Recession says – Farewell to AdSense

Posted on Feb 2, 2009 in AdsenseAdvertising
Almost every company struggles with the financial crisis and so will all AdSense publishers. One thing is sure, the financial crisis will damage AdSense, how dramatic can’t currently be said. The winners of the financial crisis are less popular advertising companies who benefit from Adsense’s damage.

What makes AdSense AdSense?

That question is very important to understand why AdSense will undoubtedly take damage in the financial crisis. AdSense is the leader in CPC advertising because they have a large pool of advertisers which allows them to show relevant Ads on the publishers’ websites. Because of the fact that they can show extremely related ads both the advertisers and publishers earn money. The advertisers have a higher ROI (return of investment) because they get a lot more conversions per click compared to other advertising programs. The consequence is that the advertisers are willing to pay more for every valid  click they get and as a result the publishers earn more as well. Relevancy is the key of AdSense’s success it’s what makes AdSense different from other CPC networks. (Actually it’s no more a real CPC network it’s a CPA network. It’s an affiliate program because the ROI sets the price of the click.) If you generate less sales then your CPC will be adjusted by AdSense. A lot of sales can only be achieved by relevant advertisements.
"There are niches that have a higher conversion rates than others. For
example if you run a website about a computer game then your audience
mostly consists of kids which don’t have a lot of money, however in the
dog niche for example, you have adults as visitors and they tend to buy
products more often." - Adsense CPA or CPC

What could disbalance Adsense’s system?

Google is the king of advertising programs simply because they are able to display relevant ads. If they are somehow no longer able to display that relevant ads their whole system could collapse. That danger now occurs because of the financial crisis. Companies are collapsing and so are advertisers. If all those companies are no longer able to pay for ads then Google will now longer own the relevancy throne. Not only companies collapse, but also individuals. There are a lot of individuals working together with AdWords and a lot of individuals no longer have the money to pay for advertisements. To sum it up, once Google lacks the advertisers the whole system of showing relevant ads no longer works as it did the past year.

The losers: both Advertiser and Publisher

If Google is no longer able to display display relevant ads both the publisher’s CTR and CPC will lower. There is already one form of drastic CPC reduction: Smart Pricing. Google uses smart pricing to make sure that the advertiser still earns something with AdWords, in other words they want to make sure that the Advertiser still has an adequate ROI. The current situation could result in smart pricing for every publisher.The publisher continues showing ads with the difference that because of the lack of advertisers he is showing less relevant advertisements. Less relevant advertisements means less clicks. The reason: On website about  “car insurance Hollywood” the probability that someone from Hollywood clicks on “Car insurance Orange County”  is lower. It’s not what the visitor is looking for. The rate of miss clicks/interested clicks changes as well. With no more relevant ads the interested clicks decrease whereas the miss clicks increase. The result of both is a lower CTR. With the lower CTR the publisher (you) earns less.Now that the Ads are no longer relevant the quality of the clicks for the advertiser also reduces. The previous “car insurance Hollywood” ads will be replaced with alternative “Car insurance Orange County”. A visitor clicks on the advertisement (could also be a miss click) and either closes the website right away (missclick) or has a look on the website and says: “NO! I was looking for Hollywood car insurance, I won’t buy anything you Orange County cammers!” The result are lower conversion rates for the advertiser. Lower conversion rates means lower ROI. Lower ROI has the consequence that the advertiser is no longer willing to pay that much for the ad. To make sure the advertiser continues advertising Google has to cut the publisher’s CPC (same effect as with smart pricing). That consequence’s consequence is a chain reaction. Some advertisers might discontinue advertising and therefore aditionally reduce Google’s ability of displaying relevant ads. I explained the result of that above.Now that the publisher earns less he is also unable to continue investing in AdWords. I know a lot of publishers who use their AdSense revenue to finance AdWords campaign. What is the result of that? You know it, less advertisers and less relevant ads again!  Lower CPC means less earnings for the publisher. The lower ROI means less money for the advertiser. Both are the losers of the crisis. It sounds horrific and yes, it is horrific. Let’s now see whether some bloggers already experienced unusual changes.

The (AdSense) world is out of joint

I asked several AdSense publishers on Twitter to @hendricius me whether they noticed any change in CTR and CPC.
Matt Smith from SmithSense said: I earn about $30k/month in adsense. I’ve seen No reduction in CPC or click through over the last 6mo. despite econ situation. (See our interview – very inspiring.) @JamesFrancisIM from JFIM said: Not really. I still get good CPC even now, although I suppose it depends on what niche you’re in@joelcomm from JoelComm said: yes, AdSense is definitely down. But traffic is great and overall revenue is UP!@PassTheBoll from PassTheBoll said: I am experiencing some pretty bad results so far. Just a year ago I would’ve made close to $100/mo with my current stats.@ellenm1 from DesignSpace said: yes, adsense has dropped, mostly over the last month.@jacky_brown from CasaOfCash said: getting lower cpc on adsense sites, but may need to do some remodeling.@rajupp from TechPP said: its very inconsistent. Yesterday it was damn good, today its just the opposite, not sure what to expect from Google. Note: I previously helped him to up his CTR.
I myself noticed a decreasing CTR and CPC. My earnings compared to 4 months before lowered by around 30% whereas the traffic increased by 10%.

What’s gonna happen next?

Good Bye AdSense

Good Bye AdSense?

AdSense will have to struggle with less advertisers, less publishers and less money. Advertisers and publishers will start direct advertising to make sure that they earn most (100% compared to 75% is a difference). An alternative for them would be to move to other CPC networks, to try affiliate marketing or publishing ads on a CPM basis with other companies. What worked extremely well for me was Chitika. Chitika has even more relevant ads than AdSense in some situations as of their way to identify what the visitors are interested in. The improved relevancy allows them to pay more per click: The CPC is around 20% higher on my gaming site than with AdSense. Ad layout is also an advantage, but that’s not part of this post.

Sticking to AdSense? Make sure to take precautions!

The key to success with AdSense is as said before having relevant Ads on your website. We are unable to influence the negative advertiser trend. However, we can take some precautions to make sure that our Ads give the advertiser an high ROI.1. Use Section targeting to make sure your ads are as relevant as possible. 2. Use Text ads, they are known to be more relevant than Image ads. 3. Remove your Ads from unrelevant content such as About me, Contact me pages. Forum Owners: No Ads in General Chat forums. 4. Not too many ads.The more ads, the more missclicks, the less the quality of your clicks. Low quality clicks don’t convert and are thus not worth that much for the advertiser = no CPC.Thanks a lot for reading and I hope to have explained the current situation quite well. Make sure to comment and check out the forum thread for further ways of discussing.