Drilling Into Google’s Decline In Paid Clicks

More doom and gloom on the paid search side for Google. comScore is once again reporting a drop in sponsored clicks, something that also happened last month. After last month’s fallout, comScore did a lot of further analysis shared at the Searchscape panel at our SMX West conference and online to ease concerns that it meant the sky was falling for Google and the US economy in general. comScore Paid Search Data & How The Sky Might Not Be Falling from us has more background on this. But how do things look for the second month running? I’ve done some drilling into the numbers, with lots of pretty charts. But frankly, it’s anyone’s guess. We just don’t have all the information needed.

Let’s first go back to main explanations I saw trotted out for last month’s decline:

• Google is dropping low quality ads, it’s said, to protect its overall ad relevancy
   
• The clickable area for an ad was tightened in November, which may have resulted in a decline in clicks

OK, now we’ve got another month of decline. I think we can discount the clickable area theory. That made sense for the drop between November and December. But last month’s news was about a December to January drop — and now we’ve got a January to February drop. That’s well beyond when you’d expect the clickable area change to have an impact.

Let’s do some numbers and charts, and see what we can find. I don’t have a full year’s worth of data. I’ll see if I can get that from comScore. But I generally don’t like comparing a particular month to a prior month, anyway. I want to see a trend over time. Not having a full year means I can’t tell if there’s been a general post-holiday decline in paid clicks. But I don’t think this is the case, since we haven’t seen this attention and panic over the numbers before. They haven’t seemed to have been in decline before.

The first chart below looks at the change in sponsored clicks for the five major search engines over the past three months, from comScore data:

You can see that Google is in negative growth territory, but at least the decline is reversing. It went from a 6.6% decline in sponsored clicks between November and December 2007 to a 7.5% drop between December 2007 and January 2008 to a reversal in fortunes, a decline of 3.1 percent between January and February 2008.

Notice also that Google is the only major search engine to see an actual rise. All the others saw a drop from January to February. I have no idea what this means or why it might be happening. Speculate at will.

Let’s look at the same figures differently. The chart above is the percentage change from one month to another. How about the raw numbers?

Figures above are in millions of clicks. You can see the Google drop, leveling off in the last month a bit. But it also gives you perspective on the other major search engines. On a percentage basis, they’ve had big spikes, sometimes upward. But looking at raw numbers, nothing is so dramatic.

What about the fact that in February, you had only 29 days compared to 31 days in January. Could two days really make that much of a different to Google’s growth or decline? Actually, yes:

OK, here’s what’s going on. The blue line shows the figures most people are talking about, the month-to-month percentage change in sponsored clicks. The red line adjusts for the days of the month. I took data from November & December 2007, and January and February 2008, and divided the monthly figure by number of days to get an average daily figure. Then I compared the average daily figure between each month.

Result? You can see that the December drop initially reported would have been more dramatic if a day had been removed, to properly compare it to November’s 30 days. The January figures are exactly the same, because December and January have exactly the same number days. And adjusting for February’s missing two days? That puts Google into positive territory.

Let’s go for one more chart:

That’s the percentage of search pages estimated to have ads on them. I have more data for Google because comScore published those figures back farther. Google has far less coverage than any of its competitors, and that coverage has been dropping.

Aha! Well there’s the answer! Fewer ads, therefore less paid clicks, therefore Google’s in trouble. Actually, we don’t know. I’m not going to get into the clickrate on ads this time. I’m kind of tuckered out. But if fewer people are clicking on ads, then coverage isn’t everything (for the record, Google was at 12.7% clicks on sponsored searches in relation to overall searches in November 2007 and was at 10.6% for February 2008).

But it’s not as easy as that. Perhaps advertisers are paying more per click? If so, then all this speculation on what the paid click rates mean to Google’s bottom line remain that, speculation. To quote UBS analyst Benjamin Schachter in a recent research report:

The bull case here is that even though Google may be showing fewer ads, the ads are of higher quality and therefore, they are able to charge higher prices. This is true in theory, but the increasing price is not likely immediately manifested in the auction or through minimum pricing. Overall, improving quality and showing fewer ads is the right thing to do for the long-term health of the Google ecosystem, but may come at the expense of near-term revenue.

We won’t know until Google actually posts figures. And when it does, remember there’s the complication that those figures contain clicks from contextual advertising, as well as paid advertising.

For more discussion, see here and here on Techmeme.