By the Numbers (April 2009)

by Howard Hoffman

In a previous column I discussed the decline in revenue from parking pages. In this installment, we will look at some of the reasons that Revenue Per Click (RPC) has declined.

At DOMAINfest Global in January, Google representative Hal Bailey blamed the decline in RPC on Google-supplied parking pages on the decline in the world economy. Certainly, there is some truth to that, at least over the last 12 months or so. As companies see their business contract, they reduce their advertising, including their online advertising. As companies go out of business all together, they cease all advertising. Fewer advertisers competing for clicks means that they will be paying less for those clicks. On the other hand, my results indicate that RPC started to decline well before the current recession even started.

Google and Yahoo have both figured out ways to keep a larger share of the revenue. As an early advertiser on Yahoo PPC (back in 2000 when it was an independent company called GoTo.com), I am rather familiar with the purchasing side of Pay Per Click. Last year, Yahoo revamped their advertiser interface and offered me a one-on-one session with one of their support staff. In the old days, if I wanted to bid on a term, say “Las Vegas Hotel”, I would bid a specific number, say $1.00. Today, it is possible for a Yahoo advertiser to bid one amount for “Search” pages and a different amount for “Content” pages. As an advertiser, I recently was encouraged to bid lower for the content pages. So, I might only bid $.50 for the term “Las Vegas Hotel” on content pages. On search pages, Yahoo (and Google) collects 100% of the revenue, since they own the page. On content pages, Yahoo has to share the revenue with the parking provider and the domain owner, typically keeping on the order of 35% of the revenue (the actual percentage is kept confidential from the general public, including domain owners).

Most PPC advertisers set a daily maximum and/or a weekly maximum and/or a monthly maximum for their online ads. So, if Yahoo can shift a larger percentage of the revenue pie to Search, then they keep a larger percentage of the advertising revenue. Clearly, as a domain owner, I would rather get a percentage of $1.00 clicks rather than the same percentage of $.50 clicks. It is clear that the RPC has declined sharply at parking providers fed by Google as well as Yahoo.

Getting advertisers to bid less for Content Page clicks solves another important issue for Yahoo and Google: Click Fraud. A significant amount of click fraud is caused by unscrupulous parking page (and other content page) owners clicking on ads on their own pages or by incentivizing others to click. If an advertiser is now paying half price for a content click, even if 10% or even 20% of the clicks are fraudulent, then they are still paying less per honest click.

Another factor which probably has helped the decline in RPC is the huge increase in the number of parking pages. With a greater supply of parking pages, all other things being equal, one would expect that RPC should decline. Today, in addition to many of the large (and even small) domain portfolios being devoted to parking pages, the registrars, who used to put up “Under Construction” pages for new domains, are now in on the parking game. A company like GoDaddy has to be generating many millions of dollars each year from the ads on the newly registered domains owned by their customers. Given the thin margins available to registrars on most registrations, new registration parking has become a very significant revenue stream.

As more advertisers discover the benefits of online PPC advertising, and as the economy improves, we might expect to see RPC bottom out and, hopefully, start going back up again. However, I am not going to be overly optimistic. Like many other domain owners, I am looking at other ways to increase my domain revenue, and will discuss some of these in future issues.

In my next column I will discuss trends in different sectors within domain parking.
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Howard Hoffman has a BS in Civil Engineering from MIT and a MS in Environmental Engineering from Stanford University. He is a serious investor in domains. Based on his early experience as a PPC advertiser, he embraced the income side of PPC and was an early user of domain parking services. He shares some of his recoomendations at PPCIncome.com. Look for in-depth exploration of the domain monetization numbers in future issues.