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Sunday, February 25, 2024

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Google's New Forced Transparency: Is Your Agency Ready?

Many advertising agencies are not transparent in their reports to clients. But does that matter? If they are generating leads and conversions for their advertisers, why should it matter where dollars are being spent?

Consider this typical conversation between a salesperson who works for an aggregator and a business who is using them as an agency to manage their paid search advertising campaigns:

Advertiser: “Do I get to see my keywords?”

Agency: “Leave the keyword management to us; you don’t need to waste your time with keywords.”

“My friend told me click through rate matters. Will I see that?”

“You don’t need to get bogged down with statistics, that’s our job.”

“I read an article about click fraud on these sites that show Google ads. How do I protect myself?”

“The content network, click fraud, CTR, and even where you money is spent doesn’t matter to your business.”

“What? Why not?”

“How do you make money?”

“You should know this by now. I’m an accountant. I help people manage money and do their taxes.”

“How do you get these clients?”

“People call me.”

“So shouldn’t we just talk about how many phone calls you’re going to get?”

“OK. How many phone calls will I get?”

“You can see your contact form fills, driving directions, page prints, and most importantly, phone calls inside your dashboard. We’re your expert marketing team—trust us to do the hard work of choosing keywords and managing your spend. You can login at any time and see how many calls you received, the time they were placed, and their duration. You can rate each call so we know which calls were good and bad calls. You should judge us based upon how much business we bring you—phone calls—as that’s the true currency to help you grow your business.”

This conversation, and thousands of others like it, will not take place next year when Google starts enforcing its new rules requiring an unprecedented degree of disclosure and transparency for everyone who uses AdWords.

Google’s new transparency requirements

Google has decided the level of transparency (or rather, lack thereof) in our hypothetical conversation above will no longer be acceptable. Google recently announced that everyone who spends money with AdWords should know at a minimum:

  • Clicks
  • Impressions
  • Spend

While the new policy is being sold by Google in the name of improving transparency, I believe there is another element at work: branding and assuring customer loyalty—to Google.

I spent a few years helping grow a company from a fledging agency into one that managed tens of thousands of PPC accounts. From this experience, I know many of the ins-and-outs of aggregators, and while I cannot disclose all that went on, I can give an opinion about why Google is making this change based upon my years of experience in this field (and note that even though I’m discussing Google’s policy changes, the reasons I’m postulating for the changes are my opinion only).

I was on Google’s campus five years ago and was asked a simple question by a Googler that I’ve never forgotten: “With such a low barrier to entry and exit, how do we keep advertisers?”

It takes five minutes to open an AdWords account. It takes less than one minute to close the account.

Good question. I’m still waiting for the perfect answer.

Who gets credit for phone calls?

When you consider that hundreds of thousands of AdWords accounts are managed by a third party—not the advertiser spending the money—how does Google ensure it is properly receiving credit for traffic and phone calls generated through AdWords campaigns?

It started with the API terms of service years ago. To use the API, you must agree to certain terms that go beyond the typical AdWords contract. One of the API terms that has since been amended, was that Google data could only be displayed on a page by itself. You could not show a page that had both Yahoo and Google data on it (or Google and any other advertising program such as adCenter, Ask.com, etc). Google changed this clause to allow other metrics on the page; however, the Google data must be called out specifically and cannot be combined with any other data.

However, if you were an aggregator creating reports for your clients, you did not have to show any Google data at all. You could decide to not display spend, impressions or clicks and only show the most clicked-on keywords without any other metrics.

Many customers would receive a report that showed:

  • Top 10-25 keywords
  • (sometimes) Total clicks
  • (sometimes) Conversion activity

This report was for their entire budget across all properties, even if some of that budget was used on AdCenter, Yahoo or other search engines. Customers had no idea where their money was being spent, or where those clicks were coming from.

In cases like this, Google did not receive any credit for the dollars being spent. The credit for the clicks and phone calls went to the advertising agency.

Mythbusting the belief that Google advertising does not work

Aggregators work on low margins and high volume. They are not managing twenty accounts that spend a million dollars each. They are managing tens of thousands of accounts that in aggregate spend millions each month. The margins aggregators earn are often highly guarded figures.

