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A report in relation to Google’s earnings has come out and there is a lot of talk about the 6% drop in cost per click for 2012 Q4 compared to the same period in the previous year. Earnings increased 36% mind you, but why would cost per click decrease? Google has pointed the finger at mobile search and the difficulty in getting higher click costs. Since mobile is really taking off, its natural that the cost per clicks will decline as a result due to the market still maturing. Done. Lets move on.

Not so fast. I have in the past talked a lot about how search encryption is affecting advertisers who want to analyse their organic traffic. I’ve talked about it when comparing SEO and PPC and also discussing Analytics. The simple fact is, companies are being FORCED into PPC as they are now no longer able to transparently see keyword data due to the ever increasing level of encryption.

But what has this got to do with Google’s earnings and the drop in cost per click? First have a look at this graph (original image taken from Techcunch):

Google CPC earnings drop

I have put 3 lines where there was a noticeable roll-out and implementation of search encryption. The first in blue is the October 2011 launch of encrypted searches for anyone logged into a Google account. The Orange link is the introduction of encrypted search for Firefox 14 users and the light blue at the end was the launch of iOS 6 and encryption for users of Google search in Safari.

What has this got to do with lower cost per clicks? By Google encrypting most of the organic search traffic coming in through mainstream browsers as well as its logged in users, this effectively forced advertisers to move to paid search. The reason for this shift was to get accurate data and since paid search allows advertisers to see keyword terms, it proved to be the only real workaround.

The key outcome is that businesses now started to ramp up bidding on their own brand name and branded search terms, just so they can analyse incoming traffic. Previously this made no sense as this traffic would come to the site regardless and Analytics would show this information clearly. With encryption, to see data, advertisers are bidding on brand terms which in virtually all cases, cost a fraction of what non-branded terms do. With the flood of businesses forced (harsh word but true nevertheless) into paid advertising, could this be another reason for overall spend increases in Q4 YTD yet lower CPCs?.

Take one of my client’s example below:

Branded CPC costs

For this client the average CPC for branded terms was only 26c. This compared to the non-branded term average coming in at $1.63. This is a huge difference in terms of CPC. However if we remove branded terms from the equation it only affects Google’s pocket by about 30%. So that’s 30% extra Google makes in this campaign because we added branded terms however at the same time, even though revenue is up, Campaign average CPC is much lower. Sound familiar? What was Google’s revenue growth while CPC was decreasing? 36%. Hmm..

This seems very simple and I know I am using a campaign which is not statistically relevant by any means and I understand that.. I understand that the numbers I got from grabbing the first campaign I could find is not the way to go about testing a theory. Duly noted. My question is however, how many big advertisers are forced to bid on brand terms as a necessity and pay a nominal few cents a click in order to see their data? Could this add up significantly enough to start skewing Google’s cost per click average?

I’m sure this isn’t the only reason for Google’s revenue numbers, and citing mobile is a legitimate and notable reason but how much would encryption indirectly lead to this drop? Is this something Google is uncomfortable about disclosing as they are effectively letting people know that they have forced businesses into paid search? Firefox and Safari don’t want this type of information out in the open because if anything comes of it, they have a lot to lose from the additional search advertisers coming on board.

Now with Chrome joining suit in encryption, it would be very interesting to see whether we see another drop over the next quarter in conjunction with an overall spend increase. I await the next batch of figures.

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