The word on the street is that Google is experimenting with reducing the number of search ads it shows for each query. According to a post by Robert Scoble Google has found that while, in the short term, Google’s revenue goes down, in the long term it actually goes up.
A representative from Google claims that, with less listings, their users trust the advertisers more. There is also the reality that a user will only look at the top x number of listings anyway so listings beyond that do not get many clicks anyway. Most likely the old 80/20 rule is at work and the top 20% of the listings get 80% of the clicks.
Does this mean that the remaining advertisers will get more clicks and, if so, more or less conversion?
Will this become a divison between the "haves" and the "have nots"? Will the largest advertisers gradually squeeze out the smaller guys that can’t continue to pay more?
For this to truly succeed Google has to get the remaining advertisers more clicks and, at least maintain the conversion if not increase it. Then everyone wins.
However if the conversion rates drop Google may see lower revenues as advertisers reduce their PPC bids to maintain their CPA. I suspect for top traffic generating keywords Google would then be left with the largest advertisers who could afford the increased cost while the smaller advertisers could end up participating in the lower trafficed keywords that are less competitive. While this could still have a net positive effect for Google’s revenue it might also cause many advertisers to move dollars elsewhere.
This could also mean that over time Google’s revenue mix would contain a more highly concentrated group of super large advertisers (its 80/20 time again). Google, until now, has benefited greatly by have so many small advertisers who are willing to pay full price. If Google’s advertiser concentration migrated to mostly super large companies then their revenue would decrease over time as they would be forced to negotiate and thereby reduce rates. Otherwise the loss or reduction in spending by any one account could be substantial.
While I don’t agree with everything Google does, I continue to be impressed with their ongoing, almost daily, monitoring and evaluation of their business, always looking for ways to increase revenues and profits. This is an integral element of a successful company and Google is smart enough not to get complacent.