What's Going On With PPC? - Part 2

This is the second part in a series in understanding what is going on with Pay Per Click (PPC) revenue.

We can see the overall impact of the CTR and EPC graphs (see the previous article) by examining the RPM trend chart. The shape of the chart really highlights the rush of advertisers and consumers pushing up the value of traffic in May and then a decline into the norhern hemisphere summer period.

The seasonal summer downturn can be clearly seen and the rise through September is encouraging. It’s clear that in both cases the rise back up to the previous May values are not being reached so something else must have occurred to disrupt the normal cycle.

It just so happens that in the first half of June, the worlds second largest economy, China, experienced the beginning of a huge downturn in their economy. The Shanghai Index fell from a high of 5,166 and by the end of September it was resting at 3,053. In addition, to help forestall a total crash of their economy, on the 12^th Aug the Chinese authorities devalued the RMB from 16.1 to 15.6 to the $US.

When we examine the RPM trend we can see that it started entering a slump earlier than normal for the seasonal summer period. It is now lagging behind the typical summer rebound in much the same manner as the Shanghai Index is still languishing in the 3000's.

Domain investors would have to be completely naïve to think that such a massive decline in China would not have some impact on advertising earnings.

The question that needs to be asked is, “Will the RPM rebound?”

Although it’s early days yet, the RPM is clearly rising. The bend downwards in the trendline at the end of October is more of a function of a level 4 polynomial trend function rather than sudden depressing numbers. Traditionally, the lead up to Christmas is always a good time for traffic monetisers as advertisers flood into the Google auction system and bid prices up. Eager consumers also enter the market in droves to snap up an online bargain.

What is clear is that there is some manipulation of both the EPC and CTR numbers being reported back by Google. According to Google, if the domain channel is on now on the high value feed (due to CAF) then domain investors are receiving 90% of the advertising revenue or 68% if they are on the lower quality Adsense like feed.....not sure where we actually are in this spectrum.

What is suprising is that Google’s quarterly earnings report their Traffic Acquisition Costs (TAC) are currently sitting at 21.3%. It seems logical to me that even at 68% of the advertising revenue someone else must be paid a fraction for their traffic if the total TAC is to reach 21.3%. Either that or the domain channel (and other channels) are actually aggressively smart priced downwards.

Due to the lack of transparency it’s more likely this is the case and that no one is actually getting paid anything like the stated high values. Given the inverted shapes of the CTR and EPC graphs this is entirely more likely.

It’s all very easy to get angry at Google and demand our “fair share” but let’s face it…..they are actually obligated by their shareholders to maximise shareholder value. So don’t be surprised by this type of activity. The bottom line is that Google has been constantly reducing their TAC so that they ca be more profitable. They have also been buying domain traffic at massively reduced rates….

There is very little that we can do about macro-economic impacts to the domain industry like the one from China. Sadly, we just need to ride these out. However, as an industry we need to be constantly looking for solutions that pay more for our valuable traffic.....more on this later.

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.