Google AdSense Revenue Decline

I have been reading a lot of articles about how changes in Google’s AdSense policies are affecting some of the websites. Mainly MFA, i.e., Made For AdSense sites and Arbitrage, i.e., sites that buy and sell traffic. This is the right step for Google and while it might impact it’s short term revenue potential, it’s good for the long term viability of online advertising.

However, in addition to discussions about the above two types of sites, people also started complaining that their revenue per click has declined or is declining. While Google might certainly be tweaking their algorithms, here are some factors external to Google that might be forcing these lower rates.

1. Increased Supply: CPC is based on bidding and budget. So, essentially supply vs demand comes into picture. Say, someone did research and figured out the high paying keywords and started making money. Over time, more and more people are likely to figure out and enter the same niche and as a result, the supply of page views for a given keyword is likely to increase. So, with more page views for a given keyword, and people clicking the ads, the budget of the higher bidders will be exhausted at some point and will trigger lower bidders. The net result is a decreased EPC (earnings per click).

2. Decreased Demand: MSN (through AdCenter) and Yahoo! (through Panama) have ramped up their Advertising solutions and are constantly trying to increase their own search engine traffic. As the effectiveness of these alternate ad networks improves, more advertisers are likely to diversify their ad spend to multiple networks. As a result, the demand on Google’s network will decrease.

So, using the conventional wisdom of Economics 101, what happens when supply increases and demand decreases? The price of the product decreases! Surprise, surprise.

So, for all those who are thinking of betting their future through advertising based on some of the examples out there on the web, be aware of this phenomenon. If everyone starts jumping into advertising, who is actually going to produce products or provide services and advertise both of these?

Why Amazon Affiliate Reports Are Not Realtime?

While AdSense reports are near real-time. This is exactly the same question asked in the comments section.

The technical reason is it’s difficult and expensive to do it.

However, Google does it. So, what’s the big deal? So, the functional reason is, Google is forced to aggregate the raw logs while Amazon is not based on the business model. You see, Google has to make sure it doesn’t overshoot the budgets set by the advertisers after each click. So, they have to keep aggregating the data. However, in case of Amazon, the advertiser equivalent party, the spenders, are the buyers and there is no budget setting for these buyers. They come, they buy what they want, they pay and leave. So, Amazon doesn’t really have to worry about overshooting someone’s budget and as a result, they can choose to run the reports once a day to aggregate the affiliate commissions.

Infact, many ad networks typically have the policy of reflecting the ad revenues in near real-time while the statistics on impressions are delayed a bit (for CPC ads impressions don’t count).

Affiliate Mashups – The Next Generation Affiliate Programs

Many companies including Walmart have out-sourced their affiliate programs to other specialized affiliate management companies like LinkShare. eBay uses CommissionJunction (CJ) and Apple uses LinkShare.

However, Amazon is probably the only company that has the most advanced affiliate program built inhouse. It is because of the years of investing inhouse, that they are able to roll-out so many sophisticated affiliate programs including such ideas as context aware links, web services etc.

Personally I think, this is where a large giant like Walmart with it’s yester-years slogan of EDLP is lost the battle on the online front. I heard a lot of stories about Walmart that they develop a lot of their applications inhouse and they perhaps have a large IT department. However, they ignored/neglected the ecosystem, the affiliates who can bring in a lot of traffic.

I recently wrote about Affiliate Programs And Retargeting. With the ever growing expansion of the web, and the internet-aware youth who are going to be future smart-consumers don’t just trust someone just saying that they offer every day low prices, but do their homework. When comparison shopping is just a click away, why just limit the focus to a single site? This is where the ecosystem of affiliates comes handy.

Having been playing around a bit with Amazon’s affiliate program, here is one idea I think that can take Affiliate Programs to the next level (Amazon already allows multiple tracking ids, break up by various types of affiliate programs such as text links vs web services). The ability to offer affiliate mashups. Here is how it works

Say a company has a great idea that facilitates more people to participate in affiliate program and bring in traffic. This company essentially makes money from the affiliate referral fee but pays a cut of their commission to the people who contributed to that referral fee. Currently this is not possible since, there is no way to track by two affiliate ids. The main affiliate id belonging to the company and a second id (can be the actual affiliate id of the people participating in the program or some unique id given by the company). If this were there, then it’s possible to track exactly how much revenue each of the affiliates participating in the program contributed to the revenue and accordingly get a cut.

Currently, one approach people take for the above issue of not being able to track through two ids is to randomly change the affiliate id with a 90%-10% split (or some other value) where 90% of the time the actual affiliate id is used and 10% of the time the company’s affiliate id is used.

However, with the ability to track by two affiliate ids (one primary and the secondary), where the secondary affiliate id can only see the report but is not directly paid by Amazon (or any other company for that matter), it opens up a wider affiliate mashups possibility.