Google Leads Others In CPC Inflation

Google vs. Others

Google takes in nearly 77% of the total search advertising spend, as of Q4 2007, and raked in 97% of all ad spend increases, according to a study by Efficient Frontier. Despite Nielsen's recent report that Google search share had slightly decreased, numbers like these on the advertising revenue side could mean good things for a flagging Google stock price.

We'll know more about that when Google releases its earnings report in few days.

Efficient Frontier conducted its study by tracking campaigns of clients between Q4 2006 and Q4 2007, covering 17 billion ad impressions and 270 million clicks on Google, Yahoo, and MSN. The clients were advertisers in the Finance, Travel and Automotive sectors.

Google Leads In Search Spend and CPC Inflation

Google's share of the search spend increased by 8.6% last year, growing from 70.5% to 76.6%. ROI on Google increased by 7.5%.

That kind of dominance is a blessing and a curse for advertisers as Google's search share presents a cornered market and larger audiences, but Efficient Frontier also says Google's universal search and expanded broad match updates didn't do much to affect campaign performance.

Thanks to increased competition and a change to the AdWords algorithm in August, top positions have become costlier in terms of CPC bid prices. In fact, Google led the other two search engines in CPC inflation last year as CPC prices spiked 22%, half of which occurred in Q4 following the AdWords algorithm update.

The AdWords algorithm update did not appear to have an effect on click-through-rates, which remained steady in 2007 until a 12.5% increase in CTR in Q4 2007. Google penalizing sites with poor landing pages is thought to be a direct factor in the increased CTRs.

Despite the increased cost on Google, Efficient Frontier still names Google as the engine of choice because of the sheer volume of referrals it generates.

Yahoo ROI Up, Search Assist Kills CTR

It sounds like mixed results for Yahoo. While advertisers enjoyed a 39.4% increase in ROI since Panama was completed in February 2007, the overall ad spend on Yahoo declined by nearly 4%, leaving the company with just 17.9% of the search spend.

The ROI wasn't enough to make up for the declining volume of searches on Yahoo, which led to lesser investing in Yahoo search advertising. In addition, Yahoo Search Assist, which allows users to refine searches, possibly led to a 34% drop in CTR last year.

MSN Is King of the Molehill

The good news for MSN is that it leads the other engines in ROI and CTRs. The bad news is, hardly anybody using it, which means there's less competition affecting ROI and CTR. MSN pulled in 5% of search engine ad spending last year.

But things are looking up. Though CTRs were 50% higher on MSN than Google last year, that statistic actually declined 16.5% between Q4 2006 and Q4 2007. Efficient Frontier suggests increased competition as a reason for declining CTRs on MSN.