Back to Blog

Is paid search the most durable digital advertising channel?

2100 Digital
google-ads-revenue-growth

Pay-per-click advertising (“paid search” or “PPC”) effectively began on October 23 in the year 2000 with the official launch of Google AdWords. Twenty years later, it remains one of the fastest-growing and most durable digital marketing channels available to advertisers.

The drivers of growth in paid search are manyfold, but the primary one is the adoption of search by users over the last two decades. Around the year 2000, it’s estimated that Google processed approximately 20 million searches per day. Currently, Google is estimated to process over 3.5 billion searches per day.

The staggering growth of search engines makes sense given their utility, high speed, low friction, integration with emergent technologies across devices, and the launch of new and free search engines results page (“SERP”) features like images, maps, and news. 

The addition of zero-click SERPs render advertisements even more necessary for brands to generate visibility, and as the tech companies continue to aggressively commercialize the SERP with new ad products, the ratio of clicks on ads relative to organic and other results keeps growing.

The result is that paid search is more competitive than ever with corresponding average increases in average cost per click (CPC), causing some skepticism and reluctance to invest on behalf of some brands. Apart from increased average costs due to pure competition, the dilution of the exact match type and changes to search term reporting render optimization more challenging in the recent year.

Despite these challenges, the costs and value of paid search advertising must be separated in order to accurately guide decision making.

The quality of the intent on the part of the users is what makes paid search advertising worthwhile. A Microsoft study of advertisers using their own Microsoft Ads product (for paid search ads on bing.com) revealed that “on average, search clicks are directly followed by a conversion 2.6x more than clicks from other ad types, including social and video.”

It was unsurprising that even before the pandemic, Google estimated that for every $1 invested in Google Ads a business was returned $2 in revenue.

The COVID-19 pandemic only served to accelerate eCommerce penetration to U.S. consumers with a year-over-year increase in eCommerce sales of 37% in Q3 2020, making paid digital acquisition essential for both growth and market share, and to recapture lost revenues from traditional retail channels.

Converging on this trend is the growth of local search and the propensity to “support local”. Google estimated in 2017 that “near me” searches had increased by 150% since 2015, and Google Trends reports significant growth in #supportlocal searches in 2020 year-over-year.

google-trends-support-local-2020

The relevance of paid search is not limited to consumer intent, however. Google pioneered the advertising auction system which differentiated their paid search product from its inception by placing the greatest weight on “quality score”, a variable designed to measure the relevance of an advertiser to the searcher. 

A higher quality score enables an advertiser to gain a higher “ad rank” in the auction, making them more competitive and allowing them to bid less than competitors with a worse quality score. Thus a smaller but more relevant advertiser can compete effectively with another who has a larger media budget, but is less relevant.

This ability to advertise based on relevance and not strictly on willingness to pay is a powerful incentive, and Google’s advertising customers have continued to reward them for it year after year. Google parent company Alphabet has reported an increase in Google Ads revenue from $79.38B in 2016 to $134.81B in 2019, and is expected to finish 2020 ahead of the prior year, the pandemic notwithstanding.

google-ad-revenues-2000-to-2019

Despite lower market share, Microsoft Ads (MSA) is experiencing a similar pattern of growth, even during COVID-19. Their advertising revenues rose from $5.43B in 2016 to $7.74B in 2020, and the tech giant is now a unique position to capitalize on growth through cross-promotion between the LinkedIn Ads product and MSA, which share an increasing number of unique reach and targeting capabilities.

Given the durability of paid search over two decades during the rise of new technologies and advertising products like social media, as well as its persistence of use by consumers and advertisers during a global pandemic, it will continue to hold its position as a staple in the marketing mix. The level of control available to advertisers and the amazing breadth of search types occurring on a daily basis make it an advisable acquisition channel for nearly any brand for whom the economics are beneficial.

 

Sources

 “Major Google Search Statistics & Facts (2020) First Site Guide, updated December 19, 2020. Link.

 “Google CTR in 2018: Paid, Organic, and No-Click Searches” SparkToro, accessed January 03, 2021. Link.

 “Match the intent of a search with close variants” Google, published September 06, 2018. Link.

 “Google Reduces Visibility in Search Terms Report: What You Need to Know” Wordstream, updated September 09, 2020. Link.

 “The digital advertiser’s guide to COVID-19” Microsoft, accessed December 29, 2020.

 “Economic Impact Report, United States (2018)” Google, accessed January 01, 2021. Link.

 “Quarterly Retail e-Commerce Sales 3rd Quarter 2020” U.S. Department of Commerce, released November 19, 2020. Link.

 “Think with Google Local Search Statistics (2017)” Google, accessed January 01, 2021. Link.

 “Advertising revenue of Google from 2001 to 2019” Statista, published February 05, 2020. Link.

 Microsoft Corporation's search advertising revenue in fiscal years 2016 to 2020” Statista, published August 12, 2020. Link.


Related Posts