Is Pay-Per-Click Losing It’s Charm?

I read an article on TechCrunch recently that referenced another article on comScore about the decline in search ads, which are essentially pay-per-click ads.

The comScore article presents the fact that search queries have increased 68% over the past two years, but search ad clicks have only gone up 18% in the same period.

The comScore article goes on to suggest that one reason is:

“that the search engines have been working hard to improve the searcher experience and reduce the importance of less relevant advertisers…To help confirm this hypothesis we looked into the rate at which searchers clicked on paid ads and found that the rate hasn’t changed”

and two:

“An analysis of comScore data shows that search queries are actually getting longer and that as searchers become more experienced they are using more words per search query. And this apparently reduces the likelihood that an advertiser has bid to have his/her ad included in the results page from these longer queries”

The TechCrunch article suggests that one of the biggest reasons for the decline is there are simply fewer big players that spend a lot of money on paid placement.  However, the only companies mentioned are the big retailers like Sharper Image and Wickes Furniture and Macy’s.  This is just in the retail sector.  What about all the service businesses and B2B companies still advertising?

I agree that there has been a big decline in the number of advertisers but I think both of these articles are missing something.

First, I disagree with comScore that the rate at which searchers click on paid ads hasn’t changed.  In the MarketingSherpa 2009 Search Marketing Benchmark Guide, there is a chart that shows that only 3.1% to 6.8% of clicks take place in the paid placement area of the search engine results page (SERPS).  That is a huge decline from a similar report I read in early 2007 that put the number of clicks in the paid placement area between 14 and 17%.  I can’t put my finger on the report at the moment but when I do I will update this post.

I agree that longer search string queries have reduced the number of paid ads being shown, but that is really secondary to the reason people aren’t clicking on those ads.  Its because longer search queries bring back more relevant results and the searcher doesn’t have to rely on ads to find what he wants.

I also believe that more people realize that the listings on the right and at the top of the SERPS are ads and just don’t click on them as often.  Searchers are getting smarter and they realize there’s a very good chance they are going to find what they want in the natural search results.

I’d love to hear your comments.