Google Ads Going Cheap

As Wall Street gears up to hear how Google (GOOG) did in the first quarter, the search engine marketing firm Efficient Frontier has released a study indicating that the search giant's clients are paying less and less for ads as the recession continues. Advertisers bid to buy space next to Google search terms, with the winner paying a set amount as people click on their ads. But according to Efficient Frontier's new study, the amount of the winning bids, known as cost per click, fell 14 percent in the first quarter. Which may explain why Google started crowding its search results pages with more advertising; if each ad pays a little less, the company may have begun slapping more ads on each page to compensate.

On the other hand, CNet reporter Stephen Shankland points out a few more bright spots in the study for Google. The company's AdSense clients—blogs and Web sites that show Google ads next to their content—have gotten more money, as the rate at which readers click through the ads rose sharply. In addition, more people are using online searches overall, which increases the opportunity for someone to notice and click on adjacent ads. Finally, Yahoo (YHOO) and Microsoft (MSFT) are faring considerably worse than Google on the cost-per-click scale. Yahoo's CPC rate fell 16 percent, and Microsoft's fell a remarkable 28 percent.

But don't think Google's rivals are ready to roll over and die. Yahoo's stock has been ticking up following reports that the company is serious about partnering with Microsoft to challenge Google in search. And InternetRetailer.com reports that Yahoo has been eating into Google's share of search advertisers. It seems that in late January, when Google accidentally warned that the entire Internet was filled with malware, many spooked advertisers immediately reactivated their dormant Yahoo accounts. Sloppy coding, it seems, has consequences.