Does Pay Per Click (PPC) Advertising Still Work?

Modern pay-per-click, or PPC advertising was pioneered in 1998 by Overture. Yahoo later bought this PPC pioneer. It hit its stride in 2000 when Google introduced the AdWords platform. I’ve managed PPC campaigns on platforms such as Google Ads for myself and my clients since 2003. So, while I haven’t been involved since the beginning, I consider myself an early adopter of PPC technology.

The Early Days of Pay-Per-Click

In the early days, PPC advertising was great. Using it to your advantage was like putting a knife through butter. It was very effective when I started managing PPC campaigns, almost independent of individual products or markets. Things stayed that way for several years, even as Google Ads(the primary PPC platform) constantly changed its platform. I remember that soon after I started using Google AdWords, they made one particular change to their platform. For keywords you were bidding on that fell below a certain click-thru threshold,

AdWords henceforth prevented you from bidding on that keyword. FOREVER! They quickly decided that wasn’t in their best interest and changed things again. But mostly it was all good for quite a while. Easy to start, easy to use, and with an excellent ROI in most cases. One of the reasons it worked so well was that even many sophisticated Internet users didn’t realize that “Sponsored Links” were Ads. This led to excellent click-thru rates and a steady stream of inexpensive visitors to your website.

Google Ads Enters the Mainstream

As Pay-Per-Click grew rapidly due to its outstanding value proposition, it became a mainstream and important marketing method for companies large and small. This drove Google to prominence as one of the world’s top tech companies and created many millionaires and billionaires in the process. For some time, Google AdWords worked so well that it was like printing money. This was true for Google but also its customers, the users of AdWords. For some small companies, PPC became a mainstream marketing method and consumed the MAJORITY of their marketing budgets. But as I’ve stated in other articles, once a marketing method goes mainstream it begins to fade in effectiveness. There was a long slow decline over the years in terms of ROI. But for quite some time it was still effective. So the golden goose kept growing in size.

Pay Per Click is more difficult today

As I write this article, however, I believe we may be at a point of inflection. I’ve found that it’s become hard to extract even a positive ROI in many market segments. Let alone be highly profitable. Unless you’re a large company where PPC expenses are a tiny segment of your marketing budget or are focused on brand-building (a dubious use of PPC, IMO) rather than sales, this will give you serious pause. The quality of visitor traffic has deteriorated, with time spent on-site by PPC-generated traffic being a fraction of Social Media or other Organically-generated traffic. Cost per click is now very high for high-traffic keywords. Cost per conversion has risen steadily.

I design campaigns using a fairly labor-intensive long-tail approach. However, I have a hard time getting a positive ROI in some (but not all) market segments. I’m far from alone in this analysis, which is illustrated by this New York Times article. Many spend more time managing PPC campaigns than I do. But as I stated above I have been at it for a while and am far from a newbie, leaving me pretty comfortable with my viewpoint.

Unfortunately, I believe much of this is due to Google’s greed. Google AdWords has never been a transparent bidding system, but a “Black Box” that Google can manipulate as they please. In the past, they have shown some understanding that their advertisers need to make money for Google’s own business to remain viable. But I think that the short-term quarterly profit pressures of being a public company, and the lack of significant revenue streams past advertising have come to bear. These factors combined with the inevitable maturing and slowdown in the growth of the Search marketplace have led the company to make changes to their platform and the black box which they may regret in the long run.

Examples of Greed in Google Ads

1. I’ve always utilized the best practice of rotating Ads evenly, believing that I am the best judge of the best Ad for my purposes.  Google recommends optimizing which Ad to show based on their automated algorithms and AI, which quickly decides which Ad is best. Google’s interest is maximizing clicks, which isn’t always in my client’s best interests. But after using this method for years Google eliminated it, forcing advertisers to utilize their automated algorithm and revert to the highest click-through ad after 3 months of even rotation. I noticed later that the option to rotate Ads evenly indefinitely was returned. I’m sure it was because of Advertiser complaints. But this shows the bias toward Google’s interests, rather than their customers.
2. Another thinly veiled, short-term money grab is the “fibbing” Google does when it provides “estimates” about what it takes to get your Ad listed on the first page. I’ve found them almost uniformly wildly overstated in nearly all circumstances. This is true even on very niche keywords where no other advertisers are bidding! If you’re experienced you see through this self-interested “feature”. But newer advertisers may not.

These are just two examples of many things I’ve seen Google do within the AdWords platform, especially in their bidding “black box” that indicates Google is acting in its own (short-term) self-interest. Unfortunately, in many cases to the detriment of their advertiser/customers. I believe this will prove to be very short-sighted in the long run.

Combine all this with the increased competition in the advertising marketplace since it has gone mainstream as discussed above. I believe AdWords may have seen its best days. This is an ominous development for Google as a growth company. It hasn’t shown up in their financials quite yet. But by squeezing its advertisers, the company is risking killing the golden goose.

The Microsoft Ad PPC platform closely mimics Google Ads, so I’ve found it similar.

Where does PPC advertising fit today in the Marketing Mix?

In this article, I’ve been relatively critical of PPC as a current marketing method. This is a turnaround for me, as I’ve always held PPC marketing in high esteem. I still believe it fits in some shape or form in most marketing budgets. But I feel the need to temper how big a role it should play. PPC retains some big advantages. There is still no better way to launch a marketing campaign quickly than PPC. You can promote new products, test messaging & value propositions, and explore new market segments nearly instantly. It’s also very measurable, and therefore objective. There’s no need to throw huge amounts of money around with PPC, based simply on a measure of faith like with other marketing approaches.

Google Ads has degraded in effectiveness but still has a role

In many market segments, pay-per-click advertising ROI has degraded severely over time. As a result, it shouldn’t take up a large segment of your marketing budget. Unless your objective measurements indicate it justifies such a large investment. I’ve shifted my online marketing budget recommendations to focus on social media and behavioral/retargeting advertising (standard PPC’s close cousin). However, the reduction in 3rd-party cookies has impacted retargeting’s effectiveness. Unless you see strong ROI justification in traditional PPC investments, I’d limit my PPC advertising exposure to  two areas:

Long-term: long-tail keywords that may not generate big dollars but show a reasonable ROI

Short term: new products, new market segments, and messaging/value/price testing, all of which require spending only in a limited timeframe

That’s a quick summary of how I view pay-per-click advertising today.   What’s been your own experience with PPC advertising lately? Is it a big part of your promotional budget? Do you also see it declining in performance in your market segment? Give us a heads up on your experience and post a comment below.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or Subscribe to the Morettini on Management Newsletter hosted by LinkedIn. Contact Phil directly at info@pjmconsult.com