Trouble For Google AdWords

On July 16, I complained about AdWords, Google’s advertising platform, and cited decreasing return on internet advertising as a short-term weakness for Google. I pointed out that eBay didn’t suffer during the week that it pulled its ads from Google, and related my own experiences with Google AdWords. I wrote, “I’ll keep watching Google for a better entry price.”

Well, we got it. Since that article, GOOG has fallen more than 7% as of yesterday’s close at $512.51. I continue to think that the Google competitor we own in The Kelly Letter has more potential for appreciation because it’s:

> Beaten down

> Well-positioned for changing advertising trends

> Benefiting from new management

> Not expected to do well, thus primed to pleasantly surprise

Since my article, others wrote in with their own AdWords experiences, and not one of them was positive. Most people contacting me asked that I not reveal the details of their stories for fear of having competitors take their keywords, start rival sites, and such. Unfortunately, without the details, most of the stories lost their impact.

However, Ron Davis agreed to let me reprint his story:

I specialize in training seminars for companies that want to implement business intelligence solutions using Microsoft technologies such as Sharepoint and BizTalk. That is what I was advertising on Google AdWords. Most of my traditional business comes through brokers who scout companies for needs like these. If I eliminate the brokers, [I keep more profit].

I used all of the key words that match business intelligence searches and had zero results over a 90-day trial period. I know companies do these types of searches yet I had no success and was lost as to the why until I read your stats on the organic searches.

I’m afraid the text ad gig is at a major inflection point.

Google’s text ad business was brilliantly conceived and implemented. The reason its text ads destroyed banner ads is that they were unobtrusive, new, and looked like informational links. When you searched five years ago, the ads often provided the best information on the results page because they hadn’t been hijacked by the spam gang yet.

Now, all that’s changed. The proliferation of Google ads across the Internet, including on my own sites, has taught people that they are ads, not additional useful information. Just as banners lost their appeal, so have text ads. The click rates are dropping, as the studies I cited a few weeks ago show, and as my own experiences and the experiences shared by my readers reflect.

So, advertisers get fewer results. Oddly, they end up paying more for them because the cost per click — when the clicks come — is now too high.

Ads are no longer dominated by genuine sellers of services that might be of interest to people searching on certain keywords. I was an early adopter of Google’s keyword text advertising, and it worked for a while. Using PayPal and Google ads, I sold a book I’d written on how to pay for long-term health care.

In less than a year, that business went from very profitable to barely breaking even to losing money solely on the increasing price I needed to pay per click. I paid more money to achieve fewer sales, and both trends continued to the point of making the campaign damaging to my bottom line rather than beneficial. My ads were copied and outbid by others, and I suffered from false clicks by competitors attempting to drive up my costs so much that it was no longer profitable for me to advertise.

It worked. I no longer advertise on Google, or anywhere else for that matter. Prices are so high on Google and the results are so low, that only major companies are using the service much anymore. The small businesses that made the text ads so appealing in their early incarnation, are gone. The usual gang that dominates advertising, and the spam gang that dominates online activity, have taken over.

When was the last time you clicked a text ad to your satisfaction? I can’t even remember, because I stopped clicking them ages ago. I can tell from the decreasing revenues from Google’s ads on my sites that others are clicking less, too.

Look to the left of this paragraph. See that ad block? Go ahead and try clicking some of the ads in it, and see if you go anywhere that has even the slightest chance of getting some business out of you. Probably not, yet that ad block is supposed to serve relevant ads that help you, the potential buyer, and the sellers who are paying for your clicks. They used to do just that. These days, they don’t.

Lower income for me means lower income for Google, assuming that the accounting is done properly. I’m just one small example in Google’s vast client roster, but not meaningless. If people are clicking less on the context-sensitive ads on my sites, perhaps they’re clicking less elsewhere, too.

Indeed, that’s what studies show and that’s what readers report.

Coming Soon: More free online stock screeners recommended by readers, swing trading versus buying and holding, and the accusation that my permanent portfolio strategies are “beyond ludicrous.”

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