Google Instant Refresh – Business Ramifications of Google Insights One Quarter Later

This past October, we published a blog on Google Instant, after this new search solution had been in market for three weeks.  In the blog, I discussed the key financial and strategic ramifications of the new feature of the Google results page.

Our hypotheses at the time were these:

1. Google Instant’s effect of pushing the SEO rankings lower on the page during the first three seconds of result rendering would shift overall click share from organic to paid search.  We indicated that we see currently a mix of 82% of clicks going to organic and 18% to paid, and we expect that to shift by some significant fraction.

1. The CTR for paid search would increase.  The rendering of the results would cause more clicks to go to paid search with the same number of impressions – given the way Google indicated the search engine would be adjusting impression counts based on the advertisement rendering methodology.

1. And that CPC would go up as more money was deployed to paid search in order to compensate for the reduction in overall organic search traffic.  This would drive the auction dynamics in such a way that head term paid search pricing would increase.

Well consider this blog piece an update on this set of hypotheses – now that we are nearly one quarter into the release of Google Instant.  I recently updated the research methodology I had done before – doing a comparison of the 69 days before and 69 days after the release of Google Instant – across ten of our largest paid search clients. We looked at U.S. only, and compared CPC, CTR, and overall growth in spend, impression and clicks.

Here is what we have found:

• Click Through Rates (CTRs) are up by 16% since the launch of Google Instant.  This is expected and consistent with what we saw after the first three weeks.   The increase is due to the change in the rendering of the Google Instant screen. I have been asked several questions about this – and will explain the mechanics more carefully.  The screen shots below show the difference in the pre- and post-Google Instant screen rendering. So consumers, as expected, are clicking more on paid search results.
• Spending overall on Google is up 11% from the third quarter (on a projected based quarter to date – I am in the process of writing a blog on this as well, which will be available on Actionable Insights in the coming weeks) – but compared to pre-Google Instant, the increase is more like 17%.  This 6% increase can be attributed to the increase in CTR rates.
• However, CPCs have not increased – in fact they have decreased.  This is a bit of a puzzle.  We expected CPCs to stay relatively constant, and history shows that increases in spending overall correlate strongly with increases in CPCs.  This may be a generalized move toward advertisers diversifying their spend across more long tail keywords – which tend to have lower prices.  But this is speculation.  We are investigating this issue as it does not entirely track with the other findings.

Google Instant Page Layout (5 Natural Search & 11 Paid Search Results) vs Normal Google Page Layout (8 Natural Search & 1 PPC Result)

The bottom line is this.  We continue to see a 4-5% shift in the overall number of clicks that are going to paid search, away from natural search.  Pre-Google Instant, we were seeing 82% of all clicks going to natural search.  Now, on average, we are seeing 77-78% of all clicks going to natural search.  So advertisers are being forced to spend more on Google in order to maintain their click volumes.

ACTIONABLE INSIGHT:
This is a key issue for 2011.  As advertisers are preparing their budgets for next year, they should be including a 5-10% override on their current cyclical paid search budget projections – IF, they are planning to maintain their same click volume in the coming 12 months.

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