Google is now making $3 billion a month in advertising — the majority of which comes from little text ads next to search results.
The infographics below is an excellent piece summarizing the big story!
You might wonder how that’s possible, and who’s spending that much money on search ads.
The answer, according to Larry Kim — the founder of a company that sells software to analyze text ad campaigns — is in industries where a customer is worth a lot of money over the long-term.
Wordstream, Kim’s company, analyzed search terms that advertisers pay the most to have their ads show up next to, and grouped the top 10,000 by industry, using its own software. They multiplied the so-called cost-per-click — what advertisers pay Google for each time someone clicks on their ads — times the number of times people search on that word. They then divided that pie up by keywords that fit different industries.
The top industry? Insurance, where companies eager to outbid their rivals for new customers pay Google more than $54 for a click. Together they make up 24 percent of Google’s revenues from search advertising, according to Wordstream’s calculations. Companies in the business of issuing loans come second, with CPC rates of more than $44 — providing nearly 13 percent of Google’s revenues.
“There are lots of lawyers finding clients,” Kim said. “Even if they have to pay for 50 to 100 clicks to get a client, they can get that back in a court case that last for years, all the while billing $500 an hour. The same thing happens with CRM software, where companies pay a high month fee.”
(For more on how Google prices ads and tries to ensure ads are relevant, check out this great feature story from Wired Magazine about the money-making machine that is Google ad auctions.)
Speaking of lawyers, the mortgage and legal industries show up third and fourth, respectively.
Rounding out the top 20 is an odd entry — Cord Blood.
“I didn’t know what that was,” Kim told Wired.com. “Turns out the industry has to with rich parents preserving their child’s umbilical cord with idea that the stem cells in it will be able to cure diseases in the future. And storage of cord blood has huge upfront cost and substantial ongoing payments.”
Again — an industry that can make lots of money from a customer over a long period of time — making it not unwise to pay $27 per click, even if only one out of 50 of those who click on the ad actually signs up for your service.
The top 20 categories account for about 70 percent of Google’s ad revenues, according to Wordstream’s calculations. Wordstream, which offers some free keyword analysis tools, sells software that lets companies and search engine marketing consultants organize and manage their advertising campaigns.
As for the remaining 30 percent?
About 1000 different categories combine to make up that last 30 percent, each getting thinner and thinner — which Kim refers to as the “Long Tail,” a reference to the Wired magazine article and later book by Chris Anderson. Those categories together “represent a tremendous amount of spend,” Kim said.
Key points: 1. Nice marketing research for Wordstream; 2. an interesting 70/30 divide between heavy duties and long tails; 3. ads price is a direct function of value of the product/service or potential return from ads; 4. Google determines ads price through auction so it can get away from any super high charge of AdWords: the beauty of market!