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This is the 6th part of the series on PPC, domain valuations and the wider domain name industry. The previous parts can be read by clicking on the following links:
Part 1 - Domain Industry and Valuations
Part 2 - The domain bubble
Part 3 - What caused the domain bubble?
Part 4 - Domains and the sub-prime shock
Part 5 - Domain values and opportunities
Despite the robustness of the online advertising industry the current negative economic sentiment will flow and is flowing through to the domain industry. There are two reasons for this:
Google and Yahoo are both under pressure to over perform to maintain their share price in a massively declining market. Despite this focus both Google and Yahoo's share price has suffered enormously during to the US financial meltdown. Google is almost half what it was 12 months ago and we won't mention what has happened to Yahoo.
During these times it makes sense for Google/Yahoo management to focus on lowering expenses as well as increasing revenues. For example, for the past 3 years Google has been reducing its Traffic Acquisition Costs (TAC) from a high of 37.2% to last quarter reporting it to be 28.4% of revenue paid out to publishers. This claw-back in revenue goes straight to Google's bottom line and helps inflate their margins.
I'm a firm believer in the philosophy of, "follow the money and you will find the motivation". The Google TAC graph below clearly shows that Google has been reducing it's payout to publishing partners (ie. domainers) while their partners have been bringing in more revenue overall.
The lack of transparency in the domain channel has meant that it is possible that either or both advertising aggregators (ie. Google/Yahoo) have the power to aggressively curb domainer traffic payout rates. This can easily be accomplished by tweaking either the smart pricing (Google) or quality score (Yahoo) algorithms adopted by either company.
The end result of the corporate pressures on both Google and Yahoo are lower PPC (pay per click) rates flowing onto domain owners. Anecdotal evidence suggests that the clear strategy adopted by both companies has resulted in a decline of up to 25% in overall PPC revenue be domain owners since the beginning of the year.
The eight hundred pound gorilla seems to be flexing its muscles in an effort to defend its position as king of the Internet jungle. Google's dominance in this space is scary but their reactions are fairly predictable of a company that has risen to ascendency over its competitors. None of us should be surprised by the pressure on PPC rates due to an economically rational partner further up the supply chain.
The second pressure on PPC payout rates will come from the advertisers themselves. When times get tough pressure comes to squeeze out a little more from a lot less. During this time I would not be surprised if a lot of online marketing executives get their first real education on what bidding for a keyword is all about. As they get smarter and continue experimenting with a wider range of keywords any domain owner that leaves their keywords alone is likely to get punished in the cross-fire.
For example, an advertiser that was once paying $1000 per day on the keyword mortgage may now diversify into "auctions", "selling your home", "sub-prime" etc. If a domain owner leaves the keyword set as mortgage then the reduced spend on the keyword will have an overall detrimental effect on the revenue performance of the domain.
The next article in the series will place domain owners under the microscope and how many of us need to change our practices for the long-term benefit of the value of our investments and bank accounts.
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