Declining ad rates leaves Google exposed to Facebook blitz

When Google Inc. (NASDAQ: GOOG) released results of its second quarter ending June, the company generally displayed a solid quarter both on the basis of earnings and operating cash flow. The company had a remarkable 22% revenue growth. Even so, the search engine giant could not help but notice a disturbing trend – a continuing quarterly decline of its ad rate otherwise referred to cost-per-click (CPC).

Cost-per click is the price advertisers pay every time potential customer clicks on an advert. Google’s ad rate has taken a downturn over the past few years, and this decline has been linked to pricing pressure from other digital marketing firms such as Facebook Inc. (NASDAQ: FB), which is getting it right in mobile advertising.

While the search engine multinational still thrive with its businesses, it cannot ignore this negative trend that threatens its reign as the digital marketing master. The company has therefore hatched a plan to restore stability on its ad rates.

Comparing Google and Facebook on Ad Rates

In digital advertising, conversion rate is the key to success. Advertisers are happy if a good number of people who click on their ads end up buying the product. So ad rate should be directly proportional to the advertisement conversion rate.

The plan to stop declining cost-per-click must start with proper analysis of the market data. However, since Google gives its customers a free hand to customize their adverts, the company needs to provide them with improved tools. If the results are better, then customers will not even notice the higher fees.

In order to improve the conversion rate, the Google needs to tailor its adverts for specific audience. Actually this has been working for Facebook, which posted impressive revenue growth. The social media giant uses its ever increasing user data to customize ads visible on users’ pages.

Last quarter the Mark Zuckerberg’s firm garnered about $3 billion in revenue. While the revenue growth was driven by increased sale of ads, we cannot ignore its well tailored ads that attracted advertisers who were willing to pay without second thoughts.

Shopping Campaigns: Google’s response to Facebook threat

Already Google has AdWords and merchant accounts which its clients use to monitor different performance metrics of their posted advertisement. But if you compare these tools with Facebook’s, Google clients, to some extent, have limited options. This is why Google is planning to introduce a more comprehensive analytic suite for its customers.

Google has introduced Shopping Campaigns for Product Listing Ads (PLA) to help its advertisers to easily promote their products and connect with their consumers online. The new service rationalizes items management, has advanced reporting and provides comprehensive insights. According to Google, the new system will enable them which strategies are working so that they can adjust their efforts effectively.

Conclusion

It is undoubtedly true that Google’s ads business dwarfs Facebook’s, but the latter is quickly leaving the minion zone and this is a reason enough for the online search king to worry about. The good this is Google always learn from mistakes and it cannot afford to ignore the threat posed by the social media network. So it has already begun to explore ways to improve its worrisome ad rates. However, the game is on until the search engine giant does something about its floundering mobile ad business.