Quality Score KO’s KPI
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Written By Reprise Media | January 10, 2006 | Share This
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Yesterday, Fathom Online released its Keyword Price Index (KPI) for December 2005. According to the report, cost-per-clicks dropped 1% during Q4 of ‘05 and 16% overall in the past year - a “downward spiral” in keyword prices, according to MediaPost.
With that in mind, Dan Grossman attempts to answer the question Fathom’s report has led many people to ask - specifically; why does Google’s stock continue to rise despite the fact that CPC’s appear to be falling? Dan provides two reasons:
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Overall spend in online search continues to rise dramatically
Investors believe Google will eventually develop revenue streams unrelated to search
While I don’t disagree with either of those points, I have two other ideas of my own.
First, Fathom’s sample size of 500 keywords is not representative of the entire universe of advertising opportunities available on Google. There are literally millions of unique keywords being purchased in the search marketplace today. Furthermore, the KPI doesn’t include either proper or brand names — keywords that typically deliver significant volume at higher average CPC’s. (In fairness to Fathom, they acknowledge this shortcoming in each of their reports. Whether or not the press picks up on it is another story…)
Second, and more importantly, Google’s stock continues to rise because it’s CPC’s simply ARE NOT falling. And even if they were, there would be no way for Fathom, or anyone else, to know that was the case.
How can I be so sure? Because of Google’s “Quality Score,” a topic I’ve written about on several occasions in the past.
For anyone not familiar with this concept, Google defines Quality Score as “the basis for measuring the quality of your keyword and determining your minimum bid. Quality Score is determined by your keyword’s clickthrough rate (CTR), relevance of your ad text, historical keyword performance, the quality of your ad’s landing page, and other relevancy factors.”
This essentially means that two (or more) advertisers could be required to bid completely different CPC’s to occupy the same position against the same keyword. In other words, the advertiser with the “better” Quality Score might have to pay just $.10/click for the top position against the keyword “wireless accessories,” while an advertiser that’s been penalized for poor ad copy, a landing page that’s light on content, or some other “violation” would be required to pay $.50/click for the same position.
So, how can Fathom possibly say that CPC’s (across Google, at least) are up, down, or flat? Fact of the matter is, thanks to Quality Score, Google’s auction is no longer truly democratized. And regardless of whether the bid market becomes less competitive or Google successfully develops new revenue streams, Quality Score is the reason why it’s stock price will continue to rise.
Topics: Google: AdWords |
I don’t know much about democracy
but good point, Peter. There is no evidence to prove that keyword prices are indeed dropping. The fall is a story of wild and way-out changes in performance, some harmful to our clients. I also know that nothing is set in stone. I would hope that advertisers as a whole are given a break in the New Year from these overzealous minimums brought about by the new QS system.
I get the quality mandate, but the impact has been painful for many legit advertisers as well.