Why AdSense Earnings Are Sharply Dropping

WebmasterWorld has another thread about lowering AdSense prices.

When the economy is good and advertisers have robust ad budgets, an ad network might be willing to sell them whatever they are willing to buy. If the advertiser wants to overpay for some ads and associate that spend with branding then so be it. But when the economy slows down, the ad marketplace needs to separate the best ad inventory from the weakest ad inventory to protect the rates of their best ads.

From Google's perspective, search is the golden goose tied directly with conversions. Syndicated ads, which can lead to conversions, may often carry a premium price based on branding value. Here are some of the forces that might be lowering AdSense earnings

  • Some brand advertisers cutting their ad budgets, trimming brand related ads before they cut direct response ads.
  • Those brand ads being replaced by less trustworthy ads from smaller advertisers who bid less and are less likely to get clicked on.
  • Google changing the clickable region of AdSense ad units.
  • Google lowering the estimated value of content clicks to help protect the value of search clicks and shift more of their network spend toward search.

Given Google's market dominance over the contextual ad market there is virtually no floor to how low they can price AdSense ads on non-premium publishing partner websites.

I have one site where the ads are AGGRESSIVELY integrated into the content, where that site gets thousands of search driven visitors per day in a big money vertical. That site has a CPM rate which is roughly equal to what one to two clicks would cost if I had to buy that traffic from Google directly (rather than me arbitraging their organic search results then selling that traffic). Clearly there has to be a better way to monetize that site. The ad prices are so cheap that I would be the buyer if I had a higher value model in that space.

If you have been using AdSense as a business model now is a great time to create new revenue streams and test shifting from an AdSense ad seller to an AdSense ad buyer.

Selling Ads Without a Precise Brand = Bad Business Model

JP Morgan Chase published a research on internet companies titled Nothing But Net [PDF], hyping the future of web ad growth.

Yahoo!, a leading internet brand (a brand that means nothing) is up for grabs. The NYT, a generalist news company, is also seeing their stock tank, in spite of a market leading position in their vertical.

As large media sites open up to user generated content they are going to keep losing brand and value to niche channels owned and operated by people who are so passionate about their subject that their brands have purpose and lasting value.

What a Microsoft Acquisition of Yahoo Means to Webmasters & Web Publishing Business Models

As a person who has studied search for many years I thought I would analyze how I thought a Microsoft acquisition of Yahoo could change online publishing and internet marketing strategy and business models. This post assumes that the purchase goes through with Yahoo's board and regulators, and that the underlying search architecture and ad platform of Microsoft is used rather than Yahoo's current mess.

Organic Search

  • Yahoo! Search is stale. They place way too much on user generated content and worthless tag pages located on sites with a high authority score. Microsoft Search makes it much easier to rank pages on lower authority sites so long as they have fresh inbound links.
  • Like Google, but unlike Yahoo, Microsoft places significant weighting on domain names in their relevancy algorithms.
  • Microsoft closed their small business directory. Many of Yahoo's regional directories no longer accept paid submissions. It is uncertain what parts of Yahoo might get killed off in staff cuts before and after the acquisition. Submit to the Yahoo Directory while you can.
  • Yahoo Shopping and Microsoft Shopping are two of the bigger shopping sites clogging up Google's search results for many queries. A potential merger of these could help the top one rank better while freeing up space for other competitors.
  • Yahoo places 4 ads above the fold for commercial searches, driving down organic search results. If Microsoft buys them and runs fewer ads to win marketshare that allows more of the organic search results to receive a solid stream of traffic.
  • Yahoo offers a paid inclusion program to sell rankings in their organic search results. If Microsoft buys Yahoo I believe that program will be phased out as it is hard to image that it makes as much profit as it costs in public relations damage, especially if Microsoft intends to catch Google in search.
  • Yahoo! News is the leading news site on the web. If Microsoft combines that asset with default installed desktop widgets on Vista they can further enhance that market position.
  • Microsoft is bad at following 301 redirects, but they have had that problem for a while, and one would hope they would get that fixed prior to powering Yahoo! Search.

