To encourage small businesses (SMB’s) to allocate a portion of their budgets for advertising through Google, Google announced the launch of AdWords Express in July 2011. With Express, companies could sign up in under 5 minutes, easily create campaigns, ads, choose targeting, and launch their campaigns. For those that were hesitant or unclear how it worked, you could even call Google and they’d walk you through it, all for free. Then, from 2011 to present day, there’s been a number of enhancements to local search to make advertising on Google continually easier for SMB’s.
However, despite all of Google’s attempts to grow local search, it continues to be an ongoing challenge for small organizations to find success. This should come as no surprise. I’ve personally seen many companies that catered online marketing solutions to SMB’s get liquidated because it’s such a tough market to crack.
Here’s my opinion why – competition paired with the economics of the AdWords platform.
Allow me to share what I mean.
1. There’s a strong positive correlation between ad position and CTR. The higher your avg. ad position, the higher your CTR will be. The chart below stresses the importance of having a high ad position. (data provided by accuracast.com and has been compiled using 2MM clicks over a 1 year period from cross-vertical advertisers.)
2. In order to maintain a high ad position, one of two factors must be true. One – you have a higher maximum CPC than competitors or two – You have a high combined quality score and ad rank.
3. Here’s where it starts getting ugly for SMB’s – supply and demand is now a factor. The demand for advertising has gone down, but the supply of advertising has increased. This disproportionate ratio means that Google’s qualitative metrics are fighting an uphill battle, and it’s more difficult to have the second factor in #2 above come true.
4. This happens because as much as Google wants to reward those with smaller budgets for providing a quality user experience, the algorithms, unfortunately, still ultimately favor those with big budgets at the end of the day. What’s happening is that in any vertical, you have big advertiser’s come in with large budgets who can afford to effectively “pay their way to the top.” There are a handful of SMB’s bidding on the same keywords and seeing a higher combined quality score + ad rank, but the disproportionate size of the budget from bigger advertiser’s makes it difficult for the SMB’s to gain traction.
Does this mean SMB’s can no longer use AdWords as a scalable source of online advertising? I don’t think so. Scale is still quite possible, but the time it’ll take the avg. SMB to ramp their accounts to the point they’d like them to be will take far longer than their competitor with a much larger budget. My advice to small businesses would be to continue focusing on quality over quantity, but increase your maximum CPC’s beyond a level your comfortable with, even if you retain a small daily budget. This strategy will help the underdogs gain a few inches in growth slowly over time.
Parting words – I actually strongly believe in AdWords. I started my career using AdWords in 2004, then in 2008 began managing the performance of thousands of SMB accounts.
Disclaimer: Information in this post, although speculative to a degree, is based on my experience managing AdWords campaigns for thousands of SMB accounts, paired with competitive intelligence provided by Google. Data outlined in Google’s quarterly reports don’t align with my experiences, but the data they quote (aggregate clicks, avg. CPC) can be easily manipulated through search partner traffic, third parties, etc.