Shifting Markets to Follow Markets

Google has begun to roll out Enhanced Campaigns, and the reactions have been mixed. At least until the middle of this year the older format, now called Legacy Campaigns, will remain as they are, though any new ones will be Enhanced by default. These changes will add a number of interesting new features to AdWords while simultaneously creating a whole new set of what could politely be called ‘challenges’.

Enhanced Campaigns are described as a step towards helping advertisers deal with changing user behaviour in a multi device world. It is too late to be ahead of the trends and become mobile ready. The shift in user behaviour towards portable touch and hybrid devices has already happened and if you have not adapted already, you are just trying to catch up. AdWords’ Enhanced Campaigns give advertisers more tools for advertising to touch devices like tablets and mobiles. Enhanced Campaigns will target all types of devices by default, sharing one budget and one bid level. Enhanced Campaigns will also provide a number of bid level modifiers. An Enhanced Campaign’s Adgroups will also share advertising copy and ad extensions across devices with the option of selecting some to be used only with mobile. One more minor detail: Enhanced Campaigns do not differentiate between desktop and tablet computers.

There are Features too

With Legacy Campaigns, if you wanted to target mobile and desktop users separately you would need to set up two separate campaigns using different device targeting options. With Enhanced Campaigns you no longer have this option; each campaign targets all devices by default. Enhanced Campaigns do have the ability to change some settings for mobile. You can mark copy and extensions as preferred for mobile and you can apply a bid modifier to mobile phone traffic. Unfortunately no such options are available for tablets.

Enhanced Campaigns also come with a number of other features, such as support for a few new conversion types, like calls generated by clicks from mobile-optimised websites using new conversion code snippets. Enhanced Campaigns will also give the advertiser greater control over bids by location for different devices. Advertisers now also have the ability to set up extensions at Adgroup level too, and get better tracking for activity on sitelinks.

But Google Thinks They are the Same

The most significant change that Google has introduced with Enhanced Campaigns treats desktop, laptops and tablets as the same thing for targeting purposes. These devices will now always share the same bid, the same ad copy and all other targeting settings in search. Display advertising is the exception to this:

For “Display Network only” campaigns, you can still target the device model or operating system to restrict where your ads are shown. Use the “Advanced mobile and tablet options,” which is the same as in legacy campaigns.

In my experience I have found that tablet traffic is less likely to convert than visitors using a more traditional computer and that the traffic seems to cost less. It isn’t just me, with a number of news sites reporting the same (Google may pull in $5 billion in ad revenue from tablets this year). Given the different cost and effectiveness it makes sense to adjust the bidding strategy between the two kinds of devices. Enhanced Campaigns more or less make this impossible. Obviously this is going to force many advertisers to reassess their bidding strategies.

The Not Quite Generalised Second Price Auction

AdWords is effectively a Generalised Second Price auction with a twist, like the winner of a position on the page is determined by ad rank and not by money. The utility each advertiser would assign each position on the Search Engine Result Page (SERP) is highly variable. Even ignoring cross vertical competition, not every participant in the auction will assign the traffic the same value.

This difference in perceived value is going to be influenced by a number of factors, including their ability to convert the traffic, the apparent value of each conversion action to the business and perceived value in maintaining a set level of reach and frequency. If the difference is high enough between advertisers, at least for some groups of keywords, it is likely that the bidding is not a Nash equilibrium, as the participant for whom the traffic has a higher utility can bid at the break even point of their competitor with no negative consequences.

AdWords’ Legacy Campaigns make it easy for an advertiser to control which auctions they participated in, even if some other optimisation tools were removed in the past. The differences in behaviour between devices, as well as the impact the destination site’s own user interface (UI) have on different users can have a significant effect on the value of a click to an advertiser.

The difference in the value of traffic from one device to another influences bidding strategy using the available targeting options on platforms like AdWords or Facebook. Enhanced Campaigns will have an impact on this by changing the segmentation of the audience and more specifically by bundling two dissimilar products into one with a different value to what each product had before.

More Competition is Good…

Within my own experience, tablet traffic has been consistently cheaper and performed worse than desktop traffic in AdWords. Even at the lower price, the value of this traffic has made it illogical for some advertisers to bid as high for tablet traffic as they would for other devices. For some advertisers it would even be rational for them not even to try to bid on tablet traffic.

With Enhanced Campaigns, they do not have the choice. Advertisers can no longer adjust for differences in performance between mobile, tablet and desktop in their bidding strategy, except for the adjustment tools available for mobile. Enhanced Campaigns target all devices by default and the performance of this traffic will change to reflect this mix.

Generally speaking, it is likely that this change will increase competition for tablet and mobile traffic, which should also increase the cost of traffic for all advertisers. Assuming that grouping all devices together negatively affects the performance of AdWords traffic for all advertisers and they behave rationally, one scenario is that the cost per click (CPC) will come down relative to desktop traffic prior to this change. However the CPC will almost certainly be higher than what tablet alone generated, and mobile.

This is assuming that all advertisers experience the same issues with getting value from tablet and mobile traffic. In reality this is not likely to be the case, and advertisers able to get a return from tablet and mobile traffic as well as they can with desktop will be able to capitalise on this change. In this scenario, with a large enough share of spend this group is likely to drive the cost of traffic across both tablet and desktop. However reality is rarely neat, and in AdWords you only need to pay what the participant you beat was willing to pay. And if the return you can get from the same traffic is much higher than theirs, then you certainly are not paying up to your break even point.

Markets Following Markets

While I am sure this, as Google would put it, is for the user, there are a number of other likely outcomes for the search giant from this change. Tablets and smartphones are replacing PCs, both in terms of traffic online and in units sold. Some research, including Google’s own Understanding Tablet Use: A Multi-Method Exploration paper, indicate that this growth in tablet web traffic is due to many people switching devices:

By the end 2013 tablets will account for 20 percent of Google’s paid search ad clicks in the U.S., up from 6 percent in January 2012 according to research by Marin Software, a San Francisco-based company that helps large advertisers manage their online advertising.

Given the relatively low cost of tablet traffic to date and the scale and pace of this change in user behaviour, Google needs to ensure that they can make as much money from tablet users as they do from those on PCs. Assuming nothing changes except the switch to portable touch, with prices for search ads up to 17% cheaper than on desktop and advertisers unable to convert users as easily, Google is likely to lose revenue.

While current trends seem to indicate that the cost of tablet traffic is closing the gap on desktop, Enhanced Campaigns will ensure that Google is able to use all advertising inventory effectively and profitably, both for themselves and their clients who are ready for tablet and mobile users.