Is Adwords Flawed?

Provocative headline: Google AdWords: soon over-priced with poor ROI

Poor ROI is easy to understand, to those who are actually measuring ROI, that is.

Donna also reasons:

What are Schmidt, Sullivan, Scoble and Malik missing? Google’s unprecedented gross margins and a seemingly unstoppable bid price inflation are derived from the Google-centric auction system which is economically dependent upon price inelasticity of demand“.

Meaning that people don’t care much about the price of clicks, until they get close to a negative ROI position. Certainly, the clicks will top out – there’s no way anyone can make money on, say, ringtones if the CPA is, say, $1000 via PPC.

Perhaps Google aren’t telling us something. Perhaps they know that most keyword inventory isn’t bidded upon? There’s near infinite headroom? And perhaps they will increase page views i.e. increase the traffic pumping through the system?

  1. dburdondburdon09-21-2006

    Peter,

    I read the ZD Net article. the author has a point. From experience there’s anything from 10 to 90% wastage in most owner managed Adwords campaigns. When this wastage is tackled – as it will be eventually – Google unit margins will be under pressure. The bigger an item Google becomes on the advertising budget, the more scrituiny they’ll be under.

  2. Peter Da VanzoPeter Da Vanzo09-21-2006

    Agreed, although I’m often surprised at how many organisations treat it as a discretionary spend.

    I agree that the price will come under pressure. It already is. What Google needs to do is increase volume.

    Also, with a CPA model, the price should go a lot higher in many sectors.

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