How Google Makes Decisions

Every time Google makes a change to its search model or landscape it prompts numerous blog posts debating the reasons for the move often including complicated strategic or structural implications. But when you boil Google’s search revenue model down to its base parts, the reasons behind each change to either the SERP landscape or Google Adwords start to make more sense.

The formula for Google’s search revenues is pretty simple:

Number of search queries x revenue per query = total revenue from search

So there are only really two levers Google can pull when it wants to improve its revenues through search (which as a public floated company it is under constant pressure to do). And given its dominant position in most countries it has little way of improving the volume of queries people do so it has to try and increase the revenue per query.

How to increase revenue per query
Breaking this down slightly further there are only two real ways Google can increase their revenue per query.

  • Increase the click through rate of paid options on the SERP page – either through adding more elements or making them more prominent
  • Increase the intensity of the auction meaning everyone bids higher and the average CPC increases

When Google makes changes to their search landscape is it more often than not, linked to one of the above objectives.

Applying This to Recent Changes
When you apply this to recent and upcoming changes it becomes very simple.

The move from free to paid for Google Shopping
A very simple on is the move from a free to a paid model for Google Merchant Centre which powers its shopping/product results. Since its inception Google’s shopping results have been free and for many retailers generate a large amounts of traffic. Due to the fact they appear on most product level search and the fact their format makes them stand out on the page their click through rate has been high and Google has been providing this traffic to retailers for free.

So when they are looking at the search landscape and looking to pull the ‘revenue per query’ lever then this was an obvious change to make.

Thinly veiled as an attempt to improve the quality of results this was a simple revenue play by Google.

The introduction of enhanced campaigns

This one is slightly less clear but again, bringing it back to their base model, is a simple move to increase their revenue per query, but in a different way.

Over the past few years percentage of Google’s overall queries which have been performed on mobile devices has risen. Due to slow mobile adoption and a historical approach of having a smaller keyword set the average CPC on mobile search has been lower. In addition there are less paid ad slots in the mobile SERP and therefore the overall revenu per mobile query is lower. So as mobile has become a proportion of Google’s total queries, their combined revenue per query is in danger of declining.

Back to my original point around how to improve revenue per query they therefore have two options when it comes to mobile search. Increase the amount of paid options, or increase the intensity of the auction and therefore the average CPC. Given the limited nature of the mobile screen real estate adding more paid options would be very difficult.
The new enhanced campaigns format automatically opts all advertisers into mobile search, something which was previously optional. So unless an advertiser takes the step of applying a 0% bid multiplier for mobile search then everyone appears on mobile devices. As a result the auction intensity increases and the average CPC for mobile PPC will increase, thus increasing Google’s revenue per search.

So you can see that when you boil Google’s business model back to its simple formula, each decision it makes starts to make more sense. The only caveat they have to place on these decisions is to make sure they aren’t to the detriment of user experience as this could affect the other side of the equation, query volume. However so long as they are confident it won’t, and they can put a more positive spin on the change to the advertising public, the decision comes back to revenues.

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