During Google's Q2 earnings call yesterday, Sergey Brin admitted to a rare mistake: The company pulled back too much on the number of keyword ads it displayed, and the strategy backfired.
Why would Google (GOOG) cut back on keywords ads to begin with? The idea was to enhance performance: eliminating lower-performing ads means higher click-through and conversion rates for those that remain, and theoretically higher bid prices. (As well as a better user experience.) Google has reduced the number of keyword ads on results pages by more than 40% in the past 6 months from an average of 6.5 ads to 4 ads, according to AdGooroo's Richard Stokes.
Smart up to a point, but Google went too far. Whether because of the cuts, the economic climate or some combination, AdWords revenue and paid clicks were down sequentially from the previous quarter, for the first time ever.
So, can Google just put back the ads and fix everything in Q3? Maybe not, says Stokes, who has been warning about decreased keyword advertising for a couple of months now.
First off, when Google started its "ads quality" program last year, it culled the herd of AdWords advertisers, meaning there will be fewer advertisers to bring back into the fold. Realistically, Stokes says, Google can raise keyword ads 20% in Q3, but probably not more. Second, consumers got accustomed to less advertising clutter, and so did the advertisers. Presented with more ads, it's hard to know what the conversion rate will be. Advertisers will have to accept a lower rate, and it could take time for bid rates to adjust.
Still, if there's a time to try it, it's now, because ads ususally pick up in Q3. So get ready for more keyword ads on your search results. Meanwhile, Stokes has been charting the missing keywords ads on Google for the past year:
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On February 28, Axel Springer, Business Insider's parent company, joined 31 other media groups and filed a $2.3 billion suit against Google in Dutch court, alleging losses suffered due to the company's advertising practices.
