Why Google Wants to Eliminate Bidding In Exchange for Your Profits

Giving advertisers visibility and control over their bids isn't lucrative for Google. It only encourages companies to minimize their CPC and maximize their profit. The lower your CPC, the lower Google's margin per click.

Google's goal is to increase their profit per page view -- how many pages they can fill with ads (targeting) and how much they can charge per click (cost). It works like this:

Historically, Google used to try to persuade you to increase your targeting and cost with keyword and bid suggestions. Not surprisingly, asking people to do something isn't an efficient or scalable way to grow their bottom line.

Instead, Google now leverages their massive data and reach to automate the expansion of your targeting and cost by creating two AdWords ecosystems: those who rely on Google to manage their paid search and those who don't.

In Google's paid search world, you give them the power to determine when your ads should run and how much you'll pay per click. You get less visibility and control.

"Google Wants Your Profit Margin, Should You Give It To Them?" explained how they've already begun to broaden your targeting with looser restrictions on broad match (session-based retargeting) and by creating paid search without keywords (product listing ads). Now let's look at how Google is removing CPC and bidding from paid search and the implications of these changes.

Why Google Hates Bidding

We start with a goal -- sales, leads, donors, or whatever your website's purpose in life is. Then, we target keywords that we think will convert. Bidding is the bridge between the value we think we'll get from those keywords and the profitable or unprofitable truth.

Are you willing to pay more for search queries/keywords that have a higher conversion rate? Obviously, you are. And, you want to pay less for ones that convert less frequently and eliminate those keywords entirely.

That process is one the ways we can carve efficiency out of our campaigns. We use our time, expertise, and technology to depress our CPC and cherry pick the best opportunities. This is in direct conflict with Google's goal to increase the average CPC, which they actuallyreport as a KPI to investors.

That conflicting relationship requires a delicate balance on Google's part. If they charge us too much, the channel becomes unprofitable and you'll move your budget elsewhere.

So, how does Google know what "too much" is? We have to tell them.

Imagine Paid Search Without Bids

It seems counterintuitive to tell the person selling you advertising how much that advertising is worth to us. Just like negotiating, they'll only use that information to get us as close to our maximum as possible. Sure we'll still make money, but not as much as we could have.

Then, why would we want to tell Google how much we're willing to pay? Because we think Google can manage our paid search better or faster.

Google has gradually been rolling out new features to pass the control of your campaigns, to varying degrees, to their automated systems. These are what Google calls conversion-based advertising features. The first three such features are Product Listing Ads, Conversion Optimizer, and Enhanced CPC.

Product Listing Ads

Google is poised to become the world's biggest affiliate marketer through their Product Listing ads.

Just a quick refresher: Google Product Listing is a beta program that dramatically changes the nature of paid search advertising by replacing some text ads with ads that show product images, price, and name. It looks like this:

These ads are completely revolutionary in a few ways:

1. You don't have power over when your ads appear.
   
2. You can't set your bid. Your ads can only show up if you agree to participate on a CPA basis.
   
3. The system is entirely controlled by Google. It's a private beta connected to your Google Merchant Center account. You define the parameters and then hand the keys over to their system. Regular AdWords advertisers don't have the option to display these types of ads.

It's opt-in like agreeing to the iTunes terms of service is opt-in: it's something we want and the price of entry is going along with whatever Google asks. It's all or nothing.

Conversion Optimizer

Google's Conversion Optimizer is the first mass offering from Google to automate components of paid search management. It's a direct shot across the bow of third party bid management software. (Disclosure, I work at ClickEquations, which includes bid management features.)

Instead of setting a maximum CPC, you set a target or maximum CPA. It's a hybrid model: you bid by CPA, but still pay per click.

It comes with a few catches. In order to be able to measure conversion and against it, the system requires you to use Google conversion tags. Setting your goals is also limited to targets at the campaign level. Optimization is focused entirely towards CPA versus other ways to measure success (e.g., ROI).

Conversion Optimizer is spinoff of the now defunct Pay-Per-Action product they offered for the content network. As Google amasses more data and refines their ability to predict which keywords will drive conversions, expect them to reintroduce a pure CPA product across both the search and content network. It's already happened with product listings for retailers.

Other transaction types and business models won't be far behind. Even Nick Fox from Google introduced the concept of moving past CPCs.

Smart Pricing

Google is already manipulating your bids for you without you opting in if you're on the Content Network. It's calledsmart pricing.

Certainly, there are a lot of junk sites on the content network that don't deliver valuable traffic. But Google isn't calling out these automatic changes in their placement performance report or giving you a way to exert more granular control.

Should You Embrace Our CPC-less Future?

Google offers some compelling tools for advertisers and agencies. Every one of the features listed above does offer some benefit without any additional out-of-pocket expense.

But when it comes to AdWords Search Funnels, many hidden costs are associated with giving them information about, and control over, your business and its advertising.

Next time, we'll walk through how Google's conversion based products over-simplify attribution, ROI measurement, and why you just may not want to give Google the keys to your business.