SEO Recommendations

  1. Spend some time tracking rankings in Microsoft to better learn their relevancy algorithms if you have not yet studied them.
  2. Ensure your website has a fresh content strategy or reason to keep picking up new links.
  3. If possible, when starting new projects, try to build them on domain names that match your primary keywords.
  4. Submit to the Yahoo Directory while you can. If the Yahoo Directory dies off it may create a hole in the market leaving a profitable business model for another directory or even a site like Mahalo to take its place as a leading generalist editorial catalog of websites.
  5. If domain authority (i.e.: running few large sites) was a big piece of your search strategy creating numerous smaller niche sites once again became a profitable strategy.
  6. If you were reliant on paid inclusion for traffic that traffic stream may dry up, so your best off learning about Microsoft's ranking algorithms ASAP.
  7. Check to see if your site meets the requirements to be included in Yahoo News.

PPC Ads / Paid Search Advertising

  • Yahoo! Search's ad platform is still exceptionally clunky. In spite of being recently upgraded they still do not have a public facing keyword tool and only let most advertisers use their keyword tool while they are in the middle of creating a search campaign. Microsoft, is much more open and innovative with their ad platform and advertiser tool set.
  • Google has been hoarding data for years without giving much of it back to prospective advertisers. When Yahoo upgraded to Panama they followed Google's path. Microsoft recently launched an Excel ad plugin that shares a ton of useful data with advertisers. If Microsoft buys Yahoo! their data will become more accurate and likely force Google to show more aggregate advertiser data.
  • Ad campaign management gets easier because advertisers only need to maintain two ad accounts, which might make self-management of search campaigns more practical for small businesses.

Pay Per Click Ad Recommendations

  1. Open an adCenter account using this coupon code for $50 in free ads, and set up your adCenter account to get used to their interface and ad platform.
  2. Use the Ad Intelligence plug-in to see how sweet it is.

Display & Contextual Ads

  • Microsoft purchased aQuantive earlier this year to own large scale display ad serving capabilities.
  • Yahoo has more pageviews than any other website. If behavioral data has hidden latent value they should be able to leverage it across their network and partner websites.
  • This merger will likely take YPN out of perpetual beta, creating a credible alternative to AdSense, which will increase the share paid to smaller publishing partners.

Display & Contextual Ad Sales Recommendations

  1. Display ads likely to fall in value due to recession, and a glut of inventory from social media and other websites, so I still like higher value businesses that remove greater friction from commercial transactions when possible. The one exception to this belief is in game ads, which I see as having a lot of upside if you can publish games good enough to attract a large audience.
  2. The combining of the Yahoo and Microsoft ad networks should create many arbitrage opportunities.
  3. If you have a site that profits from AdSense it is in your best interest to try Microsoft's network after it launches. Odds are that Microsoft will be willing to give publishers a large share to win marketshare, and giving Microsoft a try will help them create a more robust network which forces Google to increase AdSense payouts.

International Search

Short term I believe this acquisition is about gaining momentum in the US market. But Yahoo is strong in Japan. They also have significant market coverage in Spain, South Korea, and China. Microsoft has notable search share in some European countries. Both have about 4% marketshare in the UK. You can learn more about international search by downloading this 2007 Global Search Report [PDF].

I think a solid strategy going forward for Microsoft to gain search share in foreign markets is for them to offer their operating system free or at a reduced price for bundling search in the desktop. They already give away operating systems in exchange for feedback or exposure.

If the Microsoft purchase of Yahoo clears, expect Google to start distributing a Google flavored version of Ubuntu to the general public before the year is out. Inside of 5 years Microsoft's operating system will be free or irrelevant.

If you want to read the documents that started Microsoft's major push toward web search they are here and here.

Danny Sullivan offers some great coverage of the deal here

Microsoft Bids 44.6 Billion in Cash and Stock to Buy Yahoo!

Here is the press release announcing a half cash / half stock offer.

Microsoft Corp. today announced that it has made a proposal to the Yahoo! Inc. Board of Directors to acquire all the outstanding shares of Yahoo! common stock for per share consideration of $31 representing a total equity value of approximately $44.6 billion.

Juicy bits from the press release, which contained a letter to the board of Yahoo!

