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TechCrunch just released an article about their ad revenue and openly discussed the current online ad recession.
The amount of money advertisers are willing to pay for a keyword (you know, search for the word “Disney” and you get ads related to the keyword “Disney”) has been drastically reduced. |
The less advertisers pay for keywords, the less people make from online advertising. Basic stuff, the cause for weakness in keyword pricing may be due to what I call, “The Google Bubble”.
I have been fascinated about the concept of a bubble created by the very nature of how Google AdSense operates: A keyword starts at a minimal price, you purchase that keyword, then a competitor comes along and starts a bidding war. The pricing on the keyword goes up and up as the competitors battle for control, until, it hits them; the price is too high — it’s not worth it for anyone. The bubble pops as advertisers decide to stop buying the expensive keywords or they simply reduce their pricing on the word, causing contraction. Simply put, the bursting bubble results in advertisers bidding drastically less for the keywords than before.
The bubble theory Is loosely confirmed by reports of advertisers spending less on advertising, The Wall Street Journal writes, “U.S. search advertising spending fell 8% in the fourth quarter of 2008 from the same period in 2007″, which is significantly more than the contraction in GDP. The effect is also seen on TechCrunch’s posting, along with a spattering of other sites, which are reporting far less ad revenue. Granted, ad revenues have fallen due to general economic reasons, but it may have been exacerbated by bubble effects such as the consequences of the bidding war built into AdSense.
The housing market has the exact same bubble: when the economy is good, people bid up houses until there is a breaking point. This natural propensity means that Googlenomics will be difficult to control, but easy to predict.
If I am right, the Google Bubble will expand and contract very quickly, bidding on keywords will increase until something like a bad economy, a competitor, or fraud causes it to tip over. I also think that each time the Google Bubble pops, other ad networks will gain new advertisers and participants because keywords on the alternative ad networks may not have been through a vigorous bidding war.
Enjoy the expansion of the next bubble, but don’t be shocked when it pops.
Tags: AdSense, Advertising, Bubble, Google, Keywords
Where exactly do you see a bubble here? What you describe is not a bubble, it’s simply fluctuations in demand.
A bubble is what happens when prices are driven to unrealistic highs by people buying purely because they expect prices to keep rising.
Nothing like that is happening in online advertising – there’s no such thing as reselling of ads or keywords to begin with!
You don’t think the auction process of bidding on keywords has a natural push to drive prices higher? The prices get to a point where it’s no longer worth paying, regardless of the economy.
It gets to a point where a keyword hits a bubble price where it is simply not worth the conversion generated by the keyword.
A bidding process creates the bubble, not just the fact that demand decreases.
Apparently you may not have used AdSense before.
Adsense is down 8% in an industry that is down 30%. That’s pretty damn robust.