A high placed source at Google’s UK office has told me that the search giant is planning to change the revenue model for its market leading AdWords advertising platform. In a move that could affect everything from the proposed Microsoft takeover of Yahoo, to the shape of the British TV sector, Google are planning to drop the cost-per-click model which differentiated it from other search engines in its early years, and move to the CPM model of charging advertisers based on the number of times an ad is shown.
My source told me, late last night:
Basically PPC is what differentiated us from all the other engines back in the day. But now that we’ve essentially got the market sewn up, we felt that the time was right for us to adjust our systems so that we get more for the services we offer.
Details are still sketchy at the moment, but what seems sure is that this could turn the advertising world on its head. It seems likely that the move is linked to the recent drops in Google’s share price, amidst worries on Wall Street that the search giant’s revenues may be reaching a plateau. This view was backed up by further comments from my mole (let’s call him Deep Throat 2.0):
Whilst the boys on Wall Street loved us it didn’t matter that we only got paid for 5% of the ads we served *. But with the share price dropping, and Larry Sergey & Eric wondering whether they might have to really start paying themseves $1, it was felt that now was a good time to start charging based on views: if nothing else it should go someway to covering the ridiculous bandwidth costs we now have.
I’ve seen an initial draft of the proposed scheme, known internally as Funded On Online Looks, and it seems that as well as the drop in share price, the move is also fueled by a realisation, following the merger with DoubleClick, that a more traditional ad model could see large increases in profit. Said DT2.0:
We’ll probably still have an auction model system, with the CPM rate set by the market. However we’ll keep elements of CPC, in that there will be a surcharge for ads which are clicked on. This will also push us more into the world of brand advertising.
It remains to be seen how this will impact on Microsfot’s planned buy-out of Yahoo, but if it goes ahead, it will be a case of the search world turning full circle. A variation of a CPM model was ,after all, the norm before the advent of Overture and Google.
Google HQ in the US could not be reached for comment at the time of writing.
*Google is rumoured in the industry to have an average click through rate from ads of 5%.