Adwords is an unreliable source of traffic to base your business on

[Clinton]

News on the street is that a lot of Adwords advertisers are upset at Google's latest display of autocracy.

Stories here and here.

Respectable Adwords' advertisers want to play by the rules, but it seems the rules aren't clear and Google nukes them even if they follow the rules to the letter. No explanation, no appeals process.

It’s not about the product. It’s about the idea of “BRIDGE” page or what they are deeming a bridge page. If you are selling your products on Clickbank… then under this guide, you are using a BRIDGE page which Google will suspend you for. If you use PayPal… then you are using a BRIDGE page which Google will suspend you for. If you are using Google Checkout… then you are using a BRIDGE page which Google will suspend you for.
Do you see how crazy this is?

Not that long ago there were previous waves [1 | 2] of banning at Adwords

I've argued elsewhere that sites too dependent on SERPS for their traffic are very high risk even when they are high quality sites with solid SEO behind them. Is reliance on Adwords - the central plank for many affiliate, ecommerce and multi-million dollar businesses - an even higher risk than relying on SERPS?

When buying sites should we adjust our multiples downwards for any site that gets more than a tiny percentage of traffic from Adwords?

[JJMcClure]

"Respectable Adwords' advertisers" and he's talking about a Clickbank affiliate, lol!

Again, this is very simple to understand. Google rely on their users coming back. Their users won't keep coming back if they have bad experiences with Adwords, like not seeing what they expected to see when they click on an Ad. Google have their own set of guidelines (they own the Adwords PPC engine so they can make the rules up as they see fit) constituting what they see as a good user experience, either obey it or you're history. Fair enough right? Frankly that email that was supposed to be from a Google employee looked very dodgy to me, I can't imagine a Google employee saying something as dumb as "or have these sites removed from the internet" because as powerful as Google are, they don't own the internet, just their index.

As for the 80/20, that also makes perfect sense. Small budget dodgy advertisers like the type that make up the majority of Clickbank affiliates are much more likely to contravene guidelines than a big budget, credible, main stream names (and when they don't toe the line, like BMW didn't, they pay the same price as anyone else) so sure, more clickbank affiliates get their accounts suspended than high street names do, it makes statistical sense since big names make up a much smaller percentage of advertisers as well as it being logically mroe likely to happen.

AND... we have the fact that Eric Schmidtt thinks that branding will clear up the cesspit of the internet so they might actually be favouring big brand names because before anyhing else, they need Google to be useful, and a SERP made up of big names with a smattering of local pages is much more useful than a SERP full of irrelevant spam.

If you don't like Adwords don't use it, but you're leaving money on the table.

[Clinton]

So the multiple you'd pay for a site wouldn't be affected by what percentage of traffic it's getting from Adwords? Fair enough.

(Maybe I should have set this thread up as a poll)

[JJMcClure]

So the multiple you'd pay for a site wouldn't be affected by what percentage of traffic it's getting from Adwords? Fair enough.

How would you know what percentage you're getting? The stats Google release aren't useful as anything more than a rough guide and anyone else is just guessing. Plus, the behaviour of PPC traffic is predictable, people serious about spending money work down the list which is why I always target spots 3-6, less traffic but a better conversion rate so a better ROI. I only advise people to pay enough to get the number one spot if their goal is to increase their branding, not to make cost effective sales. I know I'm getting a smaller percentage but I'm doing it on purpose.

[Clinton]

Huh?

I'm talking about what percentage of the site's traffic comes from Google PPC. If the site gets 100% of its traffic from Adwords then all it takes is one silly mistake somewhere or a misinterpretation of the terms, or a screwup by a Google employee - which seems to have happened a lot - and your whole business gets nuked. I wouldn't buy a site that was 100% reliant on Google PPC. Even if 25% of the profit was reliant on Adwords, I'd probably only count about half of the net profits directly attributable to this source when applying the usual multiple I would have used.

So take a site earning $10,000 a year not reliant on Adwords. Assume I'd pay 10x for it.

Now consider that $2,500 of the earnings would vanish if the Adwords account was closed. I'd work the site's profit out to $8,750 if I were going to apply the 10x formula. Or take profit at $10,000 but reduce the multiple. Either way I'd compensate for the element of risk in the Adwords model.

[Andy]

Clinton,

I don't know if a formula could be developed but I would certainly devalue a website if it depended on adwords for income. Then again, maybe a formula can be worked out. I'd start with the amount of traffic sent by adwords as a percentage. I would also want to know the conversion rate of that traffic as compared to other sources.

So if 50% of my traffic came from adwords and that traffic had a 2% conversion rate while the other 50% was from search with a 1% cr - first I'd calculate gross profit from adwords:

If I sell a $10 product and I get 1000 visitors a month then 500 (adwords) X 2% X $10= $100 Lets say my adwords cost for those visitors is $0.05 per click or $25 for a gross revenue of $75

My other 500 visitors converts at 1% so 500x1%X$10= $50 gross income.

So my total gross income is $125 but 60% of this or $75 is from adwords. Thus I'd devalue the selling price by up to 60% on the premise that adwords could change their game at any moment. The revenue might be nice while it lasts but Google can and does change the game seemingly at whim. Even if they do not change the game entirely, any single ruling could dramatically change my gross. If cpc suddenly went up to $0.10 per click - then my gross income from adwords drops to 50% or $50. If the cpc jumped to $0.20, I'd better have a whopper of a backend product because now I'm breaking even on adwords. From my experience, this kind of thing does happen so it's not just some scare tactic.

Andy