Some aggregators have taken 50% of the ad spend for themselves, and some are rumored to have taken even more.

So an advertiser knows how much money they are giving to their agency, but they usually do not know how much money is actually being spent on advertising.

This lack of transparency has long worried Google. Consider this scenario:

  • Advertiser knows their ad will be displayed on Google
  • Advertiser gives agency $1000
  • Agency spends $300
  • Agency generates 3 phone calls

While the agency looks bad and might not get the renewal—their job is to outsell the churn.

From the advertiser’s perspective, Google advertising does not work.

The advertiser might not realize it was the agency who messed up, and not the ad campaign. In cases like this, Google might never receive dollars from that advertiser again.

This change in Google’s terms of service will force transparency, offering insights into their ad spends that many advertisers have seen. No longer will they think Google AdWords does not work—they will see that only 30% of the money is being spent on Google and realize the agency is keeping most of their dollars.

From Google’s perspective, this means those “failed” accounts will no longer blame Google—they will blame the agency. And when the advertisers fire the agency, they may be more likely to try AdWords again as opposed to thinking AdWords does not work.

This second chance will increase Google’s revenues, and keep businesses advertising with Google. If someone switches agencies, but keeps advertising, Google still keeps the ad dollars; they just flow through another party. This is a huge win for Google.

Will this change hurt the aggregators?

Yes. In some cases a lot.

Consider a very sophisticated aggregator that could take the above $300 in ad spend and generate 30 phone calls. If the accountant closes one in five leads, they received six new clients. If each client pays them an average of $1000 per year, that accountant spent $1000 and made $6000. The accountant is a happy client and the aggregator made $8400 per year on that single account. That’s good math for everyone.

That same aggregator might now have to spend more of the ad dollars just to be competitive from a sales perspective. They might buy less relevant keywords to spend the ad dollars. In fact, they might spend $500 and generate 30 qualified phone calls and 10 unqualified ones. That $200 of extra ad spend went to Google, but is lost money from an aggregator who works on slim margins (remember: aggregators have to pay a sales force, sales managers, analysts, analyst team leads, API developers, etc to run tens of thousands of accounts), and did not have any meaningful impact on the advertiser’s revenue.

The competition between aggregators is usually the positioning of the products through the sales force and the number of leads generated. Rarely was the competition about margins.

Now it will be.

What remains to be seen is whether this will cause a downward spiral. If margins decrease, then the pay decreases, less talented people will be hired, and eventually this effect can cause a decline in performance. While this is the worst-case scenario, the accountant might see that $700 is being spent on Google but volume of phone calls is not changing. That could easily reflect that Google’s traffic is not converting and the agency is not at fault.

Are aggregators evil? Or is Google forcing unnecessary change?

Other good questions.

When I worked for an aggregator, I much preferred to have the conversation with advertisers stay focused on phone calls and revenue generation. Trying to educate small businesses about the content network, why you should not buy a single keyword, broad matching strategies or what is a good CTR was often a waste of time. Talking about the ins-and-outs of AdWords caused the sales force to sell less and the customer support demands go up trying to explain sometimes arcane search advertising concepts to a small business instead of focusing on what was really needed for everyone’s success: selling and marketing.

Have you ever asked a Yellow Pages rep how their categories are created or how much it they make from your ad? Probably not. Yet Google is now requiring aggregators to have these conversations about how Google itself works.

When I put on my other hat as someone who has run agencies that have full transparency to clients, I prefer the new terms that force transparency. Trying to sell to a customer that believes paid search does not work because they had a bad agency is difficult. When the advertiser blames the advertising method (i.e. paid search) and not the agency for the failure of their accounts, they are more resistant to experimenting and having a productive relationship with the agency.

In both of these scenarios, there is no “best way.”

There is a best for an aggregator—lack of ad spend transparency and focus on conversions.

There is a best for Google—show businesses how much traffic and spend is generated through Google. Try to keep businesses advertising with Google even if they leave their agency.

However, the “best” method will always be one where one where businesses generate qualified leads from their ad spend and continue to grow their profits, regardless of so-called “transparency” or how dollars are ultimately spent. If the advertiser wins, everyone wins.

Opinions expressed in this article are those of the guest author and not necessarily Search Engine Land. Staff authors are listed here.

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