CPCs are falling for Google Ads: here are 5 reasons why

There’s been a ton of grumbling and conspiracy theories in the search engine marketing community about how new enhanced campaigns — the biggest and most disruptive upgrade to the AdWords advertising platform in the last 10 years — are just a ploy to raise CPCs. Various vendors including Adobe and others have recently released studies claiming that CPCs are already rising by six percent this quarter.

So I was surprised to hear that the exact opposite happened in Thursday evening’s Google Earnings conference call. Here’s an excerpt from the call:

• Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 23% over the second quarter of 2012 and increased approximately four percent over the first quarter of 2013.
• Cost-Per-Click — Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately six percent over the second quarter of 2012 and decreased approximately two percent over the first quarter of 2013.

During the call, Google CEO Larry Page mentioned that over half of accounts have already moved to Enhanced Campaigns ahead of the forced upgrade deadline on Monday.

So much for the idea that enhanced campaigns automatically means higher CPCs!

Why are CPCs declining for Google Ads?

So, why are CPCs down? Only the googs knows for sure, but here are a few theories:

1. Ad inventory is increasing faster than demand

Ad auction prices are dependent on advertiser competition. Since Google has been greatly expanding available ad inventory with new bigger ad formats in the past quarter, perhaps demand hasn’t kept pace with supply.

2. The mix of mobile and desktop search is changing

Average CPCs are a blended average of desktop and mobile clicks. For various reasons mobile clicks have historically been cheaper, and if the growth of mobile search is outpacing the growth in more expensive desktop clicks, it has the effect of dragging down the weighted average of the two.

3. Enhanced Campaigns really do work better than the old system

The search marketing pundits all predicted huge increases in CPCs due to the loss of advanced targeting features that were retired in the transition to new enhanced campaigns (EC). They dismissed the idea that EC might actually improve client results. We’re seeing ridiculously huge performance increases and reductions in CPC for small and medium-sized business clients — these are businesses that didn’t previously have a mobile strategy in place because in the old system, dealing with mobile was such a hassle. Could more SMBs be killing it with ECs resulting in lower CPC?

4. Google is losing advertisers due to ECs

Perhaps advertisers are so fed up with ECs that they’re abandoning Google and shifting spend to Bing and other ad venues, resulting in reduced competition in the ad auction. I kind of doubt this.

5. Fluctuations in currency

Around half of Google ad dollars come from outside of the USA. The US dollar has been strengthening against other major world currencies in the last quarter.

What are your theories? Let me know in the comments below!

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This article by Larry Kim originally appeared on the Wordstream blog and is republished with permission.