In February 2007, I received a letter from your Chairman indicating the view of the Yahoo! Board that "now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction." According to that letter, the principal reason for this view was the Yahoo! Board's confidence in the "potential upside" if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved.

and why Microsoft feels the deal makes sense

While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence. Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers. Synergies of this combination fall into four areas:

  • Scale economics: This combination enables synergies related to scale economics of the advertising platform where today there is only one competitor at scale. This includes synergies across both search and non-search related advertising that will strengthen the value proposition to both advertisers and publishers. Additionally, the combination allows us to consolidate capital spending.
  • Expanded R&D capacity: The combined talent of our engineering resources can be focused on R&D priorities such as a single search index and single advertising platform. Together we can unleash new levels of innovation, delivering enhanced user experiences, breakthroughs in search, and new advertising platform capabilities. Many of these breakthroughs are a function of an engineering scale that today neither of our companies has on its own.
  • Operational efficiencies: Eliminating redundant infrastructure and duplicative operating costs will improve the financial performance of the combined entity.
  • Emerging user experiences: Our combined ability to focus engineering resources that drive innovation in emerging scenarios such as video, mobile services, online commerce, social media, and social platforms is greatly enhanced.

Google "Social Network Inventory is Not Monetizing as Well as Expected"

Because social media is new it is easy to hype, marketers do. While I too have hyped the interactive nature of blogs and the web, I find that connecting directly with the end targets and their interests is typically more predictable and more profitable than running strategies through sites like Digg. With that thought in mind, I asked if social media traffic is worth a cent.

Google slightly missed their Q4 whisper numbers, by a wider margin than some appreciate, due to gains associated with weak US dollar value. Paul Kedrosky stated that Google's quarter over quarter gain due to exchange rates was $93 million, and year over year was $200 million.

Why were Google revenues soft? Perhaps analysts were expecting too much. Perhaps the pending recession. Who knows, but the one thing that Google did state as a big weakness was social networking inventory. On the call George Reyes, CFO of Google, said

We have found that social network inventory is not monetizing as well as expected.

Social media has little to no value to advertisers. There is little to no implied intent. It is the exact opposite of focused marketing like search marketing, direct navigation domain names, and targeted affiliate sites. You simply can't put a value on a social media connection like you can on search.

Search Spikes Lower Search Quality & Value

Typically each day or each week some roughly average number of people search for a specific keyword phrase or group of phrases. Some seasonal terms may have well known seasonal spikes, but typically when spikes occur because of news the quality and value of the associated search goes down. Sure more people are searching, but the people who are searching because something is in vogue have less implied intent than those who searched out a specific product even when it is not in the news.

With the Federal Reserve announcing 2 large rate cuts in a week, that topic carried over into the mainstream news, which drove a lot of search volume for related queries

At the same time, the 4x spike in search traffic drives home how anomalous last week was, and how much pressure people are demonstrably feeling. And it also reinforces that rising rates in mortgage markets, despite the Fed cuts, aren't doing anything to relieve the mortgage pressure out there.

There are many ways to arbitrage these opportunities. Off the top of my head...

  • if your site sells ads at a high CPM and you have an excuse for inflating traffic stats, sending StumbleUpon traffic to your site can easily pay for itself
  • if ad budgets dry up you can become a more aggressive ad buyer
  • if you are in Google news or other trusted editorial positions you can get a lot of mindshare through covering the topic and being featured due to Google's promotion of universal search

There is also a hidden cost to testing or tweaking your monetization strategy during rapid changes in search volume. Unless you split test you don't know if the results are positive or negative because both lead volume and lead quality have changed drastically.

But Will it Pass a Hand Check?

A recurring theme in the 2008 link development panel was hand checks and the editorial nature of search, especially from Roger. Great article well worth a read. Thanks Rae!

Is Influencer Theory Garbage?

Duncan J Watts recently published a study debunking the role of influencers in synthetic virtual worlds, then debunking them again by showing how ads spread through the online world. I think the problems with the thesis are

  • machines do not have emotions
  • most of the people spreading the ideas in his studies did not have a large potential gain as a potential outcome of sharing the idea
  • we live in a time of such an abundance of information that information / knowledge workers need to trust filters
  • some filters have publicly available stats showing 10,000's of people trust and follow them
  • the easiest way to target influencers is not through ads, but through content which gets exposure in some of those trusted filters...if your idea starts in an ad box you already tuned out many influencers

The Fast Company article covering the research goes on to state the following

As Watts points out, viral thinkers analyze trends after they've broken out. "They start with an existing trend, like Hush Puppies, and they go backward until they've identified the people who did it first, and then they go, 'Okay, these are the Influentials!'" But who's to say those aren't just Watts's accidental Influentials, random smokers who walked, unwittingly, into a dry forest?

