Why Google Adwords and Yahoo! Overture are overrated

As Google’s stock price continues to come back to earth (sort of), and the company acknowledges some weakness in revenues, it is a good time to remind Web developers and designers that Google’s AdWords program is a bit overrated. It is important for you to help your clients understand that CPC is not a panacea or silver bullet, but only one part of a marketing campaign.

Here are the problems with CPC advertising (and my major assumption is that you are a savvy businessperson who measures the cost per order and compares it to your unit margin, so you know which marketing tactics are profitable and which are not):

1. For general but very popular search terms, you end up paying so much money that it is hard to break even on your marketing. If you reduce your top bid amount, you may find your key words inactive or rarely show up on Google-sponsored sites.

2. For highly specific search terms, you may find some bargains (or not; some specialized terms command $5 per click minimums). Even so, the clickthrough numbers end up being low and you don’t attract many people to your site.

3. In bidding situations, many people are willing to suffer the “winner’s curse.” That is, they bid a high CPC rate to get visible, but end up losing money in the long run. More savvy marketers will not fall for the winner’s curse. While this should drive prices down in the long run, there may be enough demand out there to keep the winner’s curse alive. Regardless, for savvy marketers, it again becomes difficult to use Google to drive signficant and profitable volume.

What does this mean for you and your clients?

1. Never forget about good old fashioned educational marketing: speak, write, do research/surveys, send out a newsletter, and issue press releases to set you up as the expert in your field.

2. There are plenty of low-cost and high-impact ways to get visible: referrals, membership and leadership in your market/community, and building strong relationships with current customers.

3. Continue to test other direct marketing vehicles like postcards and letters. Also test advertising that drives people to your website.

Personally, I can’t believe Google’s stock price has reached into the $300 range. I think as more and more people learn about AdWords and test it out, you will see a continued pull back as they find that it is a fine service but not a panacea.

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  • Mike Empuria

    Sorry Andrew. Am I being thick here or do you mean Adwords?

  • Gator99

    Adsense is a way to generate revenue for your site, basically a percentage of the folks paying for adwords, which is what you must of meant.

  • http://www.designity.nl peach

    yeah that’s adwords not adsense.
    Stating that adsense and Y!(PN) are overrated is not going to be taken in kind by the publishers over here.

  • aneitlich

    My bad, I meant AdWords and have edited the post.

    Apologies to all.

  • http://www.revmedia.com dhecker

    Andrew I think you are coming from an old-school perspective here. While I agree with your general analysis and that the Google stock is overvalued, I think that it’s hard to deny that for MANY online marketers Adwords is very effective.

    I would conclude that Adwords is not overrated – instead, it’s just not easy and not the right fit for many marketing efforts.

    I have a client who is seeing such an incredible ROI on Adwords/Yahoo! that we are actively seeking other vendors so that we can expand the campaign (G/Y! are out of inventory for our keywords). There are lots of success stories, but like almost everything on the Internet, it’s not nearly as easy as it looks.

  • aneitlich

    Hi dhecker,

    I think you are supporting my point. My ROI on parts of Adwords/Yahoo! is also off the chart on certain words/products. But I already have budget set to $10,000 per day on those campaigns and can’t find a way to spend more than $100 per day.

    So we both have to rely on other channels.

    That’s point #2 above.

    At the same time, I also agree with you: I am very old school!

  • http://www.developedsitesales.com Cutter

    I think you are partially correct about this. PPC is just a piece of a much larger pie. You still need a good product, revenue model, converting website, and more behind that campaign. That being said, I don’t think PPC is overrated. It has had a massive impact on the way many companies (especially small business) make sales online.

    What I personally like about PPC is that I can immediately drive targetted leads to a site. This allows me to test out conversion rates and interest before throwing bigger, long term marketing at it.

  • Mike Empuria

    I’d love to see this discussion continued between Andrew and Brendon (Sinclair). Both would agree on the points about becoming an expert, referals, word of mouth, strong relationships, testing etc. as a great way of marketing yourself but whilst Andrew is now doubting that AdWords is the next best thing, Brendon would disagree. He talks about AdWords as a successful marketing tool in his podcasts/blogs and gives stats to back up his reasons. As both are successful businessmen and (dare I say it) “gurus” I wonder who would win the discussion? I think a Feature Article beckons!

