the industry. Google’s official statement was that a combination of foreign exchange rates, new ad types, and growth of cheaper mobile traffic contributed to the CPC decline.
We attribute the trend reversal seen in Q4 of 2012 two main factors:
- Increase in both CPCs and click share on tablet devices
- Increase in CPCs and click share for Product Listing Ads in the retail vertical.
This article focuses on the former trend, while I will cover the latter in one of my future posts.
Market Trends By Device
Looking at the retail sector in particular, CPC trending had been directionally similar on all device types up until June of last year, but smartphone CPCs have now started to diverge from that of PC and tablets. This trend is particularly apparent in Q4, where desktop and tablet CPCs rose — as is typical for the retail sector — but smartphone CPCs fell, ending with a 11% drop year-on-year.
Another major market trend we are seeing for devices is changes in search click share. While click share for both tablets and smartphones have been rising rapidly for the past several quarters, it appears that smartphone share has capped out around Q3 of last year, while tablet share continues to gain ground.
This is consistent with the fact that tablets are a younger segment than smartphones, so there is further room to scale. Also, extensive industry research has shown the conversion rates and overall efficiency of smartphone traffic is considerably lower than that of desktops and tablets, and so market competitiveness as driven by ROI will be limited as well.
While CPCs may continue to fall for smartphones on the short term, this is unlikely to have any further directional effect on overall CPC trends, as advertising click share on smartphones seems to have reached a steady state for the time being and will be outweighed by rising CPCs and market share on tablets.
Two factors may affect mobile and tablet CPC trends in the future. One is when major advances are made on mobile advertising technology that significantly improve conversion rates on smartphones, but this will probably take some time to materialize. Another is if wider adoption of tablets results in a user segment shift, causing significant changes to conversion rate.
- Google CPCs have bottomed out and are returning to pre-decline inflation levels for some verticals. Marketers need to counter this effect on ROI performance by continually optimizing their search campaigns.
- Tablet CPC trends are now decoupled from smartphones, as marketers increasingly split out device targets into separate campaigns. Given conversion rate differences, we expect that CPCs and market share will continue to diverge across different devices. Investing in device-specific targeting will become increasingly important in 2013 as tablets gain greater market share.
Adobe’s director of business analytics, Sid Shah, contributed to this column.