In some cases that might be true, but online you can learn communities and individuals well enough to create content targeted around their needs / wants / passions / biases / identities. You can predict the viability future ideas with some degree of accuracy. And there is so much data to study that virtually anyone can pick up the patterns and start spreading ideas within a few months.

I have changed a few words in a blog post to change the angle of it to target certain individuals. My success rate with getting a mention from the specific personality or person I was targeting is much too high to be an anomaly. Not only have I taken past ideas from other markets and applied it to my market, but I have taken some fundamental social and psychological principals and value related ideas, applied them to markets I know almost nothing about (and have no influence in), and still over half of those linkbait ideas go viral.

And once you give an idea exposure on a leading channel or two (not as an ad but as editorial) you display social proof of value and start the cumulative advantage process.

I am not trying to toot my own horn. Just trying to write from experience rather than theory. Some people, like Andy Hagans, are way better at launching linkbait than I am. The reason that linkbait is so powerful is that it can be so targeted, and it targets the foundation of the web's value system, which typically does not look like an ad - the link.

Ranking Affiliate Sites vs Corporate Search Engine Marketer

Corporate SEO

Recently a couple great videos from Gord Hotchkiss and Marshall Simmonds highlighted the corporate SEO field. Corporate SEO is about

  • ensuring everyone creating or managing content has at least a base level knowledge of SEO and keyword strategy
  • setting up general templates that are useful and optimized
  • clearing away technological issues and limitations
  • smart structuring of information architecture and internal linking strategies (alternate paths for bots, and blocking lots of duplicate content issues, and sometimes even creating automated internal linking strategies)
  • charging a high enough rate that the clients will take you seriously
  • presenting your recommendations in a professional looking document and following up with any questions they have about implementation

Corporate SEO is largely about trimming away the fats and fully leveraging the assets you already have.

Ranking Affiliate Sites

Rather than focusing on cleaning out fats, independent affiliate webmastering is more focused on building value and getting the most value out of everything you can. An affiliate has to focus on...

  • finding under-served markets (and hiding them under a rock to everyone except prospects in the buying cycle, unless you aim to be the most authoritative webmaster in that space)
  • finding loopholes to make a quick buck (see this Shoemoney post about leveraging Google.com's quality score)
  • seeing future trends in the web early, and getting out in front of them (see Roger on video content here)
  • making sure your site looks as credible as you possibly can (get a good site design, a good domain name, and publicise your publicity)
  • setting up a site structure that is well aligned with your keyword pyramid
  • creating a wide array of keyword pages focused on brand related queries (that are thus late in the buying cycle)
  • creating comparison and contrast pages that answer common questions and authoritatively guide people to a high paying solution to their problem :)
  • getting on page SEO as good as you possibly can for each important page
  • changing your site structure based on analytics data and conversion data
  • creating a second page or a second site for some of your top performers that have limited competition
  • keeping your network hidden from Google engineers
  • adding some high value content to your site such that Google engineers hopefully will not want to kill your site
  • writing sales copy that often does not appear as sales copy, tweaking landing pages for conversion, while testing conversion rates over and over and over again
  • scheming for links to build site authority...often creating content built around linking opportunities
  • mercenary promotion (del.icio.us bookmark begging and link begging to friends, emails to related bloggers, getting to know everyone in your field, writing guest articles for authoritative websites, link buying, link renting, joining non-profits and trade groups, other promotional ideas, etc.)
  • making your affiliate site something that some people care about and follow

Which is Better?

I think of the two options, that the affiliate model pays better for most people who really get the web, but you have to be good at a lot of disciplines to make it pay (and it can pay quite poorly unless you are creative or a fast learner). Ranking a few spots higher or improving landing pages can triple your income as an affiliate. Doing both can increase your income 10 fold.

Microsoft AdCenter Affiliate Ad

I put a Microsoft AdCenter affiliate ad in the sidebar of the blog.

I generally do not like putting too many ads on this site, but...

  • their traffic converts well because it is such a clean source (no dirty clickfarm syndication partners)
  • I recently fell in love with Microsoft's Ad Intelligence tool. If you have not tried it yet I urge you to try it. This post and this video offer a review of some of the features
  • $50 in free clicks is a great offer for search marketers who have yet to try Microsoft's ad platform
  • I think the web is healthier if Google has some competition, and Yahoo no longer attempts to compete

Are you against affiliate ads? Have you tried AdCenter or the Ad Intelligence tool yet?

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