  • Jake

    Hmmm, this is a tough one. I guess it depends on your target audience and how much you are willing to spend to build a long term profitable company.

    Andrew, you are very old school, but what works for you works, and may or may not work for others. I like adWords for some things but not for others.

  • aneitlich

    Jake,

    Great point in your last paragraph. AdWords is a very useful tool, not a panacea for all people. But — ALL PEOPLE should carefully track and test their marketing. Start small, and expand what works. One of my beefs with AdWords is that often there is no place to expand except outside AdWords; it simply doesn’t generate enough traffic (all the time).

  • wildscribe

    I think Google Adwords is awesome. I do agree that a sucessful marketing campaign requires more than just using Adwords, but based on my experience, I do not think Adwords is overrated.

    Whether Adwords works or is cost effective, I believe depends on the type business using it. In my case, Google has saved my employer at least $40,000 a year. My employer is in the commercial real estate business and until last year, the company was spending nearly $63,000 annually for real estate classified ads in the New York Times and other newspapers. These newspaper classifieds did bring in many leads and did pay for themselves and then some. However, as ad rates grew we started looking for alternatives.

    We decided to try Google Adwords. At first, we limited our budget to $15 per day. Within two weeks, the $105 per week we were spending on Adwords was bringing in more leads than the
    $1,200 per week we were paying the New York Times. After the ad contract expired, we stopped using the New York Times and doubled the budget for Adwords.

    Unfortunately, other real estate companies discovered adwords too. The per-click cost for the better keywords has risen from $2.50 – when we started – to almost $5.

    However, even with the increase, the company is still way ahead with Adwords. For example, a client found my employer from Google adwords, and has signed a one-year agreement to rent office space at a cost of $120,000 annually. If a broker brought in the deal, the commission would have been $12,000. This one commission alone pays for a big chunk of the annual Adwords budget.

    However, I can see where Adwords might not be as profitable for other types of businesses. If I was selling music CDs and only making $2 per sale, it would not make much sense to spend a lot of money on Adwords unless it brought in a lot of sales.

    Andrew, I have been reading your blog for more than a year and I have learned a great deal from you. But in this case, I don’t think you are looking at the big picture. Maybe you should write about what when using Adwords makes sense rather than calling it overrated.

  • http://www.interactwebsites.com InteractWebsites

    We just picked up a new client that has spent over $230k in the past 12 months with Google AdWords. Over 50% of that being irrelevant traffic. Meaning they were using too many broad search terms combined with non-specific ad text. We made some very small changes and have saved them over $400 per day in the last few days.

    Simply amazing the kind of money that Google can make from people who just don’t get it. Another example of a company trying to do it all on their own. Like somehow that proves something. I think quite the opposite.

  • fishthai

    I opened a guided fishing tour company based in Thailand 11 months ago and on a very small budget had a website made by a friend. The website would simply not appear in search result listings (at least not the first 50 pages!) It only had a PR ranking of 2, so while I worked on having the site re-designed, promoted and gaining a better PR – I signed up with adwords. Due to fishing tours around Thailand being a very specialist market, with very little competition, the cpc was averaging 3p, and again due to adwords my site would be listed right at the top of the search results and business immediately picked up. Now I have built up enough capitial to advertise in tour guide magazines and publications, also I have had my site re-designed and is doing better, with the customers adwords generated for me I have had many repeat customers and word of mouth is already putting the word out about my fishing tours. We are almost fully booked this month and the trigger to getting my first customers was definately adwords. I am an example of how a small new business in a specialist market can benefit from adwords.

  • CuriousGeorge

    I have a question for the community: what characteristics do you think best suit a company to utilize the true span and grasp of Adwords? What recommendations would you give to an entrepreneur contemplating using such a tool?

  • Stevie D

    However, I can see where Adwords might not be as profitable for other types of businesses. If I was selling music CDs and only making $2 per sale, it would not make much sense to spend a lot of money on Adwords unless it brought in a lot of sales.

    If you’re making $2 per sale, and being charged $5 per click, that means that each customer lured through Adwords has to buy 3 items or more for it to be worthwhile.

    The key here is getting people who have found your site through adwords to bookmark it, or remember the url, and return to it directly. If they return through PPC adverts, they’re costing